________________________________________________________________________________
THE BROWN CAPITAL
MANAGEMENT FUNDS
________________________________________________________________________________
Series of The Nottingham Investment Trust II
ANNUAL REPORT 1999
FOR THE YEAR ENDED MARCH 31
INVESTMENT ADVISOR
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
410-837-3234
THE BROWN CAPITAL MANAGEMENT FUNDS
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
May 21, 1999
Dear Shareholder,
"It was the best of times, it was the worst of times, it was the age of wisdom,
it was the age of foolishness...". Given the market's exceptional behavior in
the months since our last correspondence, the infamous words of Charles Dickens
seem most appropriate. The economic landscape suggests "the best of times" will
continue, potentially resulting in another record year for the financial
markets. Fueled by low inflation and interest rates, GDP growth near 4%, and an
unusual degree of fiscal and monetary policy, the broad market seems poised for
its fifth straight year of attractive returns versus alternatives.
Conversely, for managers who invest in non-"super" capitalization stocks, it may
feel like "the worst of times". In 1998, less than 10% of the companies in the
S&P 500 were responsible for over 75% of the index's gain. Valuations remain at
historical highs and many managers are perplexed by the thought of buying stocks
in companies that seemingly lack the wherewithal to meet such demanding
fundamental expectations. Many of these securities continue to deliver superior
performance resulting in lesser interest in other asset classes. For example,
small and medium capitalization mutual funds have experienced significant cash
outflows in recent years due to the significant outperformance of large company
stocks.
Since superior performance is prevalent in such a narrow band of securities,
some managers are pressured to sacrifice their stated investment discipline to
achieve near term results. After all, the lion share of mutual fund managers did
not outpace the S&P 500 last year. Those who did were handsomely rewarded with
sizeable inflows of investor cash. Despite that fact, Brown Capital remains
committed to unearthing attractive securities that, through our own fundamental
analysis, are not overvalued. Long-time Brown Capital investors are not
surprised that we remain true to our investment approach.
Investment Philosophy
Many years may pass before we know if this was "the age of wisdom...[or]
foolishness", but Brown Capital Management (BCM) remains committed to its GARP
(Growth at a Reasonable Price) philosophy. This means, we seek companies with
revenues and earnings growth much greater than earnings growth of the relevant
performance benchmark, and are very conscious of the price we pay for that
growth. We believe that our proprietary valuation methodology distinguishes us
from most growth managers since we key our buy and sell decisions off the five
year Treasury Bond (our "risk free" rate). Based on this "riskless asset",
appropriate risk premiums are assigned to individual securities. Thus,
overvaluation, fair valuation or undervaluation, is not absolute, rather a
function of interest rates. As we identify companies with sound skillful
management and attractive growth prospects, we overlay our valuation model,
before making a decision that impacts the portfolio and you as a shareholder. We
believe this thoughtful and disciplined process keeps us out of trouble and
produces above average investment returns over the longer term.
<PAGE>
Portfolio Highlights
Balanced and Equity Funds
Since the equity portion of the Balanced Fund is very similar to the BCM Equity
Fund, we combine our comments about these portfolios.
The BCM Equity Fund was one of a hand full of stock funds to outpace the S&P 500
in 1998 delivering a return of 29.2% versus the Index's 28.6%. Superior returns
were the result of both sector allocation and stock selection throughout the
portfolio. Although our weightings in Technology, Financials, Consumer Cyclicals
and Health Care were beneficiaries of an increasingly computer savvy and aging
population that seems to be investing diligently for retirement, there were few
common themes that drove the success of your portfolio in 1998. Home Depot and
Cardinal Health, continue to build and maintain highly defensible market
positions while managing to deliver the right product, service and price to a
growing customer base. Greentree Financial was acquired at an impressive premium
due to the attractiveness of their business franchise. The fact that individual
securities are ultimately credited with the success of your portfolio in 1998
should reaffirm your selection of BCM as a fundamental manager that builds
portfolios one security at a time. Since performance of stocks in the first
quarter of 1999 favored only the largest companies in the index, your portfolio
experienced temporary underperformance. We remain confident that strong
franchises, like SLM Holdings Corp. (Sallie Mae) and HCR Manor Care will rebound
due to favorable fundamental growth in their business that will, over time,
benefit your fund.
Small Company Fund
Your BCM Small Company Fund outperformed the Russell 2000 Growth Index by over
17 percentage points for the year ending December 31, 1998. The fund returned
18.6% versus 1.2% for the Russell 2000 Growth Index. Outperformance can be
attributed to security selection across all sectors. BMC Software, Dendrite
International Inc., and Concord Communications Inc., all long-term holdings,
performed exceptionally well. Importantly, we were able to achieve this
performance without investing in Internet companies or initial public offerings,
which was particularly noteworthy given the strong relative and absolute
performance of these two areas. We remain committed to investing in those
relatively few small companies that we deem exceptional, and believe will grow
to be exceptional larger companies. Small Company securities convincingly
underperformed large company securities in 1998 and continued the trend in 1999.
While we underperformed the index in the first quarter, we remain confident that
small company stocks with a superior product, service or market position, with
durable earnings, will succeed. For example, ABR Information Services, a company
that provides outsourced benefits administration (including COBRA compliance)
human resource and payroll services to Fortune 1000 companies, was viewed
unfavorably by investors during last year as well as the first quarter. We think
ABR is ideally positioned and will continue to benefit from the trend of
companies outsourcing these services. This underperformance is a short-term
occurrence, in our opinion, and we remain committed to the long-term potential
of securities like these in your portfolio.
<PAGE>
Summary
In short, we maintain the courage of our convictions. Short-term volatility and
returns in an increasingly narrow band of securities seem to be prevalent, Brown
Capital is well positioned to capitalize on the growth of superior companies
that will contribute to the performance of your mutual funds.
Consistent with this objective, we will soon introduce our International Equity
Fund that invests primarily in equity securities of non-U.S. based companies. We
are excited by this addition to our complex and trust it provides you a better
means of diversifying your portfolio. Thank you for investing in the Brown
Capital Management Family of Funds.
Sincerely,
/s/ Eddie C. Brown
Eddie C. Brown
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
Performance Update - $10,000 Investment
For the period from September 30, 1992 to March 31, 1999
[GRAPH]
BCM S&P 500
Equity w/Income
9/30/92 10000 10000
12/31/92 11063 10504
3/31/93 11122 10962
6/30/93 10962 11016
9/30/93 11427 11300
12/31/93 11817 11562
3/31/94 11623 11124
6/30/94 11445 11171
9/30/94 11972 11717
12/31/94 11727 11715
3/31/95 12657 12855
6/30/95 13988 14083
9/30/95 15374 15202
12/31/95 15485 16117
3/31/96 16486 16982
6/30/96 17018 17744
9/30/96 17591 18293
12/31/96 18433 19818
3/31/97 17955 20349
6/30/97 20615 23901
9/30/97 22658 25692
12/31/97 22608 26429
3/31/98 25978 30116
6/30/98 26988 31111
9/30/98 23056 28016
12/31/98 29198 33983
3/31/99 28404 35676
This graph depicts the performance of The Brown Capital Management Equity Fund
versus the S&P 500 Total Return 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 is unmanaged. The comparison is shown
for illustrative purposes only.
Average Annual Total Return
- -------------------------------------------------------
Since Inception One Year Five Years
- -------------------------------------------------------
17.42% 9.34% 19.56%
- -------------------------------------------------------
The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
At March 31, 1999, The Brown Capital Management Equity Fund would have grown to
$28,404 - total investment return of 184.04% since September 30, 1992.
At March 31, 1999, a similar investment in the S&P 500 Total Return Index would
have grown to $35,676 - total investment return of 256.76% 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.
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THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 95.12%
Biopharmaceuticals - 1.78%
The Perkin-Elmer Corporation ........................................... 1,800 $ 174,712
----------
Building Materials - 2.14%
Illinois Tool Works Inc. ............................................... 3,400 210,375
----------
Computers - 7.61%
(a)EMC Corporation ........................................................ 2,100 268,275
International Business Machines Corporation ............................ 2,700 478,575
----------
746,850
----------
Computer Software & Services - 13.86%
(a)Acxiom Corporation ..................................................... 7,200 190,800
(a)BMC Software, Inc. ..................................................... 6,900 255,731
(a)Fiserv, Inc. ........................................................... 2,600 139,425
(a)Microsoft Corporation .................................................. 3,400 304,725
(a)Sterling Commerce, Inc. ................................................ 9,672 297,414
(a)Sterling Software, Inc. ................................................ 7,300 173,375
----------
1,361,470
----------
Cosmetics & Personal Care - 2.00%
The Gillette Company ................................................... 3,300 196,144
----------
Educational Services - 1.62%
(a)Sylvan Learning Systems, Inc. .......................................... 5,800 158,775
----------
Electronics - 4.78%
General Electric Company ............................................... 2,400 265,500
(a)Solectron Corporation .................................................. 4,200 203,962
----------
469,462
----------
Entertainment - 3.27%
Carnival Corporation ................................................... 6,620 321,484
----------
Financial - Banks, Money Center - 3.51%
Citigroup Inc. ......................................................... 2,300 146,913
The Chase Manhattan Corporation ........................................ 2,440 198,403
----------
345,316
----------
Financial - Savings/Loans/Thrifts - 2.01%
Mellon Bank Corporation ................................................ 2,800 197,050
----------
Financial - Securities Brokers - 2.93%
SLM Holding Corporation ................................................ 6,900 288,075
----------
(Continued)
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THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial Services - 5.13%
Equifax Inc. ............................................................. 7,050 $242,344
T. Rowe Price Associates, Inc. ........................................... 7,600 261,250
--------
503,594
--------
Hand & Machine Tools - 2.18%
Danaher Corporation ...................................................... 4,100 214,225
--------
Household Products & Housewares - 3.65%
Newell Co. ............................................................... 7,550 358,625
--------
Insurance - Life & Health - 2.29%
AFLAC Incorporated ....................................................... 4,124 224,500
--------
Leisure Time - 2.51%
Harley-Davidson, Inc. .................................................... 4,300 246,713
--------
Medical - Biotechnology - 5.26%
Covance Inc. ............................................................. 7,800 195,488
Merck & Co., Inc. ........................................................ 4,000 320,500
--------
515,988
--------
Medical - Hospital Management & Services - 1.72%
Guidant Corporation ...................................................... 2,800 169,400
--------
Medical Supplies - 3.05%
Johnson & Johnson ........................................................ 3,200 299,800
--------
Oil & Gas - Equipment & Services - 2.14%
Schlumberger Limited ..................................................... 3,500 210,656
--------
Pharmaceuticals - 4.90%
(a)ALZA Corporation ......................................................... 4,200 160,650
Cardinal Health, Inc. .................................................... 4,862 320,892
--------
481,542
--------
Retail - Department Stores - 3.07%
Dollar General Corporation ............................................... 8,863 301,342
--------
Retail - General Merchandise - 2.51%
(a)Staples, Inc. ............................................................ 7,500 246,562
--------
(Continued)
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THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - Specialty - 4.50%
(a)AutoZone, Inc. .......................................................... 3,900 $ 118,462
The Home Depot, Inc. .................................................... 5,200 323,700
-----------
442,162
-----------
Telecommunications - 4.37%
Lucent Technologies Inc. ................................................ 1,800 194,400
(a)Tellabs, Inc. ........................................................... 2,400 234,600
-----------
429,000
-----------
Telecommunications Equipment - 2.33%
(a)ADC Telecommunications, Inc. ............................................ 4,800 228,900
-----------
Total Common Stocks (Cost $6,814,538) ................................... 9,342,722
-----------
INVESTMENT COMPANIES - 5.31%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................ 448,719 448,719
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares .......................... 72,934 72,934
-----------
Total Investment Companies (Cost $521,653) .............................. 521,653
-----------
Total Value of Investments (Cost $7,336,191 (b)) .................................... 100.43 % $ 9,864,375
Liabilities in Excess of Other Assets ............................................... (0.43)% (42,206)
----------- -----------
Net Assets ................................................................... 100.00 % $ 9,822,169
=========== ===========
(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 $ 2,555,255
Unrealized depreciation (27,071)
----------------
Net unrealized appreciation $ 2,528,184
================
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See accompanying notes to financial statements
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THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Cash ............................................................................................ $ 1,193
Investments, at value (cost $7,336,191) ......................................................... 9,864,375
Income receivable ............................................................................... 5,718
Receivable for investments sold ................................................................. 941,771
Due from advisor (note 2) ....................................................................... 292
-----------
Total assets ............................................................................... 10,813,349
-----------
LIABILITIES
Accrued expenses ................................................................................ 8,485
Payable for investment purchases ................................................................ 982,695
-----------
Total liabilities .......................................................................... 991,180
-----------
NET ASSETS
(applicable to 422,602 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ......................................... $ 9,822,169
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($9,822,169 / 422,602 shares) ................................................................... $ 23.24
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $ 7,040,715
Accumulated net realized gain on investments .................................................... 253,270
Net unrealized appreciation on investments ...................................................... 2,528,184
-----------
$ 9,822,169
===========
See accompanying notes to financial statements
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THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1999
INVESTMENT LOSS
Income
Dividends ..................................................................................... $ 68,207
---------
Expenses
Investment advisory fees (note 2) ............................................................. 54,582
Fund administration fees (note 2) ............................................................. 17,853
Custody fees .................................................................................. 4,544
Registration and filing administration fees (note 2) .......................................... 4,507
Fund accounting fees (note 2) ................................................................. 22,500
Audit fees .................................................................................... 9,550
Legal fees .................................................................................... 15,352
Securities pricing fees ....................................................................... 3,080
Shareholder recordkeeping fees ................................................................ 5,075
Other accounting fees ......................................................................... 4,164
Shareholder servicing expenses ................................................................ 3,378
Registration and filing expenses .............................................................. 5,539
Printing expenses ............................................................................. 2,197
Trustee fees and meeting expenses ............................................................. 3,699
Other operating expenses ...................................................................... 1,717
---------
Total expenses .......................................................................... 157,737
---------
Less:
Expense reimbursements (note 2) .................................................... (5,117)
Investment advisory fees waived (note 2) ........................................... (51,828)
---------
Net expenses ............................................................................ 100,792
---------
Net investment loss ................................................................ (32,585)
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 528,673
Increase in unrealized appreciation on investments ................................................. 343,908
---------
Net realized and unrealized gain on investments ............................................... 872,581
---------
Net increase in net assets resulting from operations .................................... $ 839,996
=========
See accompanying notes to financial statements
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THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year ended Year ended
March 31, March 31,
1999 1998
----------- -----------
INCREASE IN NET ASSETS
Operations
Net investment loss ....................................................................... $ (32,585) $ (10,254)
Net realized gain from investment transactions ............................................ 528,673 603,519
Increase in unrealized appreciation on investments ........................................ 343,908 1,740,209
----------- -----------
Net--oincrease in net assets resulting from operations ............................... 839,996 2,333,474
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions ............................................ (261,668) (660,547)
Distributions in excess of net realized gains ............................................. 0 (13,735)
----------- -----------
Decrease in net assets resulting from distributions .................................. (261,668) (674,282)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ...................... 1,094,071 2,085,558
----------- -----------
Total increase in net assets .................................................... 1,672,399 3,744,750
NET ASSETS
Beginning of year ............................................................................. 8,149,770 4,405,020
----------- -----------
End of year ................................................................................... $ 9,822,169 $ 8,149,770
=========== ===========
(a) A summary of capital share activity follows:
Year ended Year ended
March 31, 1999 March 31, 1998
Shares Value Shares Value
----------- ----------- ----------- -----------
Shares sold .......................................................... 83,530 $ 1,844,436 120,211 $ 2,302,970
Shares issued for reinvestment
of distributions ................................................ 11,017 259,788 31,855 669,689
----------- ----------- ----------- -----------
94,547 2,104,224 152,066 2,972,659
Shares redeemed ...................................................... (44,515) (1,010,153) (44,640) (887,101)
----------- ----------- ----------- -----------
Net increase .................................................... 50,032 $ 1,094,071 107,426 $ 2,085,558
=========== =========== =========== ===========
See accompanying notes to financial statements
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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,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of year ........................ $ 21.87 $ 16.61 $ 15.81 $ 12.36 $ 11.48
Income from investment operations
Net investment (loss) income ................... (0.08) (0.03) 0.05 0.00 0.00
Net realized and unrealized gain on investments 2.12 7.31 1.36 3.72 1.01
----------- ----------- ----------- ----------- -----------
Total from investment operations .......... 2.04 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 . (0.69) (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 ....................... (0.69) (2.02) (0.61) (0.27) (0.13)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year .............................. $ 23.22 $ 21.87 $ 16.61 $ 15.81 $ 12.36
=========== =========== =========== =========== ===========
Total return .............................................. 9.34 % 44.68 % 8.91 % 30.25 % 8.90 %
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year ............................. $ 9,822,169 $ 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 ........ 1.88 % 1.98 % 3.37 % 5.58 % 8.32 %
After expense reimbursements and waived fees ......... 1.20 % 1.20 % 1.20 % 1.56 % 2.00 %
Ratio of net investment (loss) income to
average net assets
Before expense reimbursements and waived fees ........ (1.07)% (0.94)% (1.85)% (4.20)% (6.41)%
After expense reimbursements and waived fees ......... (0.39)% (0.16)% 0.32 % 0.01 % (0.11)%
Portfolio turnover rate ................................... 67.43 % 38.42 % 34.21 % 48.06 % 7.29 %
See accompanying notes to financial statements
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<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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.
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.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 $51,828
($0.12 per share) and has voluntarily agreed to reimburse $5,117 of the
Fund's operating expenses for the period ended March 31, 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 of average daily net assets, 0.125% of the next $50 million of
average daily net assets, and 0.10% of average daily net assets over $150
million. Prior to October 1, 1998, the Administrator received 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 $2,000 for accounting and recordkeeping services. Prior to
October 1, 1998, the fee for accounting and recordkeeping services was
$1,750. 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. Prior to October 1, 1998,
the minimum monthly aggregate fee was $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") serves as the Funds'
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.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $6,335,716 and $5,462,513, respectively, for the year ended
March 31, 1999.
NOTE 4 - 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 amount of $0.69 per share
distributions for the year ended March 31, 1999, was classified as
long-term gain. Shareholders should consult a tax advisor on how to report
distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees 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 of The
Brown Capital Management Equity Fund (the "Fund"), including the portfolio of
investments, as of March 31, 1999, and the related statement of operations for
the year then ended, the statements of changes in net assets for the years ended
March 31, 1999 and 1998, and financial highlights for each of the years
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, 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brown Capital Management Equity Fund as of March 31, 1999, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the respective stated years in conformity with
generally accepted accounting principles.
/S/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 23, 1999
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
Performance Update - $10,000 Investment
For the period from September 30, 1992 to March 31, 1999
[GRAPH]
BCM 75% S&P/
Balanced 25% Lehman
- --------------------------------------
9/30/92 10000 10000
12/31/92 10579 10380
3/31/93 10774 10840
6/30/93 10779 10959
9/30/93 11208 11262
12/31/93 11611 11450
3/31/94 11297 11034
6/30/94 11168 11036
9/30/94 11644 11459
12/31/94 11468 11467
3/31/95 12195 12456
6/30/95 13417 13559
9/30/95 14593 14456
12/31/95 14880 15285
3/31/96 15493 15859
6/30/96 15887 16445
9/30/96 16339 16912
12/31/96 16938 18159
3/31/97 16579 18529
6/30/97 18557 21312
9/30/97 20114 22773
12/31/97 20136 23439
3/31/98 22582 26259
6/30/98 23352 27101
9/30/98 20940 24966
12/31/98 25050 29446
3/31/99 24611 30669
This graph depicts the performance of The Brown Capital Management Balanced Fund
versus a combined index of 75% S&P 500 Total Return 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
- -------------------------------------------------------
14.86% 8.99% 16.84%
- -------------------------------------------------------
The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
At March 31, 1999, The Brown Capital Management Balanced Fund would have grown
to $24,611 - total investment return of 146.11% since September 30, 1992.
At March 31, 1999, a similar investment in a combined index of 75% S&P 500 Total
Return Index and 25% Lehman Government/Corporate Bond Index would have grown to
$30,669 - total investment return of 206.69% 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>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 71.80%
Biopharmaceuticals - 1.36%
The Perkin-Elmer Corporation ............................................ 1,350 $ 131,034
----------
Commercial Services - 3.03%
Equifax Inc. ............................................................ 5,125 176,172
(a)Sylvan Learning Systems, Inc. ........................................... 4,200 114,975
----------
291,147
----------
Computers - 5.76%
(a)EMC Corporation ......................................................... 1,625 207,594
International Business Machines Corporation ............................. 1,950 345,637
----------
553,231
----------
Computer Software & Services - 10.72%
(a)Acxiom Corporation ...................................................... 5,750 152,375
(a)BMC Software, Inc. ...................................................... 5,050 187,166
(a)Fiserv, Inc. ............................................................ 1,612 86,444
(a)Microsoft Corporation ................................................... 2,700 241,987
(a)Sterling Commerce, Inc. ................................................. 7,163 220,262
(a)Sterling Software, Inc. ................................................. 5,950 141,313
----------
1,029,547
----------
Cosmetics & Personal Care - 1.45%
The Gillette Company .................................................... 2,350 139,678
----------
Electronics - 3.64%
General Electric Company ................................................ 1,780 196,912
(a)Solectron Corporation ................................................... 3,150 152,972
----------
349,884
----------
Entertainment - 2.64%
Carnival Corporation .................................................... 5,225 253,739
----------
Financial Services - 4.31%
SLM Holding Corporation ................................................. 4,750 198,313
T. Rowe Price Associates, Inc. .......................................... 6,275 215,703
----------
414,016
----------
Financial - Banks, Money Center .............................................. - 4.10
Citigroup Inc. .......................................................... 1,700 108,588
Mellon Bank Corporation ................................................. 2,000 140,750
The Chase Manhattan Corporation ......................................... 1,772 144,086
----------
393,424
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Hand & Machine Tools - 1.61%
Danaher Corporation .................................................. 2,950 $154,137
--------
Household Products & Housewares - 2.63%
Newell Rubbermaid Inc. ............................................... 5,325 252,938
--------
Insurance - Life & Health - 1.69%
AFLAC Incorporated ................................................... 2,985 162,496
--------
Leisure Time - 1.90%
Harley-Davidson, Inc. ................................................ 3,175 182,166
--------
Manufacturing - 1.68%
Illinois Tool Works, Inc. ............................................ 2,600 160,875
--------
Medical Supplies - 3.80%
Guidant Corporation .................................................. 2,000 121,000
Johnson & Johnson .................................................... 2,600 243,587
--------
364,587
--------
Oil & Gas - Equipment & Services - 1.60%
Schlumberger Limited ................................................. 2,550 153,478
--------
Pharmaceuticals - 7.48%
(a)ALZA Corporation ..................................................... 3,300 126,225
Cardinal Health, Inc. ................................................ 3,562 235,092
(a)Covance Inc. ......................................................... 5,600 140,350
Merck & Co., Inc. .................................................... 2,700 216,338
--------
718,005
--------
Restaurants & Food Service - 0.25%
CBRL Group, Inc. ..................................................... 1,335 24,030
--------
Retail - Department Stores - 2.15%
Dollar General Corporation ........................................... 6,072 206,448
--------
Retail - General Merchandise - 1.67%
Staples, Inc. ........................................................ 4,875 160,266
--------
Retail - Specialty Line - 3.58%
(a)AutoZone, Inc. ....................................................... 2,900 88,087
The Home Depot, Inc. ................................................. 4,100 255,225
--------
343,312
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Telecommunications Equipment - 4.75%
(a)ADC Telecommunications, Inc. ........................................... 3,450 $ 164,522
Lucent Technologies Inc. ............................................... 1,300 140,400
(a)Tellabs, Inc. .......................................................... 1,550 151,512
---------
456,434
---------
Total Common Stocks (Cost $5,207,798) .................................. 6,894,872
---------
Interest Maturity
Principal Rate Date
--------- ------- ---------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 4.39%
United States Treasury Note ............................................... $ 20,000 6.250% 08/15/23 20,912
United States Treasury Note ............................................... 70,000 6.375% 07/15/99 70,347
United States Treasury Note ............................................... 90,000 6.375% 08/15/02 93,375
United States Treasury Note ............................................... 100,000 7.500% 02/15/05 110,969
United States Treasury Note ............................................... 100,000 7.750% 01/31/00 102,344
Federal Home Loan Bank .................................................... 100,000 0.000% 07/14/17 24,371
--------
Total U.S. Government and Agency Obligations (Cost $407,567) ......... 422,318
--------
CORPORATE OBLIGATIONS - 9.77%
Alabama Power Company ..................................................... $ 35,000 7.750% 02/01/23 36,309
AT&T Corporation .......................................................... 75,000 5.625% 03/15/04 74,475
Boston Edison Company ..................................................... 40,000 7.800% 05/15/10 44,320
Chase Manhattan Corporation ............................................... 30,000 6.500% 08/01/05 30,450
Chesapeake & Potomac Telephone of Virginia ................................ 75,000 7.250% 06/01/12 75,938
Citicorp .................................................................. 15,000 7.125% 06/01/03 15,609
Dow Chemical Capital Debentures ........................................... 15,000 9.200% 06/01/10 17,949
Ford Motor Credit Corporation ............................................. 40,000 7.250% 09/01/10 40,658
ITT Corporation ........................................................... 80,000 7.375% 11/15/15 66,676
Merrill Lynch ............................................................. 125,000 7.150% 07/30/12 127,695
Monsanto Company .......................................................... 70,000 6.210% 02/05/08 69,980
Nalco Chemical ............................................................ 50,000 6.250% 05/15/08 50,170
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - (Continued)
Nationsbank Corporation ................................................... $ 15,000 6.875% 02/15/05 $ 15,530
RJR Nabisco, Corp. ........................................................ 20,000 8.750% 04/15/04 21,200
The Rouse Company ......................................................... 25,000 8.500% 01/15/03 26,698
The Walt Disney Company ................................................... 80,000 7.750% 09/30/11 80,700
Time Warner, Inc. ......................................................... 20,000 9.150% 02/01/23 24,850
U. S. F. & G. Corporation ................................................. 60,000 7.125% 06/01/05 62,807
Wal-Mart Stores ........................................................... 50,000 8.070% 12/21/12 56,063
--------
Total Corporate Obligations (Cost $930,722) ................................ 938,077
Shares
------------
INVESTMENT COMPANIES - 8.97%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares .................................. 430,602 430,602
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Shares .................................... 430,603 430,603
----------
Total Investment Companies (Cost $861,205) ................................ 861,205
----------
Total Value of Investments (Cost $7,407,292 (b)) ...................................... 94.93% $9,116,472
Other Assets Less Liabilities ......................................................... 5.07% 486,432
---------- ----------
Net Assets ..................................................................... 100.00% $9,602,904
========== ==========
(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 ..................................................... $ 1,738,266
Unrealized depreciation ..................................................... (29,086)
-----------
Net unrealized appreciation ........................................ $ 1,709,180
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Investments, at value (cost $7,407,292) .......................................................... $ 9,116,472
Cash ............................................................................................. 553,670
Income receivable ................................................................................ 26,154
Receivable for investments sold .................................................................. 647,381
Due from advisor (note 2) ........................................................................ 1,577
-----------
Total assets ................................................................................ 10,345,254
-----------
LIABILITIES
Accrued expenses ................................................................................. 8,258
Payable for investment purchases ................................................................. 734,092
-----------
Total liabilities ........................................................................... 742,350
-----------
NET ASSETS
(applicable to 540,211 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ......................................... $ 9,602,904
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($9,602,904 / 540,211 shares) .................................................................... $ 17.78
===========
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $ 7,699,029
Undistributed net investment income .............................................................. 13
Accumulated net realized gain on investments ..................................................... 194,682
Net unrealized appreciation on investments ....................................................... 1,709,180
-----------
$ 9,602,904
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1999
INVESTMENT INCOME
Income
Interest ...................................................................................... $ 72,026
Dividends ..................................................................................... 60,726
---------
Total Income ............................................................................ 132,752
---------
Expenses
Investment advisory fees (note 2) ............................................................. 44,418
Fund administration fees (note 2) ............................................................. 14,528
Custody fees .................................................................................. 4,148
Registration and filing administration fees (note 2) .......................................... 4,391
Fund accounting fees (note 2) ................................................................. 22,500
Audit fees .................................................................................... 9,550
Legal fees .................................................................................... 15,191
Securities pricing fees ....................................................................... 4,739
Shareholder recordkeeping fees ................................................................ 4,768
Other accounting fees ......................................................................... 5,610
Shareholder servicing expenses ................................................................ 2,254
Registration and filing expenses .............................................................. 5,129
Printing expenses ............................................................................. 1,565
Trustee fees and meeting expenses ............................................................. 3,699
Other operating expenses ...................................................................... 1,656
---------
Total expenses .......................................................................... 144,146
---------
Less:
Expense reimbursements (note 2) .................................................... (17,850)
Investment advisory fees waived (note 2) ........................................... (44,418)
---------
Net expenses ............................................................................ 81,878
---------
Net investment income .............................................................. 50,874
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 338,978
Increase in unrealized appreciation on investments ................................................. 195,131
---------
Net realized and unrealized gain on investments ............................................... 534,109
---------
Net increase in net assets resulting from operations .................................... $ 584,983
=========
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,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income .............................................. $ 50,874 $ 54,147
Net realized gain from investment transactions ..................... 338,978 493,452
Increase in unrealized appreciation on investments ................. 195,131 949,181
----------- -----------
Net increase in net assets resulting from operations ........... 584,983 1,496,780
----------- -----------
Distributions to shareholders from
Net investment income .............................................. (50,801) (54,255)
Distribution in excess of net investment income .................... 0 (60)
Net realized gain from investment transactions ..................... (161,031) (476,740)
----------- -----------
Decrease in net assets resulting from distributions ............ (211,832) (531,055)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) 3,152,016 1,237,359
----------- -----------
Total increase in net assets .............................. 3,525,167 2,203,084
NET ASSETS
Beginning of year ....................................................... 6,077,737 3,874,653
----------- -----------
End of year (including undistributed net investment income of $13 in 1999) $ 9,602,904 $ 6,077,737
=========== ===========
(a) A summary of capital share activity follows:
--------------------------------------------------------------------------------
Year ended Year ended
March 31, 1999 March 31, 1998
Shares Value Shares Value
--------------------------------------------------------------------------------
Shares sold ................................... 220,097 $ 3,825,498 111,277 $ 1,757,479
Shares issued for reinvestment
of distributions ......................... 11,926 210,991 32,554 529,963
----------- ----------- ----------- -----------
232,023 4,036,489 143,831 2,287,442
Shares redeemed ............................... (52,851) (884,473) (67,688) (1,050,083)
----------- ----------- ----------- -----------
Net increase ............................. 179,172 $ 3,152,016 76,143 $ 1,237,359
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <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,
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- -----------
Net asset value, beginning of year ............................... $ 16.83 $ 13.60 $ 13.76 $ 11.56 $ 11.02
Income from investment operations
Net investment income ................................. 0.13 0.17 0.21 0.12 0.10
Net realized and unrealized gain on investments ....... 1.39 4.65 0.76 2.98 0.77
---------- ---------- ---------- ---------- -----------
Total from investment operations .................. 1.52 4.82 0.97 3.10 0.87
---------- ---------- ---------- ---------- -----------
Distributions to shareholders from
Net investment income ................................. (0.13) (0.17) (0.21) (0.12) (0.11)
Net realized gain from investment transactions ........ (0.44) (1.42) (0.92) (0.78) (0.22)
---------- ---------- ---------- ---------- -----------
Total distributions ............................... (0.57) (1.59) (1.13) (0.90) (0.33)
---------- ---------- ---------- ---------- -----------
Net asset value, end of year ..................................... $ 17.78 $ 16.83 $ 13.60 $ 13.76 $ 11.56
========== ========== ========== ========== ===========
Total return ..................................................... 8.99 % 36.19 % 7.01 % 27.04 % 8.04 %
========== ========== ========== ========== ===========
Ratios/supplemental data
Net assets, end of year .................................... $9,602,904 $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 ......... 2.11 % 2.22 % 2.85 % 3.50 % 5.43 %
After expense reimbursements and waived fees .......... 1.20 % 1.20 % 1.20 % 1.59 % 2.00 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees ......... (0.17)% 0.05 % (0.13)% (0.97)% (2.44)%
After expense reimbursements and waived fees .......... 0.74 % 1.08 % 1.51 % 0.94 % 1.00 %
Portfolio turnover rate .................................... 58.38 % 33.54 % 45.58 % 43.59 % 9.51 %
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 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.
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 $44,418
($0.08 per share) and has voluntarily reimbursed $17,850 of the Fund's
operating expenses for the year ended March 31, 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 received 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 for the period April 1, 1998 to September 30, 1998. Beginning
October 1, 1998, 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 of averge daily net assets, 0.125% of the next $50
million of average daily net assets, and 0.10% of average daily net assets
over $150 million. The Administrator also receives a monthly fee of $2,000
for accounting and recordkeeping services. Prior to October 1, 1998, the
fee for accounting and recordkeeping services was $1,750. 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.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $5,754,288 and $3,557,441 respectively, for the year ended March
31, 1999.
NOTE 4 - 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 amount of $0.44 per share
distributions for the year ended March 31, 1999, was classified as long
term gain. Shareholders should consult a tax advisor on how to report
distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees 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 of The
Brown Capital Management Balanced Fund (the "Fund"), including the portfolio of
investments, as of March 31, 1999, and the related statement of operations for
the year then ended, the statements of changes in net assets for the years ended
March 31, 1999 and 1998, and financial highlights for each of the years
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, 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brown Capital Management Balanced Fund as of March 31, 1999, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for the respective stated years in conformity with
generally accepted accounting principles.
/S/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 23, 1999
<PAGE>
THE BROWN CAPITAL MANAGEMENT
SMALL COMPANY FUND
Performance Update - $10,000 Investment
For the period from December 31, 1992 to March 31, 1999
[graph]
BCM Russell NASDAQ
Small Co 2000 Industrials
12/31/92 10000 10000 10000
12/31/92 10000 10000 10000
3/31/93 9877 10371 9843
6/30/93 9855 10558 10063
9/30/93 10325 11445 10761
12/31/93 10574 11700 11116
3/31/94 10311 11340 10746
6/30/94 9680 10872 9852
9/30/94 10307 11589 10724
12/31/94 11077 11328 10398
3/31/95 12066 11816 11079
6/30/95 13037 12882 12251
9/30/95 14266 14164 13607
12/31/95 14839 14453 13391
3/31/96 16048 15188 14244
6/30/96 16706 15968 15450
9/30/96 17098 16020 15429
12/31/96 17374 16838 15474
3/31/97 16299 15973 14214
6/30/97 18742 18550 16536
9/30/97 20860 21300 19239
12/31/97 20116 20577 17101
3/31/98 23119 22695 19090
6/30/98 23306 21658 18719
9/30/98 19841 17275 14492
12/31/98 23816 20112 18336
3/31/99 21670 19020 19513
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
- -------------------------------------------------------
13.17% (6.27)% 16.00%
- -------------------------------------------------------
The graph assumes an initial $10,000 investment at December 31, 1992. All
dividends and distributions are reinvested.
At March 31, 1999, The Brown Capital Management Small Company Fund would have
grown to $21,670 - total investment return of 116.70% since December 31, 1992.
At March 31, 1999, a similar investment in the Russell 2000 Index would have
grown to $19,020 - total investment return of 90.20%; and the NASDAQ Industrials
Index would have grown to $19,513 - total investment return of 95.13%, 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>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 88.93%
Chemicals - 0.81%
(a)Synthetech, Inc. ..................................................... 44,700 $ 195,563
----------
Commercial Services - 1.44%
(a)Healthworld Corporation .............................................. 8,400 113,400
(a)Quintiles Transnational Corp. ........................................ 6,200 234,050
----------
347,450
----------
Computers - 2.24%
(a)RadiSys Corporation .................................................. 17,400 540,488
----------
Computer Software & Services - 39.62%
(a)Acxiom Corporation ................................................... 36,700 972,550
(a)Advent Software, Inc. ................................................ 11,600 580,000
(a)American Software, Inc. .............................................. 150,300 469,688
(a)Best Software, Inc. .................................................. 38,800 523,800
(a)BMC Software, Inc. ................................................... 13,044 483,425
(a)Cerner Corporation ................................................... 20,300 326,069
(a)CFI ProServices, Inc. ................................................ 20,100 243,712
(a)Concord Communications, Inc. ......................................... 4,800 273,600
(a)Datastream Systems, Inc. ............................................. 70,900 611,512
(a)Dendrite International, Inc. ......................................... 20,900 466,331
Fair, Isaac and Company, Incorporated ................................ 20,400 756,075
(a)Hyperion Software Corporation ........................................ 13,710 198,795
(a)infoUSA Inc. Class A ................................................. 8,200 34,850
(a)infoUSA Inc. Class B ................................................. 8,200 36,900
(a)Manugistics Group, Inc. .............................................. 36,900 244,463
(a)Network Associates, Inc. ............................................. 7,287 223,620
(a)QRS Corporation ...................................................... 11,100 694,444
(a)SPSS Inc. ............................................................ 39,400 645,175
(a)Structural Dynamics Research Corporation ............................. 28,600 545,187
(a)The BISYS Group, Inc. ................................................ 15,300 860,625
(a)Tripos, Inc. ......................................................... 39,800 348,250
----------
9,539,071
----------
Electronics - Semiconductor - 1.41%
(a)Medialink Worldwide Incorporated ..................................... 26,900 339,612
----------
Financial Services - 1.49%
T. Rowe Price Associates, Inc. ....................................... 10,400 357,500
----------
Furniture & Home Appliances - 1.08%
Juno Lighting, Inc. .................................................. 11,600 260,275
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Hand & Machine Tools - 1.97%
(a)Flow International Corporation ............................................. 48,100 $ 474,988
----------
Machine - Diversified - 3.11%
(a)Cognex Corporation ......................................................... 31,600 748,525
----------
Medical - Biotechnology - 8.87%
(a)Affymetrix, Inc. ........................................................... 16,200 563,962
(a)BioReliance Corporation .................................................... 25,400 165,100
(a)ChiRex Inc. ................................................................ 31,500 771,750
(a)Human Genome Sciences, Inc. ................................................ 4,100 142,219
(a)Incyte Pharmaceuticals, Inc. ............................................... 9,500 190,594
(a)Pharmacopeia, Inc. ......................................................... 38,600 279,850
(a)Synbiotics Corporation ..................................................... 6,000 21,000
----------
2,134,475
----------
Medical - Hospital Management & Services - 4.39%
(a)ABR Information Services, Inc. ............................................. 60,844 1,057,165
----------
Medical Supplies - 8.74%
Ballard Medical Products ................................................... 7,400 180,375
Diagnostic Products Corporation ............................................ 33,600 814,800
(a)Techne Corporation ......................................................... 38,400 1,108,800
----------
2,103,975
----------
Pharmaceuticals - 5.22%
(a)ALZA Corporation ........................................................... 15,100 577,575
(a)Applied Analytical Industries, Inc. ........................................ 19,100 210,100
(a)Kendle International Inc. .................................................. 23,300 468,912
(a)Lynx Therapeutics, Inc. .................................................... 81 759
----------
1,257,346
----------
Real Estate Investment Trust - 0.57%
Post Properties, Inc. ...................................................... 3,800 137,750
----------
Restaurants & Food Services - 5.89%
(a)Au Bon Pain Company, Inc. .................................................. 100,800 529,200
(a)The Cheesecake Factory Incorporated ........................................ 37,400 888,250
----------
1,417,450
----------
Retail - Specialty Line - 2.08%
Fastenal Company ........................................................... 14,300 501,394
----------
Warrants - 0.00%
(a)ALZA Corporation, expiration date December 31, 1999 ........................ 150 23
----------
Total Common Stocks (Cost $20,486,055) ..................................... 21,413,050
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................. 216,717 $ 216,717
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ........................... 1,051,287 1,051,287
-----------
Total Investment Companies (Cost $1,268,004) ............................. 1,268,004
-----------
Total Value of Investments (Cost $21,754,059 (b)) .................................... 94.20 % $22,681,054
Other Assets Less Liabilities ........................................................ 5.80 % 1,396,531
--------- -----------
Net Assets .................................................................... 100.00 % $24,077,585
========= ===========
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is $21,961,348. Unrealized appreciation (depreciation) of investments for
federal income tax purposes is as follows:
Unrealized appreciation ........................................................................... $ 3,106,439
Unrealized depreciation ........................................................................... (2,386,733)
-----------
Net unrealized appreciation ....................................................... $ 719,706
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Investments, at value (cost $21,754,059) ............................................................ $22,681,054
Income receivable ................................................................................... 11,547
Receivable for investments sold ..................................................................... 1,838,548
Receivable for fund shares sold ..................................................................... 14,700
-----------
Total assets ................................................................................... 24,545,849
-----------
LIABILITIES
Accrued expenses .................................................................................... 7,952
Payable for investment purchases .................................................................... 455,685
Disbursements in excess of cash on demand deposit ................................................... 1,626
Other liabilities ................................................................................... 3,001
-----------
Total liabilities .............................................................................. 468,264
-----------
NET ASSETS
(applicable to 1,235,734 Institutional shares outstanding; unlimited
shares of no par value beneficial interest authorized) ............................................. $24,077,585
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($24,077,585 / 1,235,734 shares) .................................................................... $ 19.48
===========
NET ASSETS CONSIST OF
Paid-in capital ..................................................................................... $21,629,174
Accumulated net realized gain on investments ........................................................ 1,521,416
Net unrealized appreciation on investments .......................................................... 926,995
-----------
$24,077,585
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1999
INVESTMENT LOSS
Income
Dividends .................................................................................... $ 78,358
-----------
Expenses
Investment advisory fees (note 2) ............................................................ 151,867
Fund administration fees (note 2) ............................................................ 30,987
Custody fees ................................................................................. 4,355
Registration and filing administration fees (note 2) ......................................... 7,977
Fund accounting fees (note 2) ................................................................ 22,500
Audit fees ................................................................................... 9,550
Legal fees ................................................................................... 14,432
Securities pricing fees ...................................................................... 3,544
Shareholder recordkeeping fees ............................................................... 5,383
Other accounting fees ........................................................................ 546
Shareholder servicing expenses ............................................................... 4,430
Registration and filing expenses ............................................................. 16,891
Printing expenses ............................................................................ 2,534
Trustee fees and meeting expenses ............................................................ 3,699
Other operating expenses ..................................................................... 2,104
-----------
Total expenses ......................................................................... 280,799
-----------
Less:
Expense reimbursements (note 2) ................................................... (1,384)
Investment advisory fees waived (note 2) .......................................... (52,153)
-----------
Net expenses ........................................................................... 227,262
-----------
Net investment loss ............................................................... (148,904)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions .................................................... 1,615,338
Decrease in unrealized appreciation on investments ................................................ (3,101,684)
-----------
Net realized and unrealized loss on investments .............................................. (1,486,346)
-----------
Net decrease in net assets resulting from operations ................................... $(1,635,250)
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <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,
1999 1998
------------ ------------
INCREASE IN NET ASSETS
Operations
Net investment loss ...................................................................... $ (148,904) $ (63,196)
Net realized gain from investment transactions ........................................... 1,615,338 264,971
(Decrease) increase in unrealized appreciation on investments ............................ (3,101,684) 3,029,081
------------ ------------
Net (decrease) increase in net assets resulting from operations ..................... (1,635,250) 3,230,856
------------ ------------
Distributions to shareholders from
Net realized gain from investment transactions ........................................... (170,496) (122,662)
------------ ------------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ..................... 14,317,387 1,939,063
------------ ------------
Total increase in net assets ................................................... 12,511,641 5,047,257
NET ASSETS
Beginning of year ............................................................................ 11,565,944 6,518,687
------------ ------------
End of year .................................................................................. $ 24,077,585 $ 11,565,944
============ ============
(a) A summary of capital share activity follows:
Year ended Year ended
March 31, 1999 March 31, 1998
Shares Value Shares Value
------------ ------------ ------------ ------------
Shares sold ....................................................... 805,203 $ 16,718,958 127,445 $ 2,137,857
Shares issued for reinvestment
of distributions ............................................. 8,148 169,715 6,686 122,282
------------ ------------ ------------ ------------
813,351 16,888,673 134,131 2,260,139
Shares redeemed ................................................... (127,744) (2,571,286) (18,185) (321,076)
------------ ------------ ------------ ------------
Net increase ................................................. 685,607 $ 14,317,387 115,946 $ 1,939,063
============ ============ ============ ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
BROWN CAPITAL 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,
1999 1998 1997 1996 1995
------------ ----------- ---------- ---------- ----------
Net asset value, beginning of year .............................. $ 21.02 $ 15.01 $ 15.13 $ 12.24 $ 10.69
(Loss) income from investment operations
Net investment loss .................................. (0.12) (0.11) (0.03) (0.06) (0.06)
Net realized and unrealized (loss) gain on investments (1.19) 6.36 0.27 4.00 1.86
----------- ----------- ---------- ---------- ----------
Total from investment operations ................. (1.31) 6.25 0.24 3.94 1.80
----------- ----------- ---------- ---------- ----------
Distributions to shareholders from
Net realized gain from investment transactions ....... (0.23) (0.24) (0.36) (1.05) (0.25)
----------- ----------- ---------- ---------- ----------
Net asset value, end of year .................................... $ 19.48 $ 21.02 $ 15.01 $ 15.13 $ 12.24
=========== =========== ========== ========== ==========
Total return .................................................... (6.27)% 41.84 % 1.56 % 33.00 % 16.95 %
=========== =========== ========== ========== ==========
Ratios/supplemental data
Net assets, end of year ................................... $24,077,585 $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 ........ 1.85 % 2.05 % 2.70 % 3.49 % 4.49 %
After expense reimbursements and waived fees ......... 1.50 % 1.50 % 1.50 % 1.69 % 2.00 %
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ........ (1.33)% (1.23)% (1.50)% (2.29)% (3.38)%
After expense reimbursements and waived fees ......... (0.98)% (0.68)% (0.30)% (0.50)% (0.90)%
Portfolio turnover rate ................................... 29.45 % 11.64 % 13.39 % 23.43 % 32.79 %
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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 - 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 $148,904 has been made on the statement
of assets and liabilities to decrease accumulated net investment loss,
bringing it to zero, and decrease undistributed net realized gain on
investments by $118,819 and decrease paid-in capital by $30,085.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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.
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 $52,153
($0.07 per share) for the year ended March 31, 1999 and has voluntarily
reimbursed a portion of the Fund's expenses for the year ended March 31,
1999 totaling $1,384.
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 of average daily net assets, 0.125% of the next $50 million of
average daily net assets, and 0.10% of average daily net assets over $150
million. Prior to October 1, 1998, the administration fee was at an 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 $2,000 for accounting and recordkeeping services. Prior to October 1,
1998, the fee for accounting and recordkeeping services was $1,750. 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. Prior to October 1, 1998, the minimum
monthly aggregate fee was $3,000 per month. The Administrator also charges
the Fund for certain expenses involved with the daily valuation of
investment securities.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
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.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $15,894,611 and $4,157,771 respectively, for the year ended
March 31, 1999.
NOTE 4 - 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 amount of $0.23 per share
distributions for the period ended March 31, 1999, was classified as long
term gain. Shareholders should consult a tax advisor on how to report
distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees 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 of The
Brown Capital Management Small Company Fund (the "Fund"), including the
portfolio of investments, as of March 31, 1999, and the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended March 31, 1999 and 1998, and financial highlights for each of
the years 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, 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brown Capital Management Small Company Fund as of March 31, 1999, the results of
its operations for the year then ended, the changes in its net assets and the
financial highlights for the respective stated years in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 23, 1999
<PAGE>
________________________________________________________________________________
WST GROWTH & INCOME FUND
________________________________________________________________________________
a series of The Nottingham Investment Trust II
INSTITUTIONAL SHARES
ANNUAL REPORT 1999
FOR THE YEAR ENDED MARCH 31
INVESTMENT ADVISOR
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
WST GROWTH & INCOME FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
Annual Report
WST Growth & Income Fund
Institutional Shares
It is our pleasure to review with our fellow shareholders the annual report for
the WST Growth & Income Fund. The stock market was volatile and exciting during
the past twelve months. This letter highlights the progress of the Fund last
year and outlines our expectations for the coming year. We appreciate your
confidence in our management of your investment and we remain committed to
maximizing your returns within the guidelines of the Fund. In the words of
George Soros, "the more money you make, the less time you have to work!"
This letter has four main sections. In the first we review the Fund's annual
results in the context of the overall stock market and its various sectors and
components. Next we define our investment discipline and outline the criteria
used to select stocks for the Fund. This discussion leads naturally to a review
of the research process. Then in the fourth and final section we look into our
crystal ball and reveal our outlook for the coming year. This information is
intended to supplement the quarterly letters and statistic sheets, which should
be helpful in understanding the Fund's activity and performance results.
The Year in Review
------------------
Despite a severe test last summer and fall the bull market in large
capitalization stocks continued during the past twelve months. A booming economy
led by lower U.S. interest rates drove the stock markets to new highs in July.
Then the collapse of the Russian economy and the subsequent failure of the hedge
fund called Long-Term Capital Management knocked the wind out of investors and
drove the market down 21% from its peak on July 20th to the bottom on October
8th. This correction was the worst decline since 1990 and had a number of market
pundits announcing the beginning of a bear market. The market's true strength
and resilience were revealed as the indices rebounded with vigor and by year-end
eclipsed the July highs.
The amazing market turn was to a large degree the work of the savvy Federal
Reserve. While Russia and LTCM stole the headlines, a severe and widespread
liquidity crisis threatened the mechanism by which many types of loans including
mortgages and consumer paper are securitized. Large mortgage originators and
many consumer lenders found it difficult or impossible to sell certain segments
of their securitization pools. In many cases banks pulled lines of credit that
supported these companies and the lack of liquidity in their balance sheets
forced a number of these finance companies into bankruptcy. The Fed responded
with three quick cuts in short-term interest rates and staved off what could
have been a financial melt down of large proportions.
<PAGE>
The shake out in the securitized lending sector was not without its benefits as
most of the survivors have shifted to much more conservative accounting
procedures. Equally important, large well financed players like Fannie Mae were
able to take advantage of the tough environment by purchasing illiquid
securities at fire-sale prices. The story has ended happily as liquidity has
returned to the market, weak players failed and the system is less vulnerable as
a result. Fed Chairman Alan Greenspan deserves tremendous credit for his quick
and decisive action in a behind-the-scenes process.
Performance Review: "The Nifty Fifty Rules Again"
We wrote in our quarterly letters throughout the year about the dominance within
the market indices of large capitalization growth companies, sometimes referred
to as the "Nifty Fifty". The numbers tell the story as the NASDAQ 100, which is
the largest 100 stocks on the NASDAQ Exchange, rose 75 % in the twelve months
ending March 31st. Meanwhile the Russell 2000, a small capitalization index of
2000 companies, posted a decline of 17%. This disparity of performance is the
largest in more than five years. Another interesting fact: 50 companies in the
S&P 500 made up 90% of the return of the 500 stock index during the past twelve
months. The same types of numbers characterized the New York Stock Exchange
where the top 200 companies generated 90% of the return of the 2937 stock index.
Your Fund enjoyed positive returns over the twelve months ending March 31st,
increasing 13.11%. This return compared favorably with the 5.47% return of the
Lipper Growth and Income Fund Index which has a value bias. The Fund posted
particularly strong results during the volatile fourth quarter and the first
calendar quarter of 1999. The returns were generated with little help from the
Fund's special situation and mid cap holdings, which suffered the same malaise
as the broader indices. Small and mid cap stocks were completely ignored as the
Nifty Fifty marched to new highs.
The Fund has delivered a 17.6% annualized rate of return since inception which
also compares favorably to the 9.74% return of the Growth & Income Fund index.
This performance is especially gratifying in light of two factors. First, we
held an unusually high level of cash during the first half of the year. More
importantly, the Fund generated its performance without the help of the high P/E
large capitalization companies like Microsoft, America Online, Dell Computer and
Cisco Systems which were the driving force in the index returns last year but
which we believe represent risky holdings at current valuations.
The Fund's turnover rate remained low at 31% and the realized capital gains were
minimal during the fiscal year. Tax efficiency remains an important focus for
the Fund. We understand the Shareholders prefer to compound their gains within
the Fund rather than paying them out in the form of taxes and our goal has been
and will continue to be minimizing realized gains wherever possible. Our
investment discipline is helpful in our pursuit of this goal. We invest in
companies with business models that we think can produce strong sustained
growth, and our hope is to become long term partners with the management of
these firms.
<PAGE>
The Investment Discipline
-------------------------
The Fund's investment goal is simple: find great growth businesses run by smart
management and purchase these companies at attractive prices. This statement may
sound overly simplistic but the execution of the discipline is challenging. The
stock market consists of thousands of companies but few meet our criteria, and
finding those great ones and buying them at reasonable prices is our task.
What defines a great business model?
We believe a great growth business is one that has a dominant market position,
generates free cash flow, posts strong margins and high return on equity and
requires only reasonable capital expenditures. Further, we believe that earnings
per share growth is the measure that best guages management's success in growing
their business. Tyco International epitomizes what we consider to be a great
business model. The company operates in relatively non cyclical businesses,
enjoys a dominant market position with all major product lines, generates strong
operating margins and return on equity, grows its business internally at a
double digit pace, and will generate over $1 billion of free cash flow in the
current fiscal year.
How do we define strong management?
Our research team looks for senior management with proven track records. These
individuals need to articulate clear goals and then deliver on these
commitments. We look for CEO's who are committed to building shareholder value
through strong operations, strategic acquisitions and share repurchases.
Management must be adept at driving efficiencies and expanding operating
margins. They must communicate effectively and honestly with the analyst
community about their current and future business trends.
Dennis Kozlowski, the CEO of Tyco International epitomizes our model CEO. He has
made ambitious promises to investors and has consistently delivered results in
excess of his commitments. He has built dominant market share through strategic
acquisitions and has vigorously cut costs to achieve his objectives. He is an
effective steward of his shareholders's capital and operates a $15 billion
business with less than 100 employees in the corporate headquarters. Tyco is the
Fund's largest position and we continue to be impressed with his strong
leadership.
What defines a reasonable price?
Our team uses the businessman's test to define reasonable valuation. We buy a
company's stock as we would buy a stand-alone business. Our goal is to analyze a
company's value using financial measures described above. The higher a company's
net margins, return on equity, and growth rate, the higher a valuation we will
place on the business. For example, in certain market sectors such as beverages,
an investor should be willing to pay a premium price for a brand name and
operating business. Our analysis of Coke versus Pepsi is a useful case study of
the reasonable price segment of our discipline. Pepsi trades for 28x estimated
earnings while Coca-Cola trades for 45x earnings. We ask ourselves whether a
dollar of earnings from Coke is worth almost twice as much as a dollar of
earnings from Pepsi. Pepsi's earnings growth rate is higher than Coke's. Both
companies boast strong business models and smart management teams but only one
is reasonably priced according to our definition.
<PAGE>
Warren Buffet has made a fortune following the basic principle of buying great
businesses run by very smart managers and purchasing these companies at
reasonable prices. Wilbanks, Smith & Thomas' greatest gains for clients over the
years have been in companies run by "battle tested" senior management. We
continue our quest to find and monitor the performance of these types of
individuals and the process will be critical to the success of the Fund,
Research, Research, Research...
-------------------------------
The past quarterly letters for the Fund have outlined our research process and
explained our commitment to primary research as opposed to simply reading Wall
Street reports. We believe that information is the key to success in investing.
The information we use in making decisions about the purchase or sale of stocks
is the product of conversations with management, competitors, suppliers and
customers. Our successes and mistakes in the past have reinforced our firm
belief: more information leads to better decisions.
The SEC permits companies to give certain material information to analysts which
is not yet known to the general public. Companies rely on the analyst community
to disseminate this information in an orderly fashion. The strategic direction
in which a company is moving, the progress a company is making on a new
initiative, or the general tone of business during a quarter are all valid
topics for a discussion with management. We are regularly surprised by the level
of information that can be garnered through regular periodic discussions with
management. While not considered inside information, the data we receive
occasionally puts our view at odds with that of the consensus and thereby
creates an opportunity for our clients and shareholders. It is when we are able
to find a great company that for some reason is out of favor with the Wall
Street herd that we achieve our best successes.
One perfect example of the value of research was our recent visit with the
senior management of MidAmerican Energy at their annual analyst meeting. This
company, formerly known as Cal Energy, has been an investment of Wilbanks, Smith
& Thomas and your Fund for the past year. During the analyst meeting the company
outlined their budget and forecast for the next three years. The company
suggested that they would generate over $15 per share in free cash flow from
operations. They showed specifically how they would achieve each of the three
years earnings forecast and suggested that they have great confidence that their
budget is conservative.
<PAGE>
Consequently, we have the opportunity to continue to invest in a company whose
stock trades at $28 per share and which can generate over 50% of the value of
the stock in cash during the next three years. We have found few companies that
can grow earnings at 15% annually and trade at such an inexpensive valuation. We
are more excited than ever with this company's prospects and our confidence is
generated directly from our research on this company. We anticipate that
MidAmerican will remain a core holding in the Fund. Of course we will monitor
the company very closely and we'll know quickly when the fundamentals change.
Wilbanks, Smith & Thomas Asset Management's analyst team contacts one or two
companies per day and travels extensively to meet with the senior management of
almost all of the companies in which we invest. During the past year we have
contacted or visited with more than 200 companies over 500 different sessions.
Outlook for the future
----------------------
While it is difficult to forecast the absolute levels of economic growth,
inflation or interest rates, the portfolio management team of the WST Growth &
Income Fund does attempt to identify major trends in these variables as well as
Federal Reserve policy and secular themes within different industry groups.
History is a great teacher and our research proves that investors often react in
the same predictable ways to certain events decade after decade. Therefore we
deem it important to identify the major trends in macro variables, as those
trends will eventually drive equity performance.
Our outlook for the remainder of the year remains positive. Interest rates are
relatively stable despite the moderate rise during 1999. While Fed policy shifts
are extremely difficult to foresee, we expect Alan Greenspan to maintain a
neutral monetary policy. Economic growth is robust with GDP gains of over 4%
during the first quarter of this year. The government continues to run a major
budget surplus, which could approach $100 billion during the current fiscal
year. The foreign economies, which were so problematic during 1998, are
improving.
Our conversations with the majority of the companies in the Fund are very
bullish. Senior management is executing well and companies are generating record
profits. Stock prices generally follow earnings so we remain very positive on
the holdings in the Fund. We estimate that the Fund's companies will generate an
average earnings gain in 1999 of 22%, which is almost 3 times the 8% growth rate
forecast for the S&P 500. The average valuation of our companies is actually at
a discount to the overall market. This combination of strong growth and low
relative valuations gives us great comfort in a market that looks expensive by
many measures.
<PAGE>
Given the valuations at which the Nifty Fifty are trading and the general
exuberance in the market, we anticipate a modest correction during the next 3 to
4 months. The trigger for this correction could be Year 2000 issues, an
unexpected rise in interest rates, or some other now unforeseen event. As long
as the powerful trends at work in the economy and at our companies remain
intact, we will use any correction to add to holdings at attractive prices.
Your portfolio management team is optimistic about the coming year and
appreciate your continued confidence. We are in the process of expanding our web
site and look forward to broadening the array of information available about the
Fund as the summer progresses. We will work diligently to maintain positive
results and wish you the best as we approach the millennium.
/s/ Wayne F. Wilbanks
/s/ L. Norfleet Smith, Jr.
/s/ Norwood A.Thomas, Jr.
/s/ T. Carl Turnage
/s/ Lawrence A. Bernert, III
<PAGE>
WST GROWTH & INCOME FUND
Institutional Shares
Performance Update - $25,000 Investment
For the period from September 30, 1997 (Date of Initial Public Investment) to
March 31, 1999
[Graph]
60% S&P 500
Institutional 20% Lehman Gov't/Corp Lipper Growth &
Shares 20% Russell 2000 Income Index
------ ---------------- ------------
9/30/97 25,000 25,000 25,000
12/31/97 25,502 25,383 25,264
3/31/98 28,179 28,124 28,145
6/30/98 28,453 28,572 28,198
9/30/98 24,759 26,005 24,682
12/31/98 30,575 30,165 28,695
3/31/99 31,873 30,894 29,304
This graph depicts the performance of the WST Growth & Income Fund Institutional
Shares versus the Lipper Growth and Income Fund Index and a combined index of
60% S&P 500 Index, 20% Lehman Intermediate Government/Corporate Bond Index, and
20% Russell 2000 Index. It is important to note that the WST Growth & Income
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 IPI One Year
- ------------------------------------------------
17.59% 13.11%
- ------------------------------------------------
The graph assumes an initial $25,000 investment at September 30, 1997. All
dividends and distributions are reinvested.
At March 31, 1999, the WST Growth & Income Fund Institutional Shares would have
grown to $31,873 - total investment return of 27.49% since September 30, 1997.
At March 31, 1999, a similar investment in the Lipper Growth and Income Fund
Index would have grown to $29,304 - total investment return of 17.21%; a
combined index of 60% S&P 500 Index, 20% Lehman Intermediate
Government/Corporate Bond Index, and 20% Russell 2000 Index would have grown to
$30,894 - total investment return of 23.58%, since September 30, 1997. The
combined index replaces the former combined index of 70% S&P 500 Index, 20%
Lehman Intermediate Government/Corporate Bond Index, and 10 Russell 2000 Index
used in the graph in the prior annual report for illustrative purposes because
the Investment Advisor feels that the current combined index is a more accurate
comparison to WST Growth & Income Fund's investment strategy than the previous
combined index. For the fiscal year ended March 31, 1999, the investment in the
Institutional Shares of the WST Growth & Income Fund would have increased in
value by $3,694; the similar investment in the current combined index would have
increased in value by $2,771; while the similar investment in the prior combined
index would have increased in value by $3,743.
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> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 91.13%
Aerospace & Defense - 3.16%
AlliedSignal, Inc. ................................................. 9,000 $ 441,563
----------
Beverages - 2.81%
PepsiCo, Inc. ...................................................... 10,000 391,875
----------
Broadcast - Radio & Television - 2.17%
(a)Cox Communications, Inc. ........................................... 4,000 302,500
----------
Commercial Services - 2.33%
(a)ACNielsen Corporation .............................................. 12,000 325,500
----------
Computers - 4.06%
Compaq Computer Corporation ........................................ 8,250 261,938
Hewlett-Packard Company ............................................ 4,500 305,156
----------
567,094
----------
Computer Software & Services - 5.27%
(a)Advent Software, Inc. .............................................. 6,000 300,000
(a)Oracle Corporation ................................................. 16,500 435,187
----------
735,187
----------
Cosmetics & Personal Care - 5.57%
Gillette Company ................................................... 8,000 475,500
(a)Playtex Products, Inc. ............................................. 20,000 302,500
----------
778,000
----------
Direct Marketing - 1.84%
(a)TeleSpectrum Worldwide Inc. ........................................ 30,000 256,875
----------
Diversified Manufacturing - 1.98%
General Electric Company ........................................... 2,500 276,562
----------
Electronics - Semiconductor - 1.71%
Intel Corporation .................................................. 2,000 238,250
----------
Financial - Banks, Commercial - 10.97%
BankAmerica Corporation ............................................ 5,600 395,500
CCB Financial Corporation .......................................... 5,000 270,312
Chase Manhattan Corporation ........................................ 2,400 195,150
Citigroup Inc. ..................................................... 5,000 319,375
Resource Bankshares Corporation .................................... 17,800 351,550
----------
1,531,887
----------
Financial Services - 6.14%
American Express Company ........................................... 2,000 235,000
Equifax, Inc. ...................................................... 6,000 206,250
Fannie Mae ......................................................... 6,000 415,500
----------
856,750
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Insurance - Life & Health - 3.90%
AFLAC, Incorporated .................................................. 10,000 $ 544,375
----------
Insurance - Multiline - 2.59%
American International Group, Inc. ................................... 3,000 361,875
----------
Manufacturing - Miscellaneous - 2.67%
Tyco International Ltd. .............................................. 5,200 373,100
----------
Medical Supplies - 2.21%
Johnson & Johnson .................................................... 3,300 309,169
----------
Multimedia - 4.82%
The Walt Disney Company .............................................. 12,500 389,063
Time Warner, Inc. .................................................... 4,000 283,250
----------
672,313
----------
Office Automation & Equipment - 1.87%
Xerox Corporation .................................................... 5,000 260,625
----------
Pharmaceuticals - 5.10%
American Home Products ............................................... 6,000 391,500
Merck & Co., Inc. .................................................... 4,000 320,500
----------
712,000
----------
Publishing - Newspapers - 2.65%
The New York Times Company ........................................... 13,000 370,500
----------
Restaurants & Food Service - 2.60%
McDonald's Corporation ............................................... 8,000 362,500
----------
Retail - Specialty Line - 6.52%
CVS Corporation ...................................................... 9,000 426,375
Lowe's Companies, Inc. ............................................... 8,000 484,000
----------
910,375
----------
Telecommunications - 6.28%
AT&T Corp. ........................................................... 5,429 433,302
(a)MCI WorldCom, Inc. ................................................... 5,000 442,813
----------
876,115
----------
Utilities - Electric - 1.91%
MidAmerican Energy Holdings Co. ...................................... 9,500 266,000
----------
Total Common Stocks (Cost $10,070,787) ............................... 12,720,990
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 2.16%
Financial - Banks, Commercial - 0.18%
RESOURCE CAPITAL TRUST, 9.25%................................. 1,000 $25,250
-------
Insurance - Multiline - 0.95%
AICI CAPITAL TRUST, 9.00% .................................... 5,500 133,031
-------
Telecommunications - 1.03%
TCI Communications, 8.72% .................................... 5,500 143,687
-------
Total Preferred Stocks (Cost $306,974) ....................... 301,968
-------
Interest Maturity
Principal Rate Date
---------------- ---------------- ---------------
CORPORATE OBLIGATION - 2.65%
Macsaver Financial Services ........................... $500,000 7.875% 8/01/03 370,000
(Cost $431,443) -------
Shares
-------------
INVESTMENT COMPANY - 3.52%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares .................................. 490,375 490,375
-----------
(Cost $490,375)
Total Value of Investments (Cost $11,299,579 (b)) ..................................... 99.46 % $13,883,333
Liabilities less other assets ......................................................... 0.54 % 75,189
-------- -----------
Net Assets ..................................................................... 100.00 % $13,958,522
======== ===========
(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 .............................................. $ 2,855,769
Unrealized depreciation .............................................. (272,015)
-----------
Net unrealized appreciation .................................... $ 2,583,754
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Investments, at value (cost $11,299,579) ......................................................... $ 13,883,333
Income receivable ................................................................................ 18,233
Receivable for fund shares sold .................................................................. 63,074
Deferred organization expenses, net (note 4) ..................................................... 28,775
------------
Total assets ................................................................................ 13,993,415
------------
LIABILITIES
Disbursements in excess of cash on demand deposit ................................................ 16,811
Accrued expenses ................................................................................. 17,549
Other liabilities ................................................................................ 533
------------
Total liabilities ........................................................................... 34,893
------------
NET ASSETS .............................................................................................. $ 13,958,522
============
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $ 11,995,891
Accumulated net realized loss on investments ..................................................... (621,123)
Net unrealized appreciation on investments ....................................................... 2,583,754
------------
$ 13,958,522
============
INSTITUTIONAL CLASS
Net asset value, redemption and maximum offering price per share
($11,419,391 / 894,317 shares) ................................................................... $ 12.77
============
INVESTOR CLASS
Net asset value, redemption and offering price per share
($2,539,131 / 200,364 shares) ................................................................... $ 12.67
============
Maximum offering price per share (100 / 96.25% of $12.67) ........................................ $ 13.16
============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1999
INVESTMENT LOSS
Income
Interest ...................................................................................... $ 32,478
Dividends ..................................................................................... 133,143
-----------
Total income ............................................................................ 165,621
-----------
Expenses
Investment advisory fees (note 2) ............................................................. 71,743
Fund administration fees (note 2) ............................................................. 16,740
Distribution and service fees - Investor class shares (note 3) ................................ 7,113
Custody fees .................................................................................. 3,343
Registration and filing administration fees (note 2) .......................................... 4,900
Fund accounting fees (note 2) ................................................................. 33,000
Audit fees .................................................................................... 9,550
Legal fees .................................................................................... 18,540
Securities pricing fees ....................................................................... 2,807
Shareholder recordkeeping fees ................................................................ 7,500
Shareholder servicing expenses ................................................................ 4,314
Registration and filing expenses .............................................................. 5,885
Printing expenses ............................................................................. 7,984
Amortization of deferred organization expenses (note 4) ....................................... 8,227
Trustee fees and meeting expenses ............................................................. 3,743
Other operating expenses ...................................................................... 355
-----------
Total expenses .......................................................................... 205,744
-----------
Less investment advisory fees waived (note 2) ........................................... (31,699)
-----------
Net expenses ............................................................................ 174,045
-----------
Net investment loss ................................................................ (8,424)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investment transactions ..................................................... (578,937)
Increase in unrealized appreciation on investments ................................................. 1,853,775
-----------
Net realized and unrealized gain on investments ............................................... 1,274,838
-----------
Net increase in net assets resulting from operations .................................... $ 1,266,414
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
For the
period from
September 9, 1997
(commencement
Year ended of operations)
March 31, to March 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment (loss) income ............................................ $ (8,424) $ 1,567
Net realized loss from investment transactions .......................... (578,937) (42,186)
Increase in unrealized appreciation on investments ...................... 1,853,775 729,979
----------- -----------
Net increase in net assets resulting from operations ................ 1,266,414 689,360
----------- -----------
Distributions to shareholders from
Net investment income - Institutional Class ............................. 0 (2,096)
Net investment income - Investor Class .................................. 0 (40)
----------- -----------
Decrease in net assets resulting from distributions ................. 0 (2,136)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .... 5,552,729 6,452,155
----------- -----------
Total increase in net assets ................................... 6,819,143 7,139,379
NET ASSETS
Beginning of period .......................................................... 7,139,379 0
----------- -----------
End of period ................................................................ $13,958,522 $ 7,139,379
=========== ===========
(a) A summary of capital share activity follows:
------------------------------------------------------------------------
For the period from
September 9, 1997
Year ended (commencement of operations)
March 31, 1999 to March 31, 1998
Shares Value Shares Value
------------------------------------------------------------------------
-------------------
INSTITUTIONAL CLASS
-------------------
Shares sold ............................................. 361,611 $ 4,344,114 564,741 $ 5,750,088
Shares issued for reinvestment of distributions ......... 0 0 191 2,096
----------- ----------- ----------- -----------
361,611 4,344,114 564,932 5,752,184
Shares redeemed ......................................... (32,095) (380,601) (131) (1,395)
----------- ----------- ----------- -----------
Net increase ....................................... 329,516 $ 3,963,513 564,801 $ 5,750,789
=========== =========== =========== ===========
--------------
INVESTOR CLASS
--------------
Shares sold ............................................. 143,763 $ 1,721,117 67,766 $ 701,326
Shares issued for reinvestment of distributions ......... 0 0 4 40
----------- ----------- ----------- -----------
143,763 1,721,117 67,770 701,366
Shares redeemed ......................................... (11,169) (131,901) 0 0
----------- ----------- ----------- -----------
Net increase ....................................... 132,594 $ 1,589,216 67,770 $ 701,366
=========== =========== =========== ===========
------------
FUND SUMMARY
------------
Shares sold ............................................. 505,374 $ 6,065,231 632,507 $ 6,451,414
Shares issued for reinvestment of distributions ......... 0 0 195 2,136
----------- ----------- ----------- -----------
505,374 6,065,231 632,702 6,453,550
Shares redeemed ......................................... (43,264) (512,502) (131) (1,395)
----------- ----------- ----------- -----------
Net increase ....................................... 462,110 $ 5,552,729 632,571 $ 6,452,155
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
--------------------------- ---------------------------
INSTITUTIONAL CLASS INVESTOR CLASS
--------------------------- ---------------------------
For the period For the period
from Sept. 30, 1997 from Oct. 3, 1997
(date of inititial (date of initial
Year ended public investment) Year ended public investment)
March 31, to March 31, March 31, to March 31,
1999 1998 1999 1998
--------------------------- ---------------------------
Net asset value, beginning of period ............................ $11.29 $10.02 $11.26 $10.22
Income from investment operations
Net investment income (loss) ......................... 0.00 0.00 (0.04) (0.01)
Net realized and unrealized gain on investments ...... 1.48 1.27 1.45 1.05
----------- ----------- ----------- -----------
Total from investment operations ............... 1.48 1.27 1.41 1.04
----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ................................ (0.00) 0.00 (0.00) (0.00)
----------- ----------- ----------- -----------
Net asset value, end of period .................................. $12.77 $11.29 $12.67 $11.26
=========== =========== =========== ===========
Total return (a) ................................................ 13.11 % 12.72 % 12.52 % 10.52 %
=========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of period ................................. $11,419,391 $ 6,376,193 $ 2,539,131 $ 763,186
=========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ........ 2.08 % 3.15 % (b) 2.56 % 3.63 % (b)
After expense reimbursements and waived fees ......... 1.75 % 1.75 % (b) 2.25 % 2.25 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ........ (0.35)% (1.31)% (b) (0.84)% (1.70)% (b)
After expense reimbursements and waived fees ......... (0.01)% 0.09 % (b) (0.53)% (0.31)% (b)
Portfolio turnover rate ................................... 31.11 % 23.64 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The WST Growth & Income Fund (the "Fund") is a diversified series of
shares of beneficial interest of The Nottingham Investment Trust II
(the "Trust"). The Trust, an open-end investment company, was organized
on October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The Fund began
operations on September 9, 1997. The investment objective of the fund
is to provide its shareholders with a maximum total return consisting
of any combination of capital appreciation, both realized and
unrealized, and income. The Fund has an unlimited number of authorized
shares, which are divided into two classes - Institutional Shares and
Investor Shares.
Each class of shares has equal rights as to assets of the Fund, and the
classes are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Investor Class), and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its
relative net assets. Investor Shares purchased are subject to a maximum
sales charge of 3.75%. Both classes have equal voting privileges,
except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of
the shareholders of a particular class. The following is a summary of
significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at 4:00 p.m., New York
time. Other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that
date are valued at the most recent bid price. Securities for
which market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The Fund has capital loss carryforwards for federal income tax
purposes of $384,452, of which $42,186 expires in the year
2006 and $342,266 expires in the year 2007. It is the
intention of the Board of Trustees of the Trust not to
distribute any realized gains until the carryforwards have
been offset or expire.
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October 31,
which are deferred for income tax purposes. The character of
distributions to shareholders made during the year from net
investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
Also, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year
that the income or realized gains were recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded
on trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date.
(Continued)
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September, and December on
a date selected by the Trust's Trustees. In addition,
distributions may be made annually in December out of net
realized gains through October 31 of that year. The Fund may
make a supplemental distribution subsequent to the end of its
fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results
could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Wilbanks, Smith & Thomas
Asset Management, Inc. (the "Advisor"), provides the fund with a
continuous program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and recommendations
with respect to investments, investment policies, and the purchase and
sale of securities. As compensation for its services, the Advisor
receives a fee at the annual rate of 0.75% of the first $250 million of
the Fund's average daily net assets and 0.65% of all assets over $250
million.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class and a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class. There can be no
assurance that the foregoing voluntary fee waivers or reimbursements
will continue. The Advisor has voluntarily waived a portion of its fee
amounting to $31,699 ($0.04 per share) for the year ended March 31,
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 an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, 0.125% of the next $50
million, and 0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting and
record-keeping services for the initial class of shares and $750 per
month for each additional class of shares. The contract with the
Administrator provides that the aggregate fees for the aforementioned
administration, accounting, and recordkeeping services shall not be
less than $4,000 per month. The Administrator also charges the Fund for
certain expenses involved with the daily valuation of portfolio
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
(Continued)
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 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"), 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 $7,113 of such
expenses under the Plan for the year ended March 31, 1999.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $8,689,279 and $2,793,249, respectively, for the year ended
March 31, 1999.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of WST Growth & Income Fund:
We have audited the accompanying statement of assets and liabilities of WST
Growth & Income Fund (the "Fund"), including the portfolio of investments, as of
March 31, 1999, and the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended March 31, 1999 and
1998, and financial highlights for each of 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 securities owned as of March
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of WST
Growth & Income Fund as of March 31, 1999, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
the respective stated periods, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 23, 1999
<PAGE>
________________________________________________________________________________
WST GROWTH & INCOME FUND
________________________________________________________________________________
a series of The Nottingham Investment Trust II
INVESTOR SHARES
ANNUAL REPORT 1999
FOR THE YEAR ENDED MARCH 31
INVESTMENT ADVISOR
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
WST GROWTH & INCOME FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
Annual Report
WST Growth & Income Fund
Investor Shares
It is our pleasure to review with our fellow shareholders the annual report for
the WST Growth & Income Fund. The stock market was volatile and exciting during
the past twelve months. This letter highlights the progress of the Fund last
year and outlines our expectations for the coming year. We appreciate your
confidence in our management of your investment and we remain committed to
maximizing your returns within the guidelines of the Fund. In the words of
George Soros, "the more money you make, the less time you have to work!"
This letter has four main sections. In the first we review the Fund's annual
results in the context of the overall stock market and its various sectors and
components. Next we define our investment discipline and outline the criteria
used to select stocks for the Fund. This discussion leads naturally to a review
of the research process. Then in the fourth and final section we look into our
crystal ball and reveal our outlook for the coming year. This information is
intended to supplement the quarterly letters and statistic sheets, which should
be helpful in understanding the Fund's activity and performance results.
The Year in Review
------------------
Despite a severe test last summer and fall the bull market in large
capitalization stocks continued during the past twelve months. A booming economy
led by lower U.S. interest rates drove the stock markets to new highs in July.
Then the collapse of the Russian economy and the subsequent failure of the hedge
fund called Long-Term Capital Management knocked the wind out of investors and
drove the market down 21% from its peak on July 20th to the bottom on October
8th. This correction was the worst decline since 1990 and had a number of market
pundits announcing the beginning of a bear market. The market's true strength
and resilience were revealed as the indices rebounded with vigor and by year-end
eclipsed the July highs.
The amazing market turn was to a large degree the work of the savvy Federal
Reserve. While Russia and LTCM stole the headlines, a severe and widespread
liquidity crisis threatened the mechanism by which many types of loans including
mortgages and consumer paper are securitized. Large mortgage originators and
many consumer lenders found it difficult or impossible to sell certain segments
of their securitization pools. In many cases banks pulled lines of credit that
supported these companies and the lack of liquidity in their balance sheets
forced a number of these finance companies into bankruptcy. The Fed responded
with three quick cuts in short-term interest rates and staved off what could
have been a financial melt down of large proportions.
<PAGE>
The shake out in the securitized lending sector was not without its benefits as
most of the survivors have shifted to much more conservative accounting
procedures. Equally important, large well financed players like Fannie Mae were
able to take advantage of the tough environment by purchasing illiquid
securities at fire-sale prices. The story has ended happily as liquidity has
returned to the market, weak players failed and the system is less vulnerable as
a result. Fed Chairman Alan Greenspan deserves tremendous credit for his quick
and decisive action in a behind-the-scenes process.
Performance Review: "The Nifty Fifty Rules Again"
We wrote in our quarterly letters throughout the year about the dominance within
the market indices of large capitalization growth companies, sometimes referred
to as the "Nifty Fifty". The numbers tell the story as the NASDAQ 100, which is
the largest 100 stocks on the NASDAQ Exchange, rose 75 % in the twelve months
ending March 31st. Meanwhile the Russell 2000, a small capitalization index of
2000 companies, posted a decline of 17%. This disparity of performance is the
largest in more than five years. Another interesting fact: 50 companies in the
S&P 500 made up 90% of the return of the 500 stock index during the past twelve
months. The same types of numbers characterized the New York Stock Exchange
where the top 200 companies generated 90% of the return of the 2937 stock index.
Your Fund enjoyed positive returns over the twelve months ending March 31st,
increasing 12.52%. This return compared favorably with the 5.47% return of the
Lipper Growth and Income Fund Index which has a value bias. The Fund posted
particularly strong results during the volatile fourth quarter and the first
calendar quarter of 1999. The returns were generated with little help from the
Fund's special situation and mid cap holdings, which suffered the same malaise
as the broader indices. Small and mid cap stocks were completely ignored as the
Nifty Fifty marched to new highs.
The Fund has delivered a 15.75% annualized rate of return since inception1 which
also compares favorably to the 9.74% return of the Growth & Income Fund index.
This performance is especially gratifying in light of two factors. First, we
held an unusually high level of cash during the first half of the year. More
importantly, the Fund generated its performance without the help of the high P/E
large capitalization companies like Microsoft, America Online, Dell Computer and
Cisco Systems which were the driving force in the index returns last year but
which we believe represent risky holdings at current valuations.
The Fund's turnover rate remained low at 31% and the realized capital gains were
minimal during the fiscal year. Tax efficiency remains an important focus for
the Fund. We understand the Shareholders prefer to compound their gains within
the Fund rather than paying them out in the form of taxes and our goal has been
and will continue to be minimizing realized gains wherever possible. Our
investment discipline is helpful in our pursuit of this goal. We invest in
companies with business models that we think can produce strong sustained
growth, and our hope is to become long term partners with the management of
these firms.
<PAGE>
The Investment Discipline
-------------------------
The Fund's investment goal is simple: find great growth businesses run by smart
management and purchase these companies at attractive prices. This statement may
sound overly simplistic but the execution of the discipline is challenging. The
stock market consists of thousands of companies but few meet our criteria, and
finding those great ones and buying them at reasonable prices is our task.
What defines a great business model?
We believe a great growth business is one that has a dominant market position,
generates free cash flow, posts strong margins and high return on equity and
requires only reasonable capital expenditures. Further, we believe that earnings
per share growth is the measure that best guages management's success in growing
their business. Tyco International epitomizes what we consider to be a great
business model. The company operates in relatively non cyclical businesses,
enjoys a dominant market position with all major product lines, generates strong
operating margins and return on equity, grows its business internally at a
double digit pace, and will generate over $1 billion of free cash flow in the
current fiscal year.
How do we define strong management?
Our research team looks for senior management with proven track records. These
individuals need to articulate clear goals and then deliver on these
commitments. We look for CEO's who are committed to building shareholder value
through strong operations, strategic acquisitions and share repurchases.
Management must be adept at driving efficiencies and expanding operating
margins. They must communicate effectively and honestly with the analyst
community about their current and future business trends.
Dennis Kozlowski, the CEO of Tyco International epitomizes our model CEO. He has
made ambitious promises to investors and has consistently delivered results in
excess of his commitments. He has built dominant market share through strategic
acquisitions and has vigorously cut costs to achieve his objectives. He is an
effective steward of his shareholders's capital and operates a $15 billion
business with less than 100 employees in the corporate headquarters. Tyco is the
Fund's largest position and we continue to be impressed with his strong
leadership.
<PAGE>
What defines a reasonable price?
Our team uses the businessman's test to define reasonable valuation. We buy a
company's stock as we would buy a stand-alone business. Our goal is to analyze a
company's value using financial measures described above. The higher a company's
net margins, return on equity, and growth rate, the higher a valuation we will
place on the business. For example, in certain market sectors such as beverages,
an investor should be willing to pay a premium price for a brand name and
operating business. Our analysis of Coke versus Pepsi is a useful case study of
the reasonable price segment of our discipline. Pepsi trades for 28x estimated
earnings while Coca-Cola trades for 45x earnings. We ask ourselves whether a
dollar of earnings from Coke is worth almost twice as much as a dollar of
earnings from Pepsi. Pepsi's earnings growth rate is higher than Coke's. Both
companies boast strong business models and smart management teams but only one
is reasonably priced according to our definition.
Warren Buffet has made a fortune following the basic principle of buying great
businesses run by very smart managers and purchasing these companies at
reasonable prices. Wilbanks, Smith & Thomas' greatest gains for clients over the
years have been in companies run by "battle tested" senior management. We
continue our quest to find and monitor the performance of these types of
individuals and the process will be critical to the success of the Fund,
Research, Research, Research...
-------------------------------
The past quarterly letters for the Fund have outlined our research process and
explained our commitment to primary research as opposed to simply reading Wall
Street reports. We believe that information is the key to success in investing.
The information we use in making decisions about the purchase or sale of stocks
is the product of conversations with management, competitors, suppliers and
customers. Our successes and mistakes in the past have reinforced our firm
belief: more information leads to better decisions.
The SEC permits companies to give certain material information to analysts which
is not yet known to the general public. Companies rely on the analyst community
to disseminate this information in an orderly fashion. The strategic direction
in which a company is moving, the progress a company is making on a new
initiative, or the general tone of business during a quarter are all valid
topics for a discussion with management. We are regularly surprised by the level
of information that can be garnered through regular periodic discussions with
management. While not considered inside information, the data we receive
occasionally puts our view at odds with that of the consensus and thereby
creates an opportunity for our clients and shareholders. It is when we are able
to find a great company that for some reason is out of favor with the Wall
Street herd that we achieve our best successes.
One perfect example of the value of research was our recent visit with the
senior management of MidAmerican Energy at their annual analyst meeting. This
company, formerly known as Cal Energy, has been an investment of Wilbanks, Smith
& Thomas and your Fund for the past year. During the analyst meeting the company
outlined their budget and forecast for the next three years. The company
suggested that they would generate over $15 per share in free cash flow from
operations. They showed specifically how they would achieve each of the three
years earnings forecast and suggested that they have great confidence that their
budget is conservative.
<PAGE>
Consequently, we have the opportunity to continue to invest in a company whose
stock trades at $28 per share and which can generate over 50% of the value of
the stock in cash during the next three years. We have found few companies that
can grow earnings at 15% annually and trade at such an inexpensive valuation. We
are more excited than ever with this company's prospects and our confidence is
generated directly from our research on this company. We anticipate that
MidAmerican will remain a core holding in the Fund. Of course we will monitor
the company very closely and we'll know quickly when the fundamentals change.
Wilbanks, Smith & Thomas Asset Management's analyst team contacts one or two
companies per day and travels extensively to meet with the senior management of
almost all of the companies in which we invest. During the past year we have
contacted or visited with more than 200 companies over 500 different sessions.
Outlook for the future
----------------------
While it is difficult to forecast the absolute levels of economic growth,
inflation or interest rates, the portfolio management team of the WST Growth &
Income Fund does attempt to identify major trends in these variables as well as
Federal Reserve policy and secular themes within different industry groups.
History is a great teacher and our research proves that investors often react in
the same predictable ways to certain events decade after decade. Therefore we
deem it important to identify the major trends in macro variables, as those
trends will eventually drive equity performance.
Our outlook for the remainder of the year remains positive. Interest rates are
relatively stable despite the moderate rise during 1999. While Fed policy shifts
are extremely difficult to foresee, we expect Alan Greenspan to maintain a
neutral monetary policy. Economic growth is robust with GDP gains of over 4%
during the first quarter of this year. The government continues to run a major
budget surplus, which could approach $100 billion during the current fiscal
year. The foreign economies, which were so problematic during 1998, are
improving.
Our conversations with the majority of the companies in the Fund are very
bullish. Senior management is executing well and companies are generating record
profits. Stock prices generally follow earnings so we remain very positive on
the holdings in the Fund. We estimate that the Fund's companies will generate an
average earnings gain in 1999 of 22%, which is almost 3 times the 8% growth rate
forecast for the S&P 500. The average valuation of our companies is actually at
a discount to the overall market. This combination of strong growth and low
relative valuations gives us great comfort in a market that looks expensive by
many measures.
<PAGE>
Given the valuations at which the Nifty Fifty are trading and the general
exuberance in the market, we anticipate a modest correction during the next 3 to
4 months. The trigger for this correction could be Year 2000 issues, an
unexpected rise in interest rates, or some other now unforeseen event. As long
as the powerful trends at work in the economy and at our companies remain
intact, we will use any correction to add to holdings at attractive prices.
Your portfolio management team is optimistic about the coming year and
appreciate your continued confidence. We are in the process of expanding our web
site and look forward to broadening the array of information available about the
Fund as the summer progresses. We will work diligently to maintain positive
results and wish you the best as we approach the millennium.
/S/ Wayne F. Wilbanks
/S/ L. Norfleet Smith, Jr.
/s/ Norwood A.Thomas, Jr.
/s/ T. Carl Turnage
/s/ Lawrence A. Bernert, III
- --------
1 Footnote - Annual return for the Investor Class shares would be 8.58% net of
the 3.75% sales charge. The annualized since inception return would be 13.01%
net of the sales charge.
<PAGE>
WST GROWTH & INCOME FUND
Investor Shares
Performance Update - $10,000 Investment
For the period from October 3, 1997 (Date of Initial Public Investment)
to March 31, 1999
[Graph]
60% S&P 500 Index
20% Lehman Gov't/ Lipper Growth
Investor Corp Bond Index & Income Fund
Shares 20% Russell 2000 Index Index
------ ---------------------- -----
10/3/97 9,625 10,000 10,000
12/31/97 9,607 10,015 9,937
3/31/98 10,606 11,093 11,070
6/30/98 10,701 11,268 11,091
9/30/98 9,297 10,261 9,708
12/31/98 11,463 11,895 11,286
3/31/99 11,934 12,181 11,525
This graph depicts the performance of the WST Growth & Income Fund Investor
Shares versus the Lipper Growth and Income Fund Index and a combined index of
60% S&P 500 Index, 20% Lehman Intermediate Government/Corporate Bond Index, and
20% Russell 2000 Index. It is important to note that the WST Growth & Income
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 IPI One Year
- ------------------------------------------------------------------------
No Sales Load 15.52% 12.52%
- ------------------------------------------------------------------------
Maximum 3.75% Sales Load 12.59% 8.30%
- ------------------------------------------------------------------------
The graph assumes an initial $10,000 investment at October 3, 1997 ($9,625 after
maximum sales load of 3.75%). All dividends and distributions are reinvested.
At March 31, 1999, the WST Growth & Income Fund Investor Shares would have grown
to $11,934 - total investment return of 19.34% since October 3, 1997. Without
the deduction of the 3.75% maximum sales load, the WST Growth & Income Fund
Investor Shares would have grown to $12,399 total investment return of 23.99%
since October 3, 1997.
At March 31, 1999, a similar investment in the Lipper Growth and Income Fund
Index would have grown to $11,525 - total investment return of 15.25%; a
combined index of 60% S&P 500 Index, 20% Lehman Intermediate
Government/Corporate Bond Index, and 20% Russell 2000 Index would have grown to
$12,181 - total investment return of 21.81%, since October 3, 1997. The combined
index replaces the former combined index of 70% S&P 500 Index, 20% Lehman
Intermediate Government/Corporate Bond Index, and 10% Russell 2000 Index used in
the graph in the prior annual report for illustrative purposes because the
Investment Advisor feels that the current combined index is a more accurate
comparison to WST Growth & Income Fund's investment strategy than the previous
combined index. For the fiscal year ended March 31, 1999, the investment in the
Investor Shares of the WST Growth & Income Fund would have increased in value by
$1,328; without the deduction of the 3.75% maximum sales load, the WST Growth &
Income Fund Investor Shares would have increased in value by $1,380; the similar
investment in the current combined index would have increased in value by
$1,088; while the similar investment in the prior combined index would have
increased in value by $1,471.
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> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 91.13%
Aerospace & Defense - 3.16%
AlliedSignal, Inc. ................................................. 9,000 $ 441,563
----------
Beverages - 2.81%
PepsiCo, Inc. ...................................................... 10,000 391,875
----------
Broadcast - Radio & Television - 2.17%
(a)Cox Communications, Inc. ........................................... 4,000 302,500
----------
Commercial Services - 2.33%
(a)ACNielsen Corporation .............................................. 12,000 325,500
----------
Computers - 4.06%
Compaq Computer Corporation ........................................ 8,250 261,938
Hewlett-Packard Company ............................................ 4,500 305,156
----------
567,094
----------
Computer Software & Services - 5.27%
(a)Advent Software, Inc. .............................................. 6,000 300,000
(a)Oracle Corporation ................................................. 16,500 435,187
----------
735,187
----------
Cosmetics & Personal Care - 5.57%
Gillette Company ................................................... 8,000 475,500
(a)Playtex Products, Inc. ............................................. 20,000 302,500
----------
778,000
----------
Direct Marketing - 1.84%
(a)TeleSpectrum Worldwide Inc. ........................................ 30,000 256,875
----------
Diversified Manufacturing - 1.98%
General Electric Company ........................................... 2,500 276,562
----------
Electronics - Semiconductor - 1.71%
Intel Corporation .................................................. 2,000 238,250
----------
Financial - Banks, Commercial - 10.97%
BankAmerica Corporation ............................................ 5,600 395,500
CCB Financial Corporation .......................................... 5,000 270,312
Chase Manhattan Corporation ........................................ 2,400 195,150
Citigroup Inc. ..................................................... 5,000 319,375
Resource Bankshares Corporation .................................... 17,800 351,550
----------
1,531,887
----------
Financial Services - 6.14%
American Express Company ........................................... 2,000 235,000
Equifax, Inc. ...................................................... 6,000 206,250
Fannie Mae ......................................................... 6,000 415,500
----------
856,750
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Insurance - Life & Health - 3.90%
AFLAC, Incorporated .................................................. 10,000 $ 544,375
----------
Insurance - Multiline - 2.59%
American International Group, Inc. ................................... 3,000 361,875
----------
Manufacturing - Miscellaneous - 2.67%
Tyco International Ltd. .............................................. 5,200 373,100
----------
Medical Supplies - 2.21%
Johnson & Johnson .................................................... 3,300 309,169
----------
Multimedia - 4.82%
The Walt Disney Company .............................................. 12,500 389,063
Time Warner, Inc. .................................................... 4,000 283,250
----------
672,313
----------
Office Automation & Equipment - 1.87%
Xerox Corporation .................................................... 5,000 260,625
----------
Pharmaceuticals - 5.10%
American Home Products ............................................... 6,000 391,500
Merck & Co., Inc. .................................................... 4,000 320,500
----------
712,000
----------
Publishing - Newspapers - 2.65%
The New York Times Company ........................................... 13,000 370,500
----------
Restaurants & Food Service - 2.60%
McDonald's Corporation ............................................... 8,000 362,500
----------
Retail - Specialty Line - 6.52%
CVS Corporation ...................................................... 9,000 426,375
Lowe's Companies, Inc. ............................................... 8,000 484,000
----------
910,375
----------
Telecommunications - 6.28%
AT&T Corp. ........................................................... 5,429 433,302
(a)MCI WorldCom, Inc. ................................................... 5,000 442,813
----------
876,115
----------
Utilities - Electric - 1.91%
MidAmerican Energy Holdings Co. ...................................... 9,500 266,000
----------
Total Common Stocks (Cost $10,070,787) ............................... 12,720,990
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 2.16%
Financial - Banks, Commercial - 0.18%
RESOURCE CAPITAL TRUST, 9.25%................................. 1,000 $25,250
-------
Insurance - Multiline - 0.95%
AICI CAPITAL TRUST, 9.00% .................................... 5,500 133,031
-------
Telecommunications - 1.03%
TCI Communications, 8.72% .................................... 5,500 143,687
-------
Total Preferred Stocks (Cost $306,974) ....................... 301,968
-------
Interest Maturity
Principal Rate Date
---------------- ---------------- ---------------
CORPORATE OBLIGATION - 2.65%
Macsaver Financial Services ........................... $500,000 7.875% 8/01/03 370,000
(Cost $431,443) -------
Shares
-------------
INVESTMENT COMPANY - 3.52%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares .................................. 490,375 490,375
-----------
(Cost $490,375)
Total Value of Investments (Cost $11,299,579 (b)) ..................................... 99.46 % $13,883,333
Liabilities less other assets ......................................................... 0.54 % 75,189
-------- -----------
Net Assets ..................................................................... 100.00 % $13,958,522
======== ===========
(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 .............................................. $ 2,855,769
Unrealized depreciation .............................................. (272,015)
-----------
Net unrealized appreciation .................................... $ 2,583,754
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Investments, at value (cost $11,299,579) ......................................................... $ 13,883,333
Income receivable ................................................................................ 18,233
Receivable for fund shares sold .................................................................. 63,074
Deferred organization expenses, net (note 4) ..................................................... 28,775
------------
Total assets ................................................................................ 13,993,415
------------
LIABILITIES
Disbursements in excess of cash on demand deposit ................................................ 16,811
Accrued expenses ................................................................................. 17,549
Other liabilities ................................................................................ 533
------------
Total liabilities ........................................................................... 34,893
------------
NET ASSETS .............................................................................................. $ 13,958,522
============
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $ 11,995,891
Accumulated net realized loss on investments ..................................................... (621,123)
Net unrealized appreciation on investments ....................................................... 2,583,754
------------
$ 13,958,522
============
INSTITUTIONAL CLASS
Net asset value, redemption and maximum offering price per share
($11,419,391 / 894,317 shares) ................................................................... $ 12.77
============
INVESTOR CLASS
Net asset value, redemption and offering price per share
($2,539,131 / 200,364 shares) ................................................................... $ 12.67
============
Maximum offering price per share (100 / 96.25% of $12.67) ........................................ $ 13.16
============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1999
INVESTMENT LOSS
Income
Interest ...................................................................................... $ 32,478
Dividends ..................................................................................... 133,143
-----------
Total income ............................................................................ 165,621
-----------
Expenses
Investment advisory fees (note 2) ............................................................. 71,743
Fund administration fees (note 2) ............................................................. 16,740
Distribution and service fees - Investor class shares (note 3) ................................ 7,113
Custody fees .................................................................................. 3,343
Registration and filing administration fees (note 2) .......................................... 4,900
Fund accounting fees (note 2) ................................................................. 33,000
Audit fees .................................................................................... 9,550
Legal fees .................................................................................... 18,540
Securities pricing fees ....................................................................... 2,807
Shareholder recordkeeping fees ................................................................ 7,500
Shareholder servicing expenses ................................................................ 4,314
Registration and filing expenses .............................................................. 5,885
Printing expenses ............................................................................. 7,984
Amortization of deferred organization expenses (note 4) ....................................... 8,227
Trustee fees and meeting expenses ............................................................. 3,743
Other operating expenses ...................................................................... 355
-----------
Total expenses .......................................................................... 205,744
-----------
Less investment advisory fees waived (note 2) ........................................... (31,699)
-----------
Net expenses ............................................................................ 174,045
-----------
Net investment loss ................................................................ (8,424)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investment transactions ..................................................... (578,937)
Increase in unrealized appreciation on investments ................................................. 1,853,775
-----------
Net realized and unrealized gain on investments ............................................... 1,274,838
-----------
Net increase in net assets resulting from operations .................................... $ 1,266,414
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
For the
period from
September 9, 1997
(commencement
Year ended of operations)
March 31, to March 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment (loss) income ............................................ $ (8,424) $ 1,567
Net realized loss from investment transactions .......................... (578,937) (42,186)
Increase in unrealized appreciation on investments ...................... 1,853,775 729,979
----------- -----------
Net increase in net assets resulting from operations ................ 1,266,414 689,360
----------- -----------
Distributions to shareholders from
Net investment income - Institutional Class ............................. 0 (2,096)
Net investment income - Investor Class .................................. 0 (40)
----------- -----------
Decrease in net assets resulting from distributions ................. 0 (2,136)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .... 5,552,729 6,452,155
----------- -----------
Total increase in net assets ................................... 6,819,143 7,139,379
NET ASSETS
Beginning of period .......................................................... 7,139,379 0
----------- -----------
End of period ................................................................ $13,958,522 $ 7,139,379
=========== ===========
(a) A summary of capital share activity follows:
------------------------------------------------------------------------
For the period from
September 9, 1997
Year ended (commencement of operations)
March 31, 1999 to March 31, 1998
Shares Value Shares Value
------------------------------------------------------------------------
-------------------
INSTITUTIONAL CLASS
-------------------
Shares sold ............................................. 361,611 $ 4,344,114 564,741 $ 5,750,088
Shares issued for reinvestment of distributions ......... 0 0 191 2,096
----------- ----------- ----------- -----------
361,611 4,344,114 564,932 5,752,184
Shares redeemed ......................................... (32,095) (380,601) (131) (1,395)
----------- ----------- ----------- -----------
Net increase ....................................... 329,516 $ 3,963,513 564,801 $ 5,750,789
=========== =========== =========== ===========
--------------
INVESTOR CLASS
--------------
Shares sold ............................................. 143,763 $ 1,721,117 67,766 $ 701,326
Shares issued for reinvestment of distributions ......... 0 0 4 40
----------- ----------- ----------- -----------
143,763 1,721,117 67,770 701,366
Shares redeemed ......................................... (11,169) (131,901) 0 0
----------- ----------- ----------- -----------
Net increase ....................................... 132,594 $ 1,589,216 67,770 $ 701,366
=========== =========== =========== ===========
------------
FUND SUMMARY
------------
Shares sold ............................................. 505,374 $ 6,065,231 632,507 $ 6,451,414
Shares issued for reinvestment of distributions ......... 0 0 195 2,136
----------- ----------- ----------- -----------
505,374 6,065,231 632,702 6,453,550
Shares redeemed ......................................... (43,264) (512,502) (131) (1,395)
----------- ----------- ----------- -----------
Net increase ....................................... 462,110 $ 5,552,729 632,571 $ 6,452,155
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
--------------------------- ---------------------------
INSTITUTIONAL CLASS INVESTOR CLASS
--------------------------- ---------------------------
For the period For the period
from Sept. 30, 1997 from Oct. 3, 1997
(date of inititial (date of initial
Year ended public investment) Year ended public investment)
March 31, to March 31, March 31, to March 31,
1999 1998 1999 1998
--------------------------- ---------------------------
Net asset value, beginning of period ............................ $11.29 $10.02 $11.26 $10.22
Income from investment operations
Net investment income (loss) ......................... 0.00 0.00 (0.04) (0.01)
Net realized and unrealized gain on investments ...... 1.48 1.27 1.45 1.05
----------- ----------- ----------- -----------
Total from investment operations ............... 1.48 1.27 1.41 1.04
----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ................................ (0.00) 0.00 (0.00) (0.00)
----------- ----------- ----------- -----------
Net asset value, end of period .................................. $12.77 $11.29 $12.67 $11.26
=========== =========== =========== ===========
Total return (a) ................................................ 13.11 % 12.72 % 12.52 % 10.52 %
=========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of period ................................. $11,419,391 $ 6,376,193 $ 2,539,131 $ 763,186
=========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ........ 2.08 % 3.15 % (b) 2.56 % 3.63 % (b)
After expense reimbursements and waived fees ......... 1.75 % 1.75 % (b) 2.25 % 2.25 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ........ (0.35)% (1.31)% (b) (0.84)% (1.70)% (b)
After expense reimbursements and waived fees ......... (0.01)% 0.09 % (b) (0.53)% (0.31)% (b)
Portfolio turnover rate ................................... 31.11 % 23.64 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The WST Growth & Income Fund (the "Fund") is a diversified series of
shares of beneficial interest of The Nottingham Investment Trust II
(the "Trust"). The Trust, an open-end investment company, was organized
on October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The Fund began
operations on September 9, 1997. The investment objective of the fund
is to provide its shareholders with a maximum total return consisting
of any combination of capital appreciation, both realized and
unrealized, and income. The Fund has an unlimited number of authorized
shares, which are divided into two classes - Institutional Shares and
Investor Shares.
Each class of shares has equal rights as to assets of the Fund, and the
classes are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Investor Class), and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its
relative net assets. Investor Shares purchased are subject to a maximum
sales charge of 3.75%. Both classes have equal voting privileges,
except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of
the shareholders of a particular class. The following is a summary of
significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at 4:00 p.m., New York
time. Other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that
date are valued at the most recent bid price. Securities for
which market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The Fund has capital loss carryforwards for federal income tax
purposes of $384,452, of which $42,186 expires in the year
2006 and $342,266 expires in the year 2007. It is the
intention of the Board of Trustees of the Trust not to
distribute any realized gains until the carryforwards have
been offset or expire.
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October 31,
which are deferred for income tax purposes. The character of
distributions to shareholders made during the year from net
investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
Also, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year
that the income or realized gains were recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded
on trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date.
(Continued)
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September, and December on
a date selected by the Trust's Trustees. In addition,
distributions may be made annually in December out of net
realized gains through October 31 of that year. The Fund may
make a supplemental distribution subsequent to the end of its
fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results
could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Wilbanks, Smith & Thomas
Asset Management, Inc. (the "Advisor"), provides the fund with a
continuous program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and recommendations
with respect to investments, investment policies, and the purchase and
sale of securities. As compensation for its services, the Advisor
receives a fee at the annual rate of 0.75% of the first $250 million of
the Fund's average daily net assets and 0.65% of all assets over $250
million.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class and a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class. There can be no
assurance that the foregoing voluntary fee waivers or reimbursements
will continue. The Advisor has voluntarily waived a portion of its fee
amounting to $31,699 ($0.04 per share) for the year ended March 31,
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 an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, 0.125% of the next $50
million, and 0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting and
record-keeping services for the initial class of shares and $750 per
month for each additional class of shares. The contract with the
Administrator provides that the aggregate fees for the aforementioned
administration, accounting, and recordkeeping services shall not be
less than $4,000 per month. The Administrator also charges the Fund for
certain expenses involved with the daily valuation of portfolio
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
(Continued)
<PAGE>
WST GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 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"), 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 $7,113 of such
expenses under the Plan for the year ended March 31, 1999.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $8,689,279 and $2,793,249, respectively, for the year ended
March 31, 1999.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of WST Growth & Income Fund:
We have audited the accompanying statement of assets and liabilities of WST
Growth & Income Fund (the "Fund"), including the portfolio of investments, as of
March 31, 1999, and the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended March 31, 1999 and
1998, and financial highlights for each of 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 securities owned as of March
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of WST
Growth & Income Fund as of March 31, 1999, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
the respective stated periods, in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 23, 1999
<PAGE>
________________________________________________________________________________
CAPITAL VALUE FUND
________________________________________________________________________________
a series of The Nottingham Investment Trust II
ANNUAL REPORT 1999
FOR THE YEAR ENDED MARCH 31
INVESTMENT ADVISOR
Capital Investment Counsel, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
919-831-2370
CAPITAL VALUE FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
Capital Value Fund
MANAGER'S COMMENTS
In order to predict the future you must look to the past. That old saying
has served me well. 1999 is very similar to 1998. At this point in 1998, the
Capital Value Fund took advantage of high valuations in the stock market and
sold many of our holdings at a substantial profit. By August of 1998 our cash
position was in excess of 25%. This timing was fortunate in light of the markets
subsequent late summer sell off. As I write this, the cash portion in the
Capital Value Fund is 20%. Deja vu all over again?
The broad market averages have been weak over the past four weeks and I
feel this late spring weakness will provide a logical entry point into several
of our favorite sectors. In this day, the financial markets show their pleasure
and displeasure in a much more rapid and volatile fashion than even three years
ago. A drawback to these large, rapid moves is that the downside in equities can
be greater, ergo the reward for prudent management is much greater.
Rereading my comments from last November, I noted our focus on three
sectors, oil services, airlines, and financial services. Well, two out of three
isn't bad. We managed a minor 10% gain in the airlines, but have reaped gains of
50% or more in oil services and financials. We are still holding our oil service
stocks, but have sold the majority of our financial positions. The reason behind
the sale was an extremely high valuation on these stocks. For example, I know
that Citigroup is a wonderful company, but I fail to see how they can
consistently sell at 30 times earnings!
Several of our favorite technology and drug stocks have been punished
during the second quarter, and we will use continued weakness to build up our
positions. The key to this market's level remains the yield on the 30 year
Treasury bond. The yield is currently 5.70%. A move in yield significantly above
6.25% would lead me to question the stock markets' high valuation.
<PAGE>
Capital Value Fund
Performance Update - $10,000 Investment
For the period from December 31, 1991 to
March 31, 1999
[GRAPH:]
Capital 60% S&P 500 Index
Value 40% Lehman Aggregate
Fund Bond Index
---- ----------
12/31/91 9,650 10,000
3/31/92 9,541 9,797
9/30/92 9,929 10,432
3/31/93 10,616 11,213
9/30/93 10,898 11,659
3/31/94 11,099 11,418
9/30/94 11,395 11,763
3/31/95 12,084 12,711
9/30/95 13,474 14,547
3/31/96 14,037 15,767
9/30/96 14,473 16,702
3/31/97 15,031 18,098
9/30/97 18,987 21,780
3/31/98 19,975 24,773
9/30/98 19,436 23,890
3/31/99 22,905 28,597
This graph depicts the performance of the Capital Value Fund versus a combined
index of 60% S&P 500 Index and 40% Lehman Brothers Aggregate Bond Index. It is
important to note that the Capital Value 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
- -------------------------------------------------------------------------------
No Sales Load 12.66% 14.67% 15.58%
- -------------------------------------------------------------------------------
Maximum 3.5% Sales Load 12.11% 10.66% 14.76%
- -------------------------------------------------------------------------------
The graph assumes an initial $10,000 investment at December 31, 1991 ($9,650
after maximum sales load of 3.5%). All dividends and distributions are
reinvested.
At March 31, 1999, the Capital Value Fund would have grown to $22,905 - total
investment return of 129.05% since December 31, 1991. Without the deduction of
the 3.5% maximum sales load, the Capital Value Fund would have grown to $23,736
- - total investment return of 137.36% since December 31, 1991. The sales load may
be reduced or eliminated for larger purchases.
At March 31, 1999, a similar investment in a combined index of 60% S&P 500 Index
and 40% Lehman Brothers Aggregate Bond Index would have grown to $28,597 - total
investment return of 185.97% since December 31, 1991.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 68.75%
Auto & Trucks - 3.86%
(a)DaimlerChrysler AG .................................................. 810 $ 69,508
Ford Motor Company .................................................. 4,000 226,750
General Motors Corporation .......................................... 1,500 130,500
----------
426,758
----------
Beverages - 0.71%
PepsiCo, Inc. ....................................................... 2,000 78,375
----------
Brewery - 0.98%
Adolph Coors Company ................................................ 2,000 108,000
----------
Broadcast - Radio & Television - 1.15%
(a)MediaOne Group, Inc. ................................................ 2,000 127,000
----------
Building Materials - 0.93%
Louisiana-Pacific Corporation ....................................... 5,500 102,438
----------
Commercial Services - 0.75%
Automatic Data Processing, Inc. ..................................... 2,000 82,750
----------
Computers - 8.39%
Compaq Computer Corporation ......................................... 12,000 381,000
(a)Dell Computer Corporation ........................................... 4,000 163,500
(a)EMC Corporation ..................................................... 3,000 383,250
----------
927,750
----------
Computer Software & Services - 12.28%
(a)3Com Corporation .................................................... 3,500 81,594
(a)Brooktrout Technology, Inc. ......................................... 4,300 45,150
(a)Cisco Systems, Inc. ................................................. 6,250 684,766
Hewlett-Packard Company ............................................. 3,000 203,438
(a)Novell, Inc. ........................................................ 10,500 264,469
(a)Parametric Technology Corporation ................................... 4,000 79,000
----------
1,358,417
----------
Electronics - 7.84%
(a)Cree Research, Inc. ................................................. 7,500 352,031
General Electric Company ............................................ 2,000 221,250
Motorola, Inc. ...................................................... 4,000 293,000
----------
866,281
----------
Financial - Banks, Commercial - 8.06%
BankAmerica Corporation ............................................. 3,000 211,875
BankBoston Corporation .............................................. 2,000 86,625
Bankers Trust Corporation ........................................... 1,000 88,250
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Banks, Commercial - (Continued)
The Bear Stearns Companies Inc. ....................................... 5,250 $ 234,609
First Union Corporation ............................................... 2,000 106,875
Wachovia Corporation .................................................. 2,000 162,375
----------
890,609
----------
Foreign Securities - 0.91% (b)
Norsk Hydro ASA - ADR ................................................. 2,500 100,938
----------
Industrial Materials - Specialty - 0.84%
(a)The AES Corporation ................................................... 2,500 93,125
----------
Oil & Gas - Equipment & Services - 4.10%
Baker Hughes Incorporated ............................................. 8,300 201,794
Halliburton Company ................................................... 5,000 192,500
(a)Smith International, Inc. ............................................. 1,500 60,000
----------
454,294
----------
Pharmaceuticals - 3.44%
McKesson HBOC, Inc. ................................................... 1,700 112,200
Mylan Laboratories Inc. ............................................... 6,000 164,625
(a)Roberts Pharmaceutical Corporation .................................... 5,000 103,750
----------
380,575
----------
Retail - Apparel - 3.39%
Nike, Inc. ............................................................ 6,500 374,969
----------
Retail - Department Stores - 4.15%
Sears, Roebuck & Company .............................................. 7,100 320,831
Wal-Mart Stores, Inc. ................................................. 1,500 138,468
----------
459,299
----------
Telecommunications Equipment - 0.96%
PairGain Technologies, Inc. ........................................... 10,000 97,500
(a)Premisys Communications, Inc. ......................................... 1,000 8,625
----------
106,125
----------
Transportation - Air - 3.09%
(a)US Airways Group, Inc. ................................................ 7,000 341,688
----------
Utilities - Telecommunications - 2.92%
GTE Corporation ....................................................... 2,000 121,000
SBC Communications Inc. ............................................... 2,194 103,391
Sprint Corporation .................................................... 1,000 98,125
----------
322,516
----------
Total Common Stocks (Cost $4,887,614) ................................. 7,601,907
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 17.92%
A T & T Corporation .............................. $ 50,000 7.500% 06/01/06 $ 54,125
A T & T Corporation .............................. 50,000 8.125% 01/15/22 53,313
A T & T Corporation .............................. 50,000 8.125% 07/15/24 53,938
A T & T Corporation .............................. 100,000 8.625% 12/01/31 111,375
American Express Company ......................... 50,000 8.625% 05/15/22 53,798
Anheuser-Busch Companies, Inc. ................... 25,000 9.000% 12/01/09 30,944
Archer Daniels Midland Corporation ............... 100,000 6.250% 05/15/03 101,819
Archer Daniels Midland Corporation ............... 25,000 8.875% 04/15/11 30,948
BellSouth Telecommunications ..................... 50,000 6.250% 05/15/03 51,000
BellSouth Telecommunications ..................... 50,000 7.000% 02/01/05 53,188
BellSouth Telecommunications ..................... 25,000 7.875% 08/01/32 26,500
BellSouth Telecommunications ..................... 125,000 6.750% 10/15/33 122,031
The Boeing Company ............................... 150,000 8.750% 09/15/31 180,000
The Coca-Cola Company ............................ 70,000 8.500% 02/01/22 82,979
Du Pont (E.I.) De Nemours & Company .............. 50,000 8.125% 03/15/04 54,812
Du Pont (E.I.) De Nemours & Company .............. 50,000 7.950% 01/15/23 53,340
Duke Energy Corp ................................. 20,000 6.375% 03/01/08 20,100
Duke Energy Corp ................................. 100,000 6.750% 08/01/25 98,750
General Electric Capital Corporation ............. 100,000 8.750% 05/21/07 118,015
International Business Machines .................. 50,000 8.375% 11/01/19 59,813
Morgan Stanley Group, Inc. ....................... 75,000 7.500% 02/01/24 75,111
Pacific Bell ..................................... 100,000 6.250% 03/01/05 101,125
United Parcel Service of America ................. 50,000 8.375% 04/01/20 60,274
U S West Communications Group .................... 50,000 6.875% 09/15/33 48,117
Wachovia Corporation ............................. 75,000 6.375% 04/15/03 76,469
Wal-Mart Stores, Inc. ............................ 25,000 6.500% 06/01/03 25,778
Wal-Mart Stores, Inc. ............................ 150,000 8.875% 06/29/11 155,735
Wal-Mart Stores, Inc. ............................ 25,000 8.500% 09/15/24 27,902
----------
Total Corporate Obligations (Cost $1,795,761) .............................................................. 1,981,299
----------
Shares
----------
INVESTMENT COMPANIES - 9.08%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ........................................ 501,797 501,797
Evergreen Money Market Treasury Institutional Treasury Money
Market Fund Institutional Service Shares ........................................ 501,797 501,797
----------
Total Investment Companies (Cost $1,003,594) ................................................................ 1,003,594
----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 1999
Total Value of Investments (Cost $7,686,969 (c)) ................................. 95.75% $10,586,800
Other Assets Less Liabilities .................................................... 4.25% 469,474
------ -----------
Net Assets .................................................................. 100.00% $11,056,274
====== ===========
(a) Non-income producing investment.
(b) Foreign securities represent securities issued in the United States markets by non-domestic companies.
(c) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation .................................................................. $ 3,094,963
Unrealized depreciation .................................................................. (195,132)
-----------
Net unrealized appreciation ............................................... $ 2,899,831
===========
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Investments, at value (cost $7,686,969) ............................................................ $10,586,800
Cash ............................................................................................... 515,010
Income receivable .................................................................................. 45,375
Receivable for investments sold .................................................................... 99,314
-----------
Total assets .................................................................................. 11,246,499
-----------
LIABILITIES
Accrued expenses ................................................................................... 21,653
Payable for investment purchases ................................................................... 168,572
-----------
Total liabilities ............................................................................. 190,225
-----------
NET ASSETS
(applicable to 721,904 Investor Class Shares outstanding; unlimited
shares of no par value beneficial interest authorized) ............................................ $11,056,274
===========
NET ASSET VALUE AND REDEMPTION PRICE PER INVESTOR CLASS SHARE
($11,056,274 / 721,904 shares) ..................................................................... $15.32
===========
OFFERING PRICE PER INVESTOR CLASS SHARE
(100 / 96.5% of $15.32) ............................................................................ $15.88
===========
NET ASSETS CONSIST OF
Paid-in capital .................................................................................... $ 7,759,067
Accumulated net realized gain on investments ....................................................... 397,376
Net unrealized appreciation on investments ......................................................... 2,899,831
-----------
$11,056,274
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENT OF OPERATIONS
Year ended March 31, 1999
INVESTMENT INCOME
Income
Interest ....................................................................................... $ 146,911
Dividends ...................................................................................... 112,411
----------
Total income ............................................................................. 259,322
----------
Expenses
Investment advisory fees (note 2) .............................................................. 61,110
Fund administration fees (note 2) .............................................................. 21,583
Distribution and service fees - Investor Class Shares (note 3) ................................. 50,925
Custody fees ................................................................................... 3,821
Registration and filing administration fees (note 2) ........................................... 2,864
Fund accounting fees (note 2) .................................................................. 22,500
Audit fees ..................................................................................... 10,100
Legal fees ..................................................................................... 15,743
Securities pricing fees ........................................................................ 6,074
Shareholder recordkeeping fees ................................................................. 5,578
Other accounting fees .......................................................................... 2,840
Shareholder servicing expenses ................................................................. 4,179
Registration and filing expenses ............................................................... 3,489
Printing expenses .............................................................................. 2,628
Trustee fees and meeting expenses .............................................................. 3,767
Other operating expenses ....................................................................... 1,612
----------
Total expenses ........................................................................... 218,813
----------
Net investment income ............................................................... 40,509
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ...................................................... 1,210,654
Increase in unrealized appreciation on investments .................................................. 169,272
----------
Net realized and unrealized gain on investments ................................................ 1,379,926
----------
Net increase in net assets resulting from operations ..................................... $1,420,435
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income .............................................. $ 40,509 $ 81,731
Net realized gain from investment transactions ..................... 1,210,654 1,175,258
Increase in unrealized appreciation on investments ................. 169,272 1,240,206
----------- -----------
Net increase in net assets resulting from operations ........... 1,420,435 2,497,195
----------- -----------
Distributions to shareholders from
Net investment income .............................................. (40,509) (81,731)
Net realized gain from investment transactions ..................... (813,281) (1,175,255)
----------- -----------
Decrease in net assets resulting from distributions ............ (853,790) (1,256,986)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) 601,561 909,604
----------- -----------
Total increase in net assets .............................. 1,168,206 2,149,813
NET ASSETS
Beginning of year ....................................................... 9,888,068 7,738,255
----------- -----------
End of year ............................................................. $11,056,274 $ 9,888,068
=========== ===========
(a) A summary of capital share activity follows:
------------------------------------------------------------------------
Year ended Year ended
March 31, 1999 March 31, 1998
Shares Value Shares Value
------------------------------------------------------------------------
Shares sold ............................................... 65,106 $ 969,346 59,404 $ 887,599
Shares issued for reinvestment
of distributions ..................................... 57,489 853,665 86,177 1,254,982
----------- ----------- ----------- -----------
122,595 1,823,011 145,581 2,142,581
Shares redeemed ........................................... (82,277) (1,221,450) (82,958) (1,232,977)
----------- ----------- ----------- -----------
Net increase ......................................... 40,318 $ 601,561 62,623 $ 909,604
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE 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,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....................... $14.51 $12.50 $11.92 $10.75 $10.42
Income from investment operations
Net investment income ......................... 0.06 0.13 0.15 0.19 0.17
Net realized and unrealized gain on investments 2.02 3.93 0.70 1.53 0.73
----------- ----------- ----------- ----------- -----------
Total from investment operations ......... 2.08 4.06 0.85 1.72 0.90
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ......................... (0.06) (0.13) (0.15) (0.20) (0.21)
Tax return of capital ......................... 0.00 0.00 (0.01) 0.00 0.00
Net realized gain from investment transactions (1.21) (1.92) (0.11) (0.35) (0.36)
----------- ----------- ----------- ----------- -----------
Total distributions ...................... (1.27) (2.05) (0.27) (0.55) (0.57)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ............................. $15.32 $14.51 $12.50 $11.92 $10.75
=========== =========== =========== =========== ===========
Total return (a) ......................................... 14.67% 32.89% 7.08% 16.16% 8.66%
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year ............................ $11,056,274 $ 9,888,068 $ 7,738,255 $ 7,551,803 $ 6,775,562
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.15% 2.12% 2.38% 2.56% 2.58%
After expense reimbursements and waived fees 2.15% 2.12% 2.38% 2.33% 2.47%
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees 0.40% 0.91% 1.12% 1.44% 1.55%
After expense reimbursements and waived fees 0.40% 0.91% 1.12% 1.66% 1.66%
Portfolio turnover rate 70.65% 33.50% 7.31% 12.33% 24.67%
(a) Total return does not reflect payment of a sales charge.
See accompanying notes to financial statements
</TABLE>
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Capital Value Fund (the "Fund") is a diversified series of
shares of beneficial interest of The Nottingham Investment Trust
II (the "Trust"). The Trust, an open-ended investment company, was
organized on October 18, 1990 as a Massachusetts Business Trust
and is registered under the Investment Company Act of 1940, as
amended. The investment objective of the Fund is to provide its
shareholders with a maximum total return consisting of any
combination of capital appreciation, both realized and unrealized,
and income under the constantly varying market conditions by
investing in a flexible portfolio of equity securities, fixed
income securities, and money market instruments. The Fund began
operations on November 16, 1990.
Pursuant to a plan approved by the Board of Trustees of the Trust,
the existing single class of shares of the Fund was redesignated
as the Investor Class of shares of the Fund on June 15, 1995 and
an additional class of shares, the Institutional shares, was
authorized. To date, only Investor Class shares have been issued
by the Fund. The Institutional Class shares will be sold without a
sales charge and will bear no distribution and service fees. The
Investor Class shares are subject to a maximum 3.50% sales charge
and bear distribution and service fees which may not exceed 0.50%
of the Investor Class shares' average net assets annually. The
following is a summary of significant accounting policies followed
by the Fund.
A. Security Valuation - The Fund's investments in securities
are carried at value. Securities listed on an exchange or
quoted on a national market system are valued at the last
sales price as of 4:00 p.m. New York time on the day of
valuation. Other securities traded in the over-the-counter
market and listed securities for which no sale was reported
on that date are valued at the most recent bid price.
Securities for which market quotations are not readily
available, if any, are valued by using an independent
pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost
which approximates value.
B. Federal Income Taxes - 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.
(Continued)
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
C. Investment Transactions - Investment transactions are
recorded on the trade date. Realized gains and losses are
determined using the specific identification cost method.
Interest income is recorded daily on the accrual basis.
Dividend income is recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund generally declares
dividends quarterly, payable in March, June, September and
December, on a date selected by the Trust's Trustees. In
addition, distributions may be made annually in December out
of net realized gains through October 31 of that year.
Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental
distribution subsequent to the end of its fiscal year ending
March 31.
E. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amount of assets, liabilities, expenses and
revenues reported in the financial statements. Actual
results could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Capital Investment
Counsel, Inc. (the "Advisor") provides the Fund with a continuous
program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies
and the purchase and sale of securities. As compensation for its
services, the Advisor receives a fee at the annual rate of 0.60%
of the first $250 million of the average daily net assets of the
Fund and 0.50% of average daily net assets over $250 million.
The Fund's administrator, The Nottingham Company (the
"Administrator"), provides administrative services to and is
generally responsible for the overall management and day-to-day
operations of the Fund pursuant to 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 of average daily net assets,
0.125% of the next $50 million of average daily net assets, and
0.10% of average daily net assets over $150 million. Prior to
October 1, 1998, the administration fee was at an 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 $2,000 for accounting and recordkeeping
services. Prior to October 1, 1998, the fee for accounting and
recordkeeping services was $1,750. 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. Prior to October
1, 1998, the minimum monthly aggregate fee was $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") serves as the
Funds' 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>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Capital Investment Group, Inc. (the "Distributor"), an affiliate
of the Advisor, serves as the Fund's principal underwriter and
distributor. The Distributor receives any sales charges imposed on
purchases of shares and re-allocates a portion of such charges to
dealers through whom the sale was made, if any. For the year ended
March 31, 1999, the Distributor retained sales charges in the
amount of $2,240.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the Distributor or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who
are not "interested persons" of the Trust as defined in the
Investment Company Act of 1940 (the "Act"), as amended, adopted a
distribution plan pursuant to Rule 12b-1 of the Act (the "Plan").
The Act regulates the manner in which a regulated investment
company may assume expenses of distributing and promoting the
sales of its shares and servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain expenses, which
may not exceed 0.50% per annum of the Investor Class shares'
average daily net assets for each year elapsed subsequent to
adoption of the Plan, for payment to the Distributor and others
for items such as advertising expenses, selling expenses,
commissions, travel or other expenses reasonably intended to
result in sales of Investor shares of the Fund or support
servicing of shareholder accounts. Expenditures incurred as
service fees may not exceed 0.25% per annum of the Investor Class
shares' average daily net assets. The Fund incurred $50,925 of
such expenses under the Plan for the year ended March 31, 1999.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $6,219,046 and $6,652,467, respectively,
for the year ended March 31, 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 amount of $1.21 per share distributions for the year ended
March 31, 1999, was classified as long-term gain. Shareholders
should consult a tax advisor on how to report distributions for
state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of Capital Value Fund:
We have audited the accompanying statement of assets and liabilities of Capital
Value Fund (the "Fund"), including the portfolio of investments, as of March 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended March 31, 1999 and 1998,
and financial highlights for each of the years 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 securities owned as of March
31, 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Value Fund as of March 31, 1999, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
the respective stated years in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 23, 1999
<PAGE>
________________________________________________________________________________
INVESTEK FIXED INCOME TRUST
________________________________________________________________________________
a series of The Nottingham Investment Trust II
ANNUAL REPORT 1999
FOR THE YEAR ENDED MARCH 31
INVESTMENT ADVISOR
Investek Capital Management
317 East Capitol Street
Post Office Box 2840
Jackson, Mississippi 39207
601-949-3105
INVESTEK FIXED INCOME TRUST
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
29 April 1999
Dear Shareholders of Investek Fixed Income Trust:
What a year we have had in the fixed-income markets! Enclosed for your
review is the annual report for the Investek Fixed Income Trust dated 31 March
1999. A year ago on 31 March 1998, the yield on 10-year U.S. Treasury notes was
5.65%. As of this last March 31st, the yield was 5.23%, showing a fairly benign
decrease of 42 basis points. What is hidden between those two endpoints was a
drop to a low of 4.16% on 5 October 1998, 149 basis points below where they
started. Subsequently, rates have risen 107 bp from the low. All of this is to
say that bonds have given investors quite a ride.
Some of the events that occurred or continued to manifest themselves
this last year were the Asian contagion, Brazil's currency devaluation, Russian
default, and a hedge fund blowup. As you can imagine, through all of this, U.S.
Treasury issues performed very well. But as the markets begin to settle down and
return to normal, other fixed-income product has come back into line. In fact,
after all the turmoil, the major components of the Lehman Aggregate bond index
ended up just basis points away from each other, with Treasuries up 6.65% for
the year, Agencies up 6.55%, Corporates up 6.18%, Asset-Backeds up 6.67%, and
Mortgage-Backeds up 6.27%. The performance of some other noteworthy sectors was
not so good, with high yield up only 0.38% and emerging markets down 11.62%.
Through all this, the your fund held its own. The Trust finished the
fiscal year up 5.97%, beating the Lipper Intermediate Index 17 bp. The one year
return was 80th out of 258 funds. For the trailing three years, the fund had an
average annual return of 7.07%, which lagged the Lipper Index by just 10 bp.
Even so, the fund ranked 66th out of 181 funds. For the trailing five years, the
fund's average annual return was 7.31%, again beating the Lipper Index by 21
basis points. The five-year rank was 33 out of 121 funds. The average rating of
the fund's holdings is still AAA, with 86% rated AAA or Government equivalent.
Going forward, we are excited for the prospects of the fund. We plan to
stick to our style, knowing that overtime this will produce solid returns for
our clients.
Very truly yours,
[Logo Here]
/s/ Douglas Folk
INVESTEK CAPITAL MANAGEMENT
Douglas Folk, CFA
Vice President
<PAGE>
INVESTEK FIXED INCOME TRUST
Performance Update - $50,000 Investment
For the period from November 15, 1991
(commencement of operations) to March 31, 1999
[GRAPH:]
Investek Lehman Lipper Intermediate
Fixed Income Aggregate Investment Grade
Trust Bond Index Debt Fund Index
----- ---------- ---------------
11/15/91 50,000 50,000 50,000
12/31/91 50,355 51,720 51,713
3/31/92 50,612 51,059 51,108
6/30/92 55,345 53,119 53,135
9/30/92 53,918 55,401 55,567
12/31/92 54,275 55,548 55,446
3/31/93 56,875 57,844 57,912
6/30/93 58,672 59,378 59,394
9/30/93 60,027 60,928 60,941
12/31/93 60,004 60,964 60,990
3/31/94 57,698 59,216 59,307
6/30/94 57,065 58,606 58,608
9/30/94 57,281 58,963 58,974
12/31/94 57,736 59,186 59,035
3/31/95 60,426 62,171 61,709
6/30/95 64,300 65,959 65,120
9/30/95 64,918 67,254 66,360
12/31/95 67,446 70,120 69,140
3/31/96 66,892 68,877 67,915
6/30/96 67,836 69,268 68,179
9/30/96 68,958 70,549 69,371
12/31/96 70,199 72,665 71,341
3/31/97 70,487 72,259 70,914
6/30/97 73,040 74,913 73,353
9/30/97 74,765 77,402 75,618
12/31/97 76,634 79,681 76,730
3/31/98 77,474 80,920 78,518
6/30/98 79,135 82,811 80,229
9/30/98 83,668 86,312 83,310
12/31/98 82,489 86,603 83,402
3/31/99 82,100 86,173 83,068
This graph depicts the performance of the Investek Fixed Income Trust versus the
Lehman Brothers Aggregate Bond Index and the Lipper Intermediate Investment
Grade Debt Fund Index. It is important to note that the Investek Fixed Income
Trust 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
- -------------------------------------------------------
6.95% 5.97% 7.30%
- -------------------------------------------------------
The graph assumes an initial $50,000 investment at November 15, 1991. All
dividends and distributions are reinvested.
At March 31, 1999, the Investek Fixed Income Trust would have grown to $82,100 -
total investment return of 64.20% since November 15, 1991.
At March 31, 1999, a similar investment in the Lehman Brothers Aggregate Bond
Index would have grown to $86,173 - total investment return of 72.35%; and the
Lipper Intermediate Investment Grade Debt Fund Index would have grown to $83,068
- - total investment return of 66.14%, since November 15, 1991.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS - 66.19%
United States Treasury Note ............................. $ 300,000 4.250% 11/15/03 $ 289,030
A.I.D. - Equador ........................................ 80,488 7.050% 05/01/15 86,507
A.I.D. - Ivory Coast .................................... 258,399 8.100% 12/01/06 259,109
A.I.D. - Peru ........................................... 160,972 8.350% 01/01/07 161,476
Attransco Title XI ...................................... 500,000 6.120% 04/01/08 498,481
B.A.L.T. Conway Partnership Title XI .................... 135,952 10.750% 11/15/03 137,098
Chilbar Ship Co. Title XI ............................... 46,855 6.980% 07/15/01 46,842
Federal Agricultural Mortgage Corporation
Series AM-1003 ...................................... 657,710 6.822% 04/25/13 673,160
Federal National Mortgage Association
Pool #73401 ......................................... 485,113 6.440% 03/01/06 487,443
Pool #380484 ........................................ 993,398 6.390% 07/01/16 995,205
Federal National Mortgage Association Strip
Series 66 Class 1 ................................... 115,038 7.500% 01/01/20 119,423
Global Industries Ltd. Title XI ......................... 1,150,000 8.300% 07/15/20 1,200,273
Government National Mortgage Association
Pool #383137 ........................................ 380,127 7.750% 03/15/11 409,943
Lawrence Steamship Company Title XI ..................... 287,219 7.270% 09/01/03 293,538
Small Business Administration 99-A ...................... 1,000,000 5.450% 01/01/09 982,715
Small Business Administration 98-B ...................... 955,321 6.150% 02/01/18 949,411
-----------
Total U. S. Government and Agency Obligations (Cost $7,515,332)......................................... 7,589,654
-----------
U. S. GOVERNMENT INSURED OBLIGATIONS - 9.22%
Federal Housing Authority Project Loan
Downtowner Apartments ............................... 156,193 8.375% 11/01/11 160,831
GMAC 32 ............................................. 85,085 7.430% 12/01/21 86,702
Reilly #046 ......................................... 385,326 6.970% 06/01/14 389,059
USGI #87 ............................................ 412,195 7.430% 08/01/23 420,741
-----------
Total U. S. Government Insured Obligations (Cost $1,046,920) ........................................... 1,057,333
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
PORTFOLIO OF INVESTMENTS
March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 17.35%
California Infrastructure SDG&E Series 1997-1 ........... $500,000 6.370% 12/26/09 $ 506,719
Federal Express Corporation ............................. 499,852 6.720% 01/15/22 494,743
Great Northern Railroad Series Q ........................ 676,000 2.625% 01/01/10 466,440
Union Pacific Corporation ............................... 491,427 7.280% 04/30/15 521,027
-----------
Total Corporate Obligations (Cost $2,000,942) ............................................................... 1,988,929
-----------
CONVENTIONAL MORTGAGE BACKED SECURITIES - 4.36%
Prudential Home Mortgage Securities
REMIC Series 1994-2 Class A8 ........................ 500,000 6.750% 02/25/24 500,000
(Cost $488,892) -----------
PRIVATE MORTGAGE BACKED SECURITIES - 0.44%
National Housing Partnership ............................ 50,977 9.500% 05/01/03 50,963
(Cost $50,977) -----------
INVESTMENT COMPANY - 1.85%
AIM Short Term Prime Fund A ............................. 212,094 212,094
(Cost $212,094) -----------
Total Value of Investments (Cost $11,315,157 (a)) ........................................... 99.41% $11,398,973
Other Assets in Excess of Liabilities ....................................................... 0.59% 67,797
------- -----------
Net Assets ............................................................................. 100.00% $11,466,770
======= ===========
(a) Aggregate cost for federal income tax purposes is the $11,315,767. Unrealized appreciation (depreciation) of investments
for federal income tax purposes is as follows:
Unrealized appreciation .............................................................................. $ 155,812
Unrealized depreciation .............................................................................. (72,606)
-----------
Net unrealized appreciation .......................................................... $ 83,206
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
ASSETS
Investments, at value (cost $11,315,157) ....................................................... $11,398,973
Income receivable .............................................................................. 134,530
Due from advisor (note 2) ...................................................................... 1,278
-----------
Total assets .............................................................................. 11,534,781
-----------
LIABILITIES
Accrued expenses ............................................................................... 6,853
Disbursements in excess of cash on demand deposit .............................................. 61,158
-----------
Total liabilities ......................................................................... 68,011
-----------
NET ASSETS
(applicable to 1,113,690 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ........................................ $11,466,770
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($11,466,770 / 1,113,690 shares) ............................................................... $10.30
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................ $11,720,315
Undistributed net investment income ............................................................ 57
Accumulated net realized loss on investments ................................................... (337,418)
Net unrealized appreciation on investments ..................................................... 83,816
-----------
$11,466,770
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
STATEMENT OF OPERATIONS
Year ended March 31, 1999
INVESTMENT INCOME
Income
Interest ...................................................................................... $ 874,322
Dividends ..................................................................................... 16,556
---------
Total income ............................................................................ 890,878
---------
Expenses
Investment advisory fees (note 2) ............................................................. 59,415
Fund administration fees (note 2) ............................................................. 18,159
Custody fees .................................................................................. 5,931
Registration and filing administration fees (note 2) .......................................... 2,846
Fund accounting fees (note 2) ................................................................. 22,500
Audit fees .................................................................................... 10,600
Legal fees .................................................................................... 14,743
Securities pricing fees ....................................................................... 2,492
Shareholder recordkeeping fees ................................................................ 4,822
Other accounting fees ......................................................................... 4,248
Shareholder servicing expenses ................................................................ 2,579
Registration and filing expenses .............................................................. 2,530
Printing expenses ............................................................................. 4,166
Trustee fees and meeting expenses ............................................................. 3,697
Other operating expenses ...................................................................... 1,818
---------
Total expenses .......................................................................... 160,546
---------
Less:
Expense reimbursements (note 2) .................................................... (2,704)
Investment advisory fees waived (note 2) ........................................... (39,038)
---------
Net expenses ............................................................................ 118,804
---------
Net investment income .............................................................. 772,074
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ..................................................... 174,228
Decrease in unrealized appreciation on investments ................................................. (137,045)
---------
Net realized and unrealized gain on investments ............................................... 37,183
---------
Net increase in net assets resulting from operations .................................... $ 809,257
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S><C> C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment income ......................................................... $ 772,074 $ 766,830
Net realized gain from investment transactions ................................ 174,228 10,958
(Decrease) increase in unrealized appreciation on investments ................. (137,045) 346,682
------------ ------------
Net increase in net assets resulting from operations ...................... 809,257 1,124,470
------------ ------------
Distributions to shareholders from
Net investment income ......................................................... (775,430) (767,000)
------------ ------------
Capital share transactions
(Decrease) increase in net assets resulting from capital share transactions (a) (2,466,286) 2,314,618
------------ ------------
Total (decrease) increase in net assets .............................. (2,432,459) 2,672,088
NET ASSETS
Beginning of year .................................................................. 13,899,229 11,227,141
------------ ------------
End of year (including undistributed net investment income
of $57 in 1999)........................................................ $11,466,770 $13,899,229
============ ============
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------------
Year ended Year ended
March 31, 1999 March 31, 1998
Shares Value Shares Value
-----------------------------------------------------------------------------
Shares sold ......................................... 158,434 $ 1,670,902 282,314 $ 2,930,727
Shares issued for reinvestment
of distributions ............................... 50,406 526,027 51,625 530,895
------------ ------------ ------------ ------------
208,840 2,196,929 333,939 3,461,622
Shares redeemed ..................................... (442,853) (4,663,215) (110,904) (1,147,004)
------------ ------------ ------------ ------------
Net (decrease) increase ........................ (234,013) $(2,466,286) 223,035 $ 2,314,618
============ ============ ============ ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTEK FIXED INCOME TRUST
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ................. $10.31 $9.98 $10.11 $9.74 $9.93
Income from investment operations
Net investment income ................... 0.62 0.64 0.65 0.66 0.63
Net realized and unrealized (loss) gain
on investments ..................... (0.01) 0.33 (0.13) 0.37 (0.19)
----------- ----------- ----------- ----------- -----------
Total from investment operations ... 0.61 0.97 0.52 1.03 0.44
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ................... (0.62) (0.64) (0.65) (0.66) (0.63)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ....................... $10.30 $10.31 $9.98 $10.11 $9.74
=========== =========== =========== =========== ===========
Total return ....................................... 5.97% 9.91% 5.38% 10.70% 4.73%
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year ...................... $11,466,770 $13,899,229 $11,227,141 $12,261,121 $14,983,474
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.22% 1.10% 1.20% 1.08% 1.08%
After expense reimbursements and waived fees 0.90% 0.90% 0.90% 0.87% 0.77%
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees 5.53% 6.01% 6.07% 6.20% 6.15%
After expense reimbursements and waived fees 5.85% 6.21% 6.37% 6.41% 6.45%
Portfolio turnover rate 50.90% 38.46% 32.94% 16.57% 19.64%
See accompanying notes to financial statements
</TABLE>
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Investek Fixed Income Trust (the "Fund") is a diversified series of
shares of beneficial interest of The Nottingham Investment Trust II
(the "Trust"). The Trust, an open-end investment company, was organized
on October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The investment
objective of the Fund is to preserve capital and maximize total returns
through active management of investment grade fixed income securities.
The Fund began operations on November 15, 1991.
Pursuant to a plan approved by the Board of Trustees of the Trust, the
existing single class of shares of the Fund was redesignated as the
Institutional Shares of the Fund on August 1, 1996, and an additional
class of shares, the Investor Shares, was authorized. To date, only
Institutional Shares have been issued by the Fund. The Investor Shares
will be sold with a sales charge and will bear potential distribution
expenses and service fees. The Institutional Shares are sold without a
sales charge and bears no shareholder servicing or distribution fees.
The following is a summary of significant accounting policies followed
by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at the last sales price
as of 4:00 p.m., New York time. Securities for which market
quotations are not readily available are valued in good faith
using a method approved by the Trust's Board of Trustees,
taking into consideration institutional bid and last sale
prices, and securities prices, yields, estimated maturities,
call features, ratings, institutional trading in similar
groups of securities and developments related to specific
securities. Short-term investments are valued at cost which
approximates value.
The financial statements include securities valued at
$7,998,976 (69.76% of net assets) whose values have been
estimated using a method approved by the Trust's Board of
Trustees. Such securities are valued by using a matrix system,
which is based upon the factors described above and
particularly the spread between yields on the securities being
valued and yields on U. S. Treasury securities with similar
remaining years to maturity. Those estimated values may differ
from the values that would have resulted from actual purchase
and sale transactions.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes
The Fund has capital loss carryforwards for federal income tax
purposes of $335,001, $316,968 of which expires in the year
2003 and $18,033 of which expires in the year 2004. It is the
intention of the Board of Trustees of the Trust not to
distribute any realized gains until the carryforwards have
been offset or expire.
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October 31,
which are deferred for income tax purposes. The character of
distributions made during the year from net investment income
or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to
the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the
income or realized gains were recorded by the Fund.
(Continued)
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
C. Investment Transactions - Investment transactions are recorded
on the trade date. Realized gains and losses are determined
using the specific identification cost method. Interest income
is recorded daily on an accrual basis.
D. Distributions to Shareholders - The Fund generally declares
dividends monthly, on a date selected by the Trust's Trustees.
In addition, distributions may be made annually in December
out of net realized gains through October 31 of that year.
Distributions to shareholders are recorded on the ex-dividend
date. The Fund may make a supplemental distribution subsequent
to the end of its fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results
could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Investek Capital
Management, Inc. (the "Advisor") provides the Fund with a continuous
program of supervision of the Fund's assets, including the composition
of its portfolio, and furnishes advice and recommendations with respect
to investments, investment policies, and the purchase and sale of
securities. As compensation for its services, the Advisor receives a
fee at the annual rate of 0.45% of the Fund's average daily net assets.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and reimburse expenses of the Fund to limit total Fund
operating expenses to 0.90% of the average daily net assets of the
Fund. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has voluntarily
waived a portion of its fee amounting to $39,038 ($0.03 per share) and
reimbursed expenses totaling $2,704 for the year ended March 31, 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 0.125% of the Fund's average daily net assets. Prior to
October 1, 1998, the administration fee was at an annual rate of 0.15%
of the Fund's average daily net assets. The Administrator also receives
a monthly fee of $2,000 for accounting and recordkeeping services.
Prior to October 1, 1998, the fee for accounting and recordkeeping
services was $1,750. 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.
Prior to October 1, 1998, the minimum monthly aggregate fee was $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") 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 Fund shares, acts as dividend and distribution
disbursing agent, and performs other shareholder servicing functions.
(Continued)
<PAGE>
INVESTEK FIXED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Certain Trustees and officers of the Trust are also officers of the
Advisor, the Distributor or the Administrator.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $6,539,157 and $8,891,785, respectively, for the year ended
March 31, 1999.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of Investek Fixed Income Trust:
We have audited the accompanying statement of assets and liabilities of Investek
Fixed Income Trust (the "Trust"), including the portfolio of investments, as of
March 31, 1999, and the related statement of operations for the year then ended,
the statements of changes in net assets for the years ended March 31, 1999 and
1998, and financial highlights for each of the years presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our 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 securities owned as of March
31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Investek Fixed Income Trust as of March 31, 1999, the results of its operations
for the year then ended, the changes in its net assets and the financial
highlights for the respective stated years in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 23, 1999
