As filed with the Securities and Exchange Commission on May 28, 1999
Securities Act File No. 33-37458
Investment Company Act File No. 811-06199
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 38 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 39 [X]
(Check appropriate box or boxes.)
THE NOTTINGHAM INVESTMENT TRUST II
----------------------------------
(Exact Name of Registrant as Specified in Charter)
105 North Washington Street, Rocky Mount, North Carolina 27801-0069
-------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (252) 972-9922
--------------
C. Frank Watson, III
105 North Washington Street, P.O. Drawer 69, Rocky Mount, NC 27801-0069
-----------------------------------------------------------------------
(Name and Address of Agent for Service)
With Copies to:
---------------
Jane A. Kanter
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006-2401
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this filing
-----------------------------
It is proposed that this filing will become effective: (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
<PAGE>
THE NOTTINGHAM INVESTEMENT TRUST II
Contents of Registration Statement
----------------------------------
This registration statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
The Brown Capital Management Funds
-Part A - Prospectus
-Part B - Statement of Additional Information
WST Growth & Income Fund
-Part A - Institutional Shares Prospectus
-Part A - Investor Shares Prospectus
-Part A - Class C Shares Prospectus
-Part B - Statement of Additional Information
Part C - Other Information and Signature Page
Exhibits
<PAGE>
PART A
======
________________________________________________________________________________
THE BROWN CAPITAL MANAGEMENT FUNDS
Series of
THE NOTTINGHAM INVESTMENT TRUST II
INSTITUTIONAL SHARES
________________________________________________________________________________
PROSPECTUS
June 1, 1999
This prospectus includes information about the four Brown Capital Management
Funds (the "Funds") - three equity funds, The Brown Capital Management Equity
Fund, The Brown Capital Management Small Company Fund, and The Brown Capital
Management International Equity Fund; and one balanced fund, The Brown Capital
Management Balanced Fund. The equity funds seek long-term capital appreciation.
The balanced fund seeks a maximum total return consisting of capital
appreciation and current income.
Advisor
-------
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
www.browncapital.com
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUNDS......................................................................2
- ---------
Investment Objectives....................................................2
Principal Investment Strategies..........................................2
The Brown Capital Management Equity Fund.............................2
The Brown Capital Management Small Company Fund......................3
The Brown Capital Management International Equity Fund...............4
The Brown Capital Management Balanced Fund...........................5
Principal Risks Of Investing In The Funds................................6
All Funds............................................................6
Specific Risk Factors................................................7
Bar Charts and Performance Tables.......................................11
Fees and Expenses of the Funds..........................................14
MANAGEMENT OF THE FUNDS.......................................................15
- -----------------------
The Investment Advisor..................................................15
The Administrator.......................................................18
The Transfer Agent......................................................18
The Distributor.........................................................18
INVESTING IN THE FUNDS........................................................19
- ----------------------
Minimum Investment......................................................19
Purchase And Redemption Price...........................................19
Purchasing Shares.......................................................20
Redeeming Your Shares...................................................22
OTHER IMPORTANT INVESTMENT INFORMATION........................................24
- --------------------------------------
Dividends, Distributions And Taxes......................................24
Financial Highlights....................................................24
Additional Information..........................................Back Cover
<PAGE>
THE FUNDS
---------
INVESTMENT OBJECTIVES
The investment objective of The Brown Capital Management Equity Fund, The Brown
Capital Management Small Company Fund and The Brown Capital Management
International Equity Fund is to seek long-term capital appreciation. Current
income is a secondary consideration in selecting portfolio investments for the
equity funds. The investment objective of The Brown Capital Management Balanced
Fund is total return, consisting of capital appreciation and current income.
Each of the Funds is a diversified series of the Nottingham Investment Trust II.
PRINCIPAL INVESTMENT STRATEGIES
The Brown Capital Management Equity Fund
The Brown Capital Management Equity Fund (the "Equity Fund") seeks capital
appreciation by identifying securities that Brown Capital Management, Inc. (the
"Advisor") believes are undervalued relative to their growth potential. These
securities may be undervalued as a result of one or more of the following:
o presently being out of favor;
o currently not well known; or
o possessing value that is not currently recognized by the investment
community.
The Equity Fund generally consists of the equity securities of medium and large
capitalization companies, generally defined as those companies with a market
capitalization of $1 billion or more.
The Advisor looks at the fundamental characteristics of each company
individually, using analysis that:
o contains elements of traditional dividend discount and earnings yield models;
o establishes relative valuation for equity and fixed income markets; and
o determines the attractiveness of individual securities through evaluation of
growth and risk characteristics of the underlying company relative to the
overall equity market.
The Advisor generally expects to hold securities for the long term, although
securities will be sold when the Advisor feels their potential for future growth
is diminished.
The Fund invests in a variety of companies and industries as well as economic
sectors.
2
<PAGE>
Under normal market conditions the portfolio allocation range for the Equity
Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the Equity Fund may invest in U.S.
Government and agency securities, cash, money market securities and other
fixed-income securities for temporary or defensive purposes. Such investment
strategies are inconsistent with the Equity Fund's investment objective and
could result in the Equity Fund not achieving it investment objective.
The Brown Capital Management Small Company Fund
The Brown Capital Management Small Company Fund (the "Small Company Fund")
invests primarily in the equity securities of those companies with total
operating revenues of $250 million or less at the time of the initial
investment, ("small companies"). The Advisor seeks to build a portfolio of
exceptional small companies with the following overall portfolio
characteristics:
o price-to-earnings ratio to prospective earnings per share growth rate that is
less than an appropriate market benchmark (on twelve month estimated
earnings); and
o profitability that is greater than the market benchmark.
Currently, the Small Company Fund uses the Russell 2000 Index as its market
benchmark. The Russell 2000 Index is a widely-recognized unmanaged index of
small capitalization common stocks.
This analysis includes many factors that, in the Advisor's view, are critical to
the small company sector. The Advisor believes that:
o a sustained commitment to a portfolio of exceptional small companies will,
over time, produce a significant investment return; and
o an investment analysis that identifies and successfully evaluates those few
small companies with the legitimate potential to become large companies can
be a very rewarding investment strategy.
The Advisor employs analysis that:
o contains elements of traditional dividend discount and earnings yield models;
o establishes relative valuation for equity and fixed income markets; and
o determines the attractiveness of individual securities through evaluation of
growth and risk characteristics of the underlying company relative to the
overall equity market.
The Advisor identifies small companies with the potential to become successful
large companies by analyzing the potential for:
o sustainable revenue growth;
o adequate resources to establish and defend a viable product or service
market, and market share;
o sufficient profitability to support long term growth; and
o management skills and resources necessary to plan and execute a long-term
growth plan.
3
<PAGE>
The Advisor generally expects to hold securities for the long term, although
securities will be sold when the Advisor feels their potential for future growth
is diminished.
Under normal market conditions the portfolio allocation range for the Small
Company Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the Small Company Fund may invest
in U.S. Government and agency securities, cash, money market securities and
other fixed-income securities for temporary or defensive purposes. Such
investment strategies are inconsistent with the Small Company Fund's investment
objective and could result in the Small Company Fund not achieving it investment
objective.
The Brown Capital Management International Equity Fund
The Brown Capital Management International Equity Fund (the "International
Equity Fund") invests primarily in the equity securities of non-U.S. based
companies. The Advisor seeks to purchase equity securities of those companies
that the Advisor feels are undervalued relative to their long-term potential in
the securities markets. The Advisor utilizes an analysis that seeks to identify
those companies trading at the deepest discount to their long-term earnings
potential and/or present value of assets held by the company which may be
realized.
The Advisor looks at the fundamental characteristics of each company
individually, using analysis that:
o relative valuation, within an industry sector, and between countries or
economic markets;
o fundamental analysis of the company;
o long term forecasting of earnings and asset values;
o fundamental analysis of the country in which the company operates, taking
into consideration the macroeconomic, regulatory and political trends within
that country;
o use of investment industry research; and
o use of direct local contacts in various countries, investment industry
research, discussions with company personnel, and company visits.
4
<PAGE>
In constructing and managing the fund, the following additional restrictions are
used:
o no country will represent more than 25% of the Funds' total assets;
o no more than 15% of the Fund's total assets will be invested in emerging
market securities;
o no industry will represent more than 20% of the Fund's total assets; and
o no individual security will represent more than 5% of the Fund's total
assets.
Under normal market conditions the portfolio allocation range for the
International Equity Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the International Equity Fund may
invest, without limitation, in securities of any kind, including securities
traded primarily in U.S. markets, cash and money market instruments for
temporary or defensive purposes. Such investment strategies are inconsistent
with the International Equity Fund's investment objective and could result in
the International Equity Fund not achieving it investment objective.
The Brown Capital Management Balanced Fund
The Brown Capital Management Balanced Fund (the "Balanced Fund") varies the
percentage of its assets invested in equities and fixed income securities,
including money market instruments, according to the Advisor's judgment of
market and economic conditions and its view of which asset class can best
achieve the Balanced Fund's objectives.
The percentage invested in fixed income securities (including money market
instruments) will comprise not less than 25% and not more than 75% of the
portfolio.
Key elements of the Advisor's management of the Balanced Fund include:
o The equity portion of the Balanced Fund will be managed using the same
investment strategies as described above for the Equity Fund.
o Fixed income securities will be selected primarily for income. The capital
appreciation potential of those fixed income securities is of secondary
importance.
5
<PAGE>
o The Advisor will continually review the macroeconomic environment and
alternative expected rates of return between fixed income securities and
equity securities in determining the asset allocation of the Fund.
o In structuring the fixed income portion of the Fund, the Advisor examines the
following:
* spread relationships between quality grades in determining the quality
distribution; and
* expected trends in inflation and interest rates in structuring the
maturity distribution.
o Not more than 20% of the total fixed income portion of the portfolio (not
more than 15% of the entire Fund) will be invested in bonds rated below "A"
but above "BBB" by nationally recognized securities rating organizations
described in the Statement of Additional Information.
Under normal market conditions the portfolio allocation range for the Balanced
Fund will be:
% of Total Assets
-----------------
Equity securities 25 - 75%
Fixed income securities 25 - 75%
Money market instruments 1 - 25%
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
All Funds
An investment in the Funds is subject to investment risks, including the
possible loss of the principal amount invested. There can be no assurance that
the Fund will be successful in meeting its objective.
Generally, the Funds will be subject to the following additional risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Funds' performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
each Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Year 2000 Risk: Like other mutual funds, financial and business
organizations, and individuals around the world, The Nottingham Investment
Trust II (the "Trust") and the Funds could be adversely affected if the
computer systems used by the Advisor, other service providers, or persons
with whom they deal, do not properly process and calculate date-related
information and data dated on and after January 1, 2000. This possibility is
commonly known as the "Year 2000 Problem." Virtually all operations of the
Trust and the Funds are computer reliant. The Advisor, administrator,
transfer agent, distributor and custodian have informed the Trust that they
have taken active steps to address the Year 2000 Problem with regard to their
respective computer systems and the interfaces between their respective
computer systems. The Trust and the Funds have taken measures to obtain
assurances from necessary persons that comparable steps have been taken by
the key service providers to the advisor, administrator, transfer agent,
distributor, and custodian. There can be no assurance that the Trust and the
Funds' key service providers will be year 2000 compliant. If not adequately
addressed, the Year 2000 Problem could result in the inability of the Trust
and the Funds to perform its mission critical functions, including trading
and settling trades of the Funds' securities, pricing of portfolio securities
and processing shareholder transactions, and the net asset value of the
Funds' shares may be materially affected.
6
<PAGE>
In addition, because the Year 2000 Problem affects virtually all issuers, the
companies or entities in which the Funds may invest also could be adversely
impacted by the Year 2000 Problem. For example, issuers may incur substantial
costs to address the Year 2000 Problem. The extent of such impact cannot be
predicted and there can be no assurances that the Year 2000 Problem will not
have an adverse effect on the issuers whose securities are held by the Funds.
The Advisor has assured the Trust and the Funds that it considers such issues in
making investment decisions for the Funds. Furthermore, the International Equity
Fund's international investments may expose it to operations, custody and
settlement processes outside the United States. In many countries outside the
United States the Year 2000 Problem has not been adequately addressed and
concerns have been raised that capital flight, among other issues, may be
triggered by full disclosure of the Year 2000 Problem on countries outside the
United States. Additional information on the impact of the Year 2000 Problem on
emerging market countries is provided in this section, under "International
Equity Fund - Foreign Securities--Emerging Market Risk."
Fund Specific Risk Factors
International Equity Fund
Foreign Securities. The International Equity Fund will invest primarily in
foreign securities that involve investment risks different from those associated
with domestic securities. Foreign markets, particularly emerging markets, may be
less liquid, more volatile and subject to less government supervision than
domestic markets. There may be difficulties enforcing contractual obligations,
and it may take more time for trades to clear and settle. The specific risks of
investing in foreign securities among others, include:
Emerging Market Risk: The International Equity Fund may invest a
portion of its assets in countries with less developed securities
markets. However, no more than 15% of its portfolio will be invested in
emerging markets securities. There are greater risks involved in
investing in emerging markets countries and/or their securities
markets. Generally, economic structures in these countries are less
diverse and mature than those in developed countries and their
political systems are less stable. Investments in emerging markets
countries may be affected by national policies that restrict foreign
investment in certain issuers or industries. The small size of their
securities markets and low trading volumes can make investments
illiquid and more volatile than investments in developed countries and
such securities may be subject to abrupt and severe price declines. As
a result, the International Equity Fund, when investing in emerging
markets countries, may be required to establish special custody or
other arrangements before investing.
7
<PAGE>
Currency Risk: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues
in, foreign currencies. Adverse changes in currency exchange rates
(relative to the U.S. dollar) may erode or reverse any potential gains
from a Portfolio's investment in securities denominated in a foreign
currency or may widen existing losses.
The Year 2000 Problem may also be especially acute in emerging market
countries. Many emerging market countries are currently lagging behind
more developed countries in their Year 2000 preparedness because they
lack the financial resources to undertake the necessary remedial
actions. A lack of Year 2000 preparedness may adversely affect the
health, security and economic well-being of emerging market countries
and could, obviously, adversely affect the value of the International
Equity Fund's investments in emerging market countries. More
information on the Year 2000 Problem is provided in this section under
"All Funds --Year 2000 Risk."
Euro Risk: The International Equity Fund may invest in securities
issued by European issuers. On January 1, 1999, 11 of the 15 member
states of the European Monetary Union ("EMU") introduced the "Euro" as
a common currency. During a three-year transitional period, the Euro
will coexist with each participating state's currency and, on July 1,
2002, the Euro is expected to become the sole currency of the
participating states. The introduction of the Euro will result in the
redenomination of European debt and equity securities over a period of
time, which may result in various legal and accounting differences
and/or tax treatments that otherwise would not likely occur. During
this period, the creation and implementation of suitable clearing and
settlement systems and other operational problems may cause market
disruptions that could adversely affect investments quoted in the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for
purchase by the International Equity Fund are presently unclear and it
is not possible to predict the eventual impact of the Euro
implementation plan. There are a number of significant risks associated
with EMU. Monetary and economic union on this scale has never been
attempted before. There is a significant degree of uncertainty as to
whether participating countries will remain committed to EMU in the
face of changing economic conditions. The conversion may adversely
affect the International Equity Fund if the Euro does not take effect
as planned or if a participating state withdraws from the EMU. Such
actions may adversely affect the value and/or increase the volatility
of securities held by the International Equity Fund.
8
<PAGE>
Political/Economic Risk: Changes in economic and tax policies,
government instability, war or other political or economic actions or
factors may have an adverse effect on the International Equity Fund's
foreign investments.
Regulatory Risk: Less information may be available about foreign
companies. In general, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards or to other
regulatory practices and requirements as are U.S. companies.
Transaction Costs Risk: The costs of buying and selling foreign
securities, including tax, brokerage and custody costs, generally are
higher than those involving domestic transactions.
Please see the Statement of Additional Information dated June 1, 1999, for more
information about these investment policies.
Small Company Fund
The Small Company Fund is intended for aggressive investors seeking
above-average gains and willing to accept the risks involved in investing in the
securities of small companies.
Small Company Risk. Investing in the securities of small companies generally
involves greater risk than investing in larger, more established companies. This
greater risk is, in part, attributable to the fact that the securities of small
companies usually have more limited marketability and therefore, may be more
volatile than securities of larger, more established companies or the market
averages in general. Because small companies normally have fewer shares
outstanding than larger companies, it may be more difficult to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. Another risk factor is that small companies often have limited product
lines, markets or financial resources and may lack management depth.
Additionally, small companies are typically subject to greater changes in
earnings and business prospects than are larger, more established companies and
there typically is less publicly available information concerning small
companies than for larger, more established companies.
Although investing in securities of small companies offers potential
above-average returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Small Company
Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital growth by investing in more established, larger
companies.
9
<PAGE>
Balanced Fund
In addition to the risks outlined above with regards to the equity portion of
the Balanced Fund, there will be additional risks for the fixed income portion
of the portfolio.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Balanced Fund's transactions will be unable
or unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Balanced
Fund may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Balanced
Fund. Credit risk is particularly significant to the Balanced Fund when
investing a portion of its assets in "junk bonds" or lower-rated securities.
o Interest Rate Risk: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total return of
the Balanced Fund, when investing a significant portion of its assets in
bonds or fixed income securities, will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the possibility that the value of the
Balanced Fund's investment in bonds or fixed income securities may fall
because bonds or fixed income securities generally fall in value when
interest rates rise. The longer the term of a bond or fixed income
instrument, the more sensitive it will be to fluctuations in value from
interest rate changes. Changes in interest rates may have a significant
effect on the Balanced Fund holding a significant portion of its assets in
fixed income securities with long term maturities.
In the case of mortgage-backed securities, rising interest rates tend to
extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not only can
the value of fixed income securities drop, but the yield can drop,
particularly where the yield on fixed income securities is tied to changes in
interest rates, such as adjustable mortgages. Also when interest rates drop,
the holdings of mortgage-backed securities by the Balanced Fund can reduce
returns if the owners of the underlying mortgages pay off their mortgages
sooner than expected since the funds prepaid must be reinvested at the then
lower prevailing rates. This is known as prepayment risk. When interest rates
rise, the holdings of mortgage-backed securities the Balanced Fund can reduce
returns if the owners of the underlying mortgages pay off their mortgages
later than anticipated. This is known as extension risk.
o Maturity Risk: Maturity risk is another factor which can effect the value of
the Balanced Fund's debt holdings. The Balanced Fund does not have a
limitation policy regarding the length of maturity of its debt holdings. In
general, the longer the maturity of a debt obligation, the higher its yield
and the greater its sensitivity to changes in interest rates. Conversely, the
shorter the maturity, the lower the yield but the greater the price
stability.
o Investment-Grade Securities Risk: Debt securities are rated by national bond
ratings agencies. Securities rated BBB by Standard & Poor's ("S&P") or Baa by
Moody's Investors Services, Inc. ("Moody's") are considered investment grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity to
pay principal and interest, and are considered to lack outstanding investment
characteristics and may be speculative.
10
<PAGE>
BAR CHARTS AND PERFORMANCE TABLES
The bar charts and tables shown below provide an indication of the risks of
investing in the Funds by showing (on a calendar year basis) changes in the
Funds' average annual total returns from year to year and by showing (on a
calendar year basis) how the Funds' average annual returns for one year, five
year, and since inception compare to those of a broad-based securities market
index. How the Funds have performed in the past is not necessarily an indication
of how the Funds will perform in the future.
Equity Fund
["Calendar Year Returns" Bar Chart Included Here:]
1998 29.15%
1997 22.65%
1996 19.04%
1995 32.04%
1994 -0.75%
1993 6.81%
o During the 6-year period shown in the bar chart, the highest return for a
quarter was 26.64% (quarter ended December 31, 1998).
o During the 6-year period shown in the bar chart, the lowest return for a
quarter was -14.57% (quarter ended September 30, 1998).
o The year-to-date return as of the end of the most recent quarter was -2.72%
(quarter ended March 31, 1999).
- ------------------------------------ ------------- -------------- --------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1998 Year Years Inception*
- ------------------------------------ ------------- -------------- --------------
Brown Capital Management Equity Fund 29.15% 19.82% 18.69%
- ------------------------------------ ------------- -------------- --------------
S&P 500 Total Return Index ** 28.58% 24.05% 21.60%
- ------------------------------------ ------------- -------------- --------------
* The Equity Fund commenced operations on September 30, 1992.
** The S&P 500 Total Return Index is the Standard & Poor's Composite Index of
500 stocks and is a widely recognized unmanaged index of common stock prices.
11
<PAGE>
Small Company Fund
["Calendar Year Returns" Bar Chart Included Here:]
1998 18.39%
1997 15.78%
1996 17.08%
1995 33.96%
1994 4.76%
1993 5.74%
o During the 6-year period shown in the bar chart, the highest return for a
quarter was 20.03% (quarter ended December 31, 1998).
o During the 6-year period shown in the bar chart, the lowest return for a
quarter was -14.87% (quarter ended September 30, 1998).
o The year-to-date return as of the end of the most recent quarter was -9.01%
(quarter ended March 31, 1999).
- ------------------------------------ ------------- -------------- --------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1998 Year Years Inception*
- ------------------------------------ ------------- -------------- --------------
Brown Capital Management Small
Company Fund 18.39% 17.62% 15.55%
- ------------------------------------ ------------- -------------- --------------
Russell 2000 Index ** -2.26% 11.44% 12.34%
- ------------------------------------ ------------- -------------- --------------
* The Small Company Fund commenced operations on December 31, 1992.
** The Russell 2000 Index is a widely-recognized unmanaged index of small
capitalization stocks.
12
<PAGE>
Balanced Fund
["Calendar Year Returns" Bar Chart Included Here:]
1998 24.40%
1997 18.87%
1996 13.84%
1995 29.75%
1994 -1.22%
1993 9.75%
o During the 6-year period shown in the bar chart, the highest return for a
quarter was 19.63% (quarter ended December 31, 1998).
o During the 6-year period shown in the bar chart, the lowest return for a
quarter was -10.33% (quarter ended September 30, 1998).
o The year-to-date return as of the end of the most recent quarter was -1.75%
(quarter ended March 31, 1999).
- ------------------------------------ ------------- -------------- --------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1998 Year Years Inception*
- ------------------------------------ ------------- -------------- --------------
Brown Capital Management Balanced
Fund 24.40% 16.62% 15.81%
- ------------------------------------ ------------- -------------- --------------
Benchmark of 75% S&P 500 Total
Return Index / 25% Lehman Government
& Corporate Bond Index** 25.63% 20.78% 18.85%
- ------------------------------------ ------------- -------------- --------------
* The Balanced Fund commenced operations on September 30, 1992.
** The S&P 500 Total Return Index is the Standard & Poor's Composite Index of
500 stocks and is a widely recognized unmanaged index of common stock prices.
The Lehman Government & Corporate Bond Index represents an unmanaged group of
securities widely regarded by investors as representative of the bond market.
13
<PAGE>
FEES AND EXPENSES OF THE FUNDS
These tables describe the fees and expenses that you may pay if you buy and hold
shares of the Funds:
Shareholder Fees For Institutional Shares
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) .............................None
Redemption fee ......................................................None
Annual Fund Operating Expenses For Institutional Shares
(expenses that are deducted from Fund assets)
---------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Small International
Equity Balanced Company Equity
------ -------- ------- ------
Management Fees.........................................................0.65% 0.65% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees.................................None None None None
Other Expenses..........................................................1.23% 1.46% 0.85% 1.05%
----- ----- ----- -----
Total Annual Fund Operating Expenses....................................1.88%^1 2.11%^1 1.85%^1 2.05%^2
Fee Waiver and/or Expense Reimbursement.....................(0.68%) (0.91%) (0.35%) (0.05%)
----- ----- ----- -----
Net Expenses.................................................1.20% 1.20% 1.50% 2.00%
===== ===== ===== =====
</TABLE>
1. Total Annual Fund Operating Expenses are based upon actual expenses
incurred by each of the Funds for the fiscal year ended March 31, 1999.
The Advisor has entered into a contractual agreement with the Funds under
which it has agreed to waive or reduce its fees and to assume other
expenses of the Funds, if necessary, in an amount that limits Total Fund
Operating Expenses (exclusive of interest, taxes, brokerage fees and
commissions, and extraordinary expenses, and payments, if any, under a
Rule 12b-1 Plan to not more than 1.20% of the average daily net assets of
the Equity Fund and Balanced Fund for the fiscal year to end March 31,
2000. With respect to the Small Company Fund, the contractual agreement
provides a limit of 1.50% for the fiscal year to end March 31, 2000. See
"Expense Limitation Agreement" for more detailed information.
2. Since the International Equity Fund commenced operations after March 31,
1999, Other Expenses and Total Annual Operating Expenses for that fund
are based on amounts estimated for the current fiscal year. The Advisor
has entered into a contractual agreement with the International Equity
Fund under which it has agreed to waive or reduce its fees and to assume
other expenses of the International Equity Fund, if necessary, in an
amount that limits Total Annual Fund Operating Expenses (exclusive of
interest, taxes, brokerage fees and commissions, extraordinary expenses,
and payments, if any, under a Rule 12b-1 plan) to not more than 2.00% of
the average daily net assets of the International Equity Fund for the
fiscal year to end March 31, 2000. See "Expense Limitation Agreement" for
more detailed information.
14
<PAGE>
Example: This Example shows you the expenses you may pay over time by investing
in each of the Funds. Since all Funds use the same hypothetical conditions, it
should help you compare the costs of investing in the Funds versus other funds.
The Example assumes the following conditions:
(1) You invest $10,000 in a Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------- ---------------- ----------------- --------------- ----------------
Fund 1 Year 3 Years 5 Years 10 Years
- --------------------------------------- ---------------- ----------------- --------------- ----------------
Equity $122 $381 $660 $1,455
- --------------------------------------- ---------------- ----------------- --------------- ----------------
Balanced $122 $381 $660 $1,455
- --------------------------------------- ---------------- ----------------- --------------- ----------------
Small Company $153 $474 $818 $1,791
- --------------------------------------- ---------------- ----------------- --------------- ----------------
International Equity $203 $627 $1,078 $2,327
- --------------------------------------- ---------------- ----------------- --------------- ----------------
</TABLE>
MANAGEMENT OF THE FUNDS
-----------------------
THE INVESTMENT ADVISOR
The Funds' Advisor is Brown Capital Management, Inc., 809 Cathedral Street,
Baltimore, Maryland 21201. The Advisor serves in that capacity pursuant to an
advisory contract with the Trust on behalf of the Fund. Subject to the authority
of the Trustees, the Advisor provides guidance and policy direction in
connection with its daily management of the Funds' assets. The Advisor manages
the investment and reinvestment of the Funds' assets. The Advisor is also
responsible for the selection of broker-dealers through which the Funds execute
portfolio transactions, subject to the brokerage policies established by the
Trustees, and it provides certain executive personnel to the Fund.
The Advisor, organized as a Maryland corporation in 1983, is controlled by Eddie
C. Brown. The Advisor has been managing each of the Funds since their inception
and has been providing investment advice to investment companies, individuals,
corporations, pension and profit sharing plans, endowments, and other business
and private accounts since the firm was founded in 1983. The Advisor currently
has approximately $4.5 billion in assets under management.
The Funds will be managed primarily by a portfolio management team consisting of
the following:
15
<PAGE>
<TABLE>
<S> <C> <C>
- ------------------------------- ----------------------- ---------------------------------------------------------
Fund Portfolio Manager Work Experience
- ------------------------------- ----------------------- ---------------------------------------------------------
Equity and Balanced Funds Management Team lead The Fund is managed by a team led by Eddie C. Brown.
by Eddie C. Brown Mr. Brown is founder, President and controlling
shareholder of the Sub-adviser. Mr. Brown has been
with the Sub-adviser since its inception in 1983.
Robert F. Hall, Theodore M. Alexander III, Noreen A.
Frost and Stephon A. Jackson assist Mr. Brown in the
management of the Fund. Mr. Hall, Senior Vice
President and Portfolio Manager/Analyst joined the
Sub-adviser in September 1993. Mr. Alexander, Vice
President and Portfolio Manager/Analyst joined the
Sub-adviser in October 1995. Prior to this, Mr.
Alexander was a Securities Analyst at Legg Mason Wood
Walker from June 1994 to October 1995. From June 1990
to January 1994, Mr. Alexander was a Securities Analyst
at Alex Brown & Sons, Inc. Ms. Frost, Vice President
and Portfolio Manager/Analyst joined the Sub-adviser in
February 1996. Prior to this, Ms. Frost was in
institutional sales at Duff & Phelps Securities Co.
from December 1994 to October 1996. From 1983 to 1993,
Ms. Frost was Investment/Broker-Dealer Analyst at Alex
Brown & Sons, Inc. Mr. Jackson, Vice President and
Portfolio Manager/Analyst joined the Sub-adviser in
July 1997. Prior to this, Mr. Jackson was Portfolio
Manager/ Director of Research at NCM Capital Management
from March1994 to June 1997. From March 1993 to March
1994, Mr. Jackson was an Analyst at Putnam Investments.
- ------------------------------- ----------------------- ---------------------------------------------------------
Small Company Fund Keith A. Lee Mr. Lee is a Senior Vice President and has been a
portfolio manager of the Advisor since 1991.
- ------------------------------- ----------------------- ---------------------------------------------------------
International Equity Fund Eddie Ramos Mr. Ramos has been Vice President of Brown Capital
Management since December 1998. Previously, Mr. Ramos
was Vice President at Templeton Investment Counsel.
- ------------------------------- ----------------------- ---------------------------------------------------------
</TABLE>
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Funds, the Advisor receives monthly compensation based
on each Fund's average daily net assets at the annual rate of:
Equity and Balanced Funds:
0.65% of the first $25 million
0.50% on all assets over $25 million
Small Company Fund:
1.00% on all assets
International Equity Fund:
1.00% of the first $100 million
0.75% on all assets over $100 million
During the last fiscal year ending March 31, 1999, the Advisor waived a portion
of the advisory fees for the Equity Fund and the Small Company Fund and all of
its fees for the Balanced Fund. Accordingly, the amount of compensation received
as a percentage of assets of each Fund during the last fiscal year was as
follows:
Fee Paid to Advisor
Fund as a Percentage of Assets
---- -------------------------
The Equity Fund 0.03%
The Small Company Fund 0.66%
The Balanced Fund 0.00%
16
<PAGE>
Expense Limitation Agreement. In the interest of limiting expenses of the Funds,
the Advisor has entered into an expense limitation agreement with the Trust,
with respect to each of the Funds ("Expense Limitation Agreement"), pursuant to
which the Advisor has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of the Funds (other than
interest, taxes, brokerage commissions, other expenditures which are capitalized
in accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of each Fund's
business, and amounts, if any, payable pursuant to a Rule 12b-1 Plan) are
limited to 1.20% of the average daily assets of the Equity Fund and the Balanced
Fund, 1.50% of the average daily assets of the Small Company Fund, and 2.00% of
the average daily net assets of the International Equity Fund for the fiscal
year to end March 31, 2000.
Each of the Funds may at a later date reimburse the Advisor the management fees
waived or limited and other expenses assumed and paid by the Advisor pursuant to
the Expense Limitation Agreement during any of the previous five fiscal years,
provided that the particular Fund has reached a sufficient asset size to permit
such reimbursement to be made without causing the total annual expense ratio of
the particular Fund to exceed the percentage limits stated above. Consequently,
no reimbursement by Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the particular Fund's total annual expense ratio is less than the
percentage stated above; and (iii) the payment of such reimbursement has been
approved by the Trust's Board of Trustees on a quarterly basis.
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers.
The Investment Company Act of 1940, as amended ("1940 Act") generally prohibits
the Fund from engaging in principal securities transactions with an affiliate of
the Advisor. Thus, the Funds do not engage in principal transactions with any
affiliate of the Advisor. The Funds have adopted procedures, under Rule 17e-1
under the 1940 Act, that are reasonably designed to provide that any brokerage
commission the Funds pay to an affiliate of the Advisor does not exceed the
usual and customary broker's commission. In addition, the Funds will adhere to
Section 11(a) of the 1934 Act and any applicable rules thereunder governing
floor trading.
17
<PAGE>
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") assists the Trust in the
performance of its administrative responsibilities to the Funds, coordinates the
services of each vendor of services to the Funds, and provides the Funds with
other necessary administrative, fund accounting and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel and facilities required to provide such services to the Funds.
THE TRANSFER AGENT
NC Shareholder Services, LLC ("NCSS") serves as the transfer agent and dividend
disbursing agent of the Funds. As indicated later in the section of this
Prospectus, "Investing in the Funds," NCSS will handle your orders to purchase
and redeem shares of the Funds, and will disburse dividends paid by the Funds.
THE DISTRIBUTOR
Capital Investment Group, Inc. (the "Distributor") is the principal underwriter
and distributor of the Funds' shares and serves as the Funds' exclusive agent
for the distribution of Fund shares. The Distributor may sell the Funds' shares
to or through qualified securities dealers or others.
Other Expenses. The Funds pay all expenses not assumed by the Funds' Advisor,
including, without limitation: the fees and expenses of its independent
accountants and of its legal counsel; the costs of printing and mailing to
shareholders annual and semi-annual reports, proxy statements, prospectuses,
statements of additional information and supplements thereto; the costs of
printing registration statements; bank transaction charges and custodian's fees;
any proxy solicitors' fees and expenses; filing fees; any federal, state or
local income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Funds, on a basis that the Trustees
deem fair and equitable, which may be on the basis of relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
18
<PAGE>
INVESTING IN THE FUNDS
----------------------
MINIMUM INVESTMENT
The Funds' Institutional Shares are sold and redeemed at net asset value. Shares
may be purchased by any account managed by the Advisor and any other
institutional investor or any broker-dealer authorized to sell shares in the
Funds. The minimum initial investment is $10,000 ($2,000 for IRA and Keogh
Plans) and the minimum additional investment is $500. Each of the Funds may, in
the Advisor's sole discretion, accept certain accounts with less than the
minimum investment.
PURCHASE AND REDEMPTION PRICES
Determining a Fund's Net Asset Value. The price at which you purchase or redeem
shares is based on the next calculation of net asset value after an order is
accepted in good form. An order is considered to be in good form if it includes
a complete and accurate application and payment in full of the purchase amount.
The Fund's net asset value per share is calculated by dividing the value of the
Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of each Fund is normally determined at the time regular
trading closes on the New York Stock Exchange (currently 4:00 p.m. Eastern time,
Monday through Friday), except on business holidays when the New York Stock
Exchange is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities and assets for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for each of the Funds. All redemption
requests will be processed and payment with respect thereto will normally be
made within seven days after tenders. Each of the Funds may suspend redemption,
if permitted by the 1940 Act, for any period during which the New York Stock
Exchange is closed or during which trading is restricted by the Securities
Exchange Commission ("SEC") or if the SEC declares that an emergency exists.
Redemptions may also be suspended during other periods permitted by the SEC for
the protection of each Fund's shareholders. Additionally, during drastic
economic and market changes, telephone redemption privileges may be difficult to
implement. Also, if the Trustees determine that it would be detrimental to the
best interest of the Fund's remaining shareholders to make payment in cash, each
Fund may pay redemption proceeds in whole or in part by a distribution-in-kind
of readily marketable securities.
19
<PAGE>
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, each Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the applicable
fund to:
The Brown Capital Management Funds
[Name of Fund]
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Please remember to add a reference to the applicable Fund and to "Institutional
Shares" to your check to ensure proper credit to your account.
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S. investors if certain IRS requirements
regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-525-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For credit to either:
The Brown Capital Management Equity Fund
Account # 2000000861768
OR
The Brown Capital Management Balanced Fund
Account # 2000000861917
OR
The Brown Capital Management Small Company Fund
Account # 2000000861904
OR
The Brown Capital Management International Equity Fund
Account # 2000001293296
For further credit to (shareholder's name and SS# or TIN#)
20
<PAGE>
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current public offering price. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-525-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your confirmation statement. Otherwise, please identify your account in a
letter accompanying your purchase payment.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval,
each of the Funds will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing the Funds.
Exchange Feature. You may exchange shares of any of The Brown Capital Management
Funds for shares of any other series of the Trust advised by the Advisor and
offered for sale in the state in which you reside. Shares may be exchanged for
shares of any other series of the Trust at the net asset value. Prior to making
an investment decision or giving us your instructions to exchange shares, please
read the prospectus for the series in which you wish to invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Funds. Such a
pattern may, at the discretion of the Advisor, be limited by a Fund's refusal to
accept further purchase and/or exchange orders form an investor, after providing
the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
21
<PAGE>
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
The Brown Capital Management Funds
[Name of Fund]
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the applicable fund, account number
and number of shares, or the dollar amount, to be redeemed. This request
must be signed by all registered shareholders in the exact names in which
they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 7 days after
receipt of your redemption request. However, the Funds may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. Each of the Funds will redeem shares
in this manner when so requested by the shareholder only if the shareholder
confirms redemption instructions in writing.
Each of the Funds may rely upon confirmation of redemption requests transmitted
via facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) Designation of Institutional Class Shares and name of fund (Equity,
Balanced, Small Company, or International Equity Fund),
2) Shareholder name and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder,
and
5) Shareholder signature as it appears on the application then on file
with the fund.
22
<PAGE>
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of each of the Funds may not be redeemed
by wire on days in which your bank is not open for business. You can change your
redemption instructions anytime you wish by filing a letter including your new
redemption instructions with the Fund. See "Signature Guarantees" below.
Each of the Funds in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wire redemptions. The
Custodian currently charges each of the Funds $10.00 per transaction for wiring
redemption proceeds. If this cost is passed through to redeeming shareholders by
the Fund, the charge will be deducted automatically from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. If wire transfer of funds is impossible
or impractical, the redemption proceeds will be sent by mail to the designated
account.
You may redeem shares, subject to the procedures outlined above, by calling the
Funds at 1-800-525-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Funds to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. Each of the Funds
will employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine, and if it does not
follow such procedures, each of the Funds will be liable for any losses due to
fraudulent or unauthorized instructions. The Funds will not be liable for
following telephone instructions reasonably believed to be genuine.
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for a Fund to pay for all redemptions in cash. In such case,
the Board of Trustees may authorize payment to be made in readily marketable
portfolio securities of a Fund. Securities delivered in payment of redemptions
would be valued at the same value assigned to them in computing the net asset
value per share. Shareholders receiving them would incur brokerage costs when
these securities are sold. An irrevocable election has been filed under Rule
18f-1 of the 1940 Act, wherein each Fund committed itself to pay redemptions in
cash, rather than in kind, to any shareholder of record of that Fund who redeems
during any ninety-day period, the lesser of (a) $250,000 or (b) one percent (1%)
of the Fund's net asset value at the beginning of such period.
23
<PAGE>
Signature Guarantees. To protect your account and each of the Funds from fraud,
signature guarantees are required to be sure that you are the person who has
authorized a change in registration or standing instructions for your account.
Signature guarantees are required for (1) change of registration requests, (2)
requests to establish or to change exchange privileges or telephone and bank
wire redemption service other than through your initial account application, and
(3) redemption requests in excess of $50,000. Signature guarantees are
acceptable from a member bank of the Federal Reserve System, a savings and loan
institution, credit union (if authorized under state law), registered
broker-dealer, securities exchange, or association clearing agency and must
appear on the written request for change of registration, establishment or
change in exchange privileges, or redemption request.
Systematic Withdrawal Plan. A shareholder who owns shares of one or more of the
Funds valued at $10,000 or more at the current offering price may establish a
Systematic Withdrawal Plan to receive a monthly or quarterly check in a stated
amount not less than $100. Each month or quarter, as specified, the particular
Fund(s) will automatically redeem sufficient shares from your account to meet
the specified withdrawal amount. The shareholder may establish this service
whether dividends and distributions are reinvested in shares of the Fund or paid
in cash. Call or write the Funds for an application form.
OTHER IMPORTANT INVESTMENT INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S. taxpayers.
Additional tax information appears in the SAI. Shareholders should rely their
own tax advisers for advice about the particular federal, state and local tax
consequences to them of investing in the Fund.
The Fund will distribute most of its income and gains to its shareholders every
year. Income dividends, if any, will be paid quarterly and capital gains
distributions, if any, will be made at least annually. Although the Fund will
not be taxed on amounts it distributes, shareholders will generally be taxed,
regardless of whether distributions are received in cash or are reinvested in
additional Fund shares. A particular distribution generally will be taxable as
either ordinary income or long-term capital gains. If a Fund designates a
distribution as a capital gain distribution, it will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares.
If the Fund declares a dividend in October, November or December but pays it in
January, it may be taxable to shareholders as if they received it in the year it
was declared. Each year each shareholder will receive a statement detailing the
tax status of any Fund distributions for that year.
24
<PAGE>
Distributions may be subject to state and local taxes, as well as federal taxes.
Shareholders who hold Fund shares in a tax-deferred account, such as a
retirement plan, generally will not have to pay tax on Fund distributions until
they receive distributions from the account.
A shareholder who sells or redeems shares will generally realize a capital gain
or loss, which will be long-term or short-term, generally depending upon the
shareholder's holding period for the Fund shares. An exchange of shares may be
treated as a sale.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the Equity Fund, the Small Company Fund, and the
Balanced Fund. Because the International Equity Fund commenced operations after
March 31, 1999, there are no financial highlights for that fund. The financial
data for the fiscal years ended March 31, 1999, 1998, and 1997, has been audited
by Deloitte & Touche LLP, independent auditors, whose report covering such
periods is included in the Statement of Additional Information. The financial
data for the prior fiscal years were audited by other independent auditors. This
information should be read in conjunction with the Funds' latest audited annual
financial statements and notes thereto, which are also included in the Statement
of Additional Information, a copy of which may be obtained at no charge by
calling the Funds. Further information about the performance of the Funds is
contained in the Annual Report of the Funds, a copy of which may be obtained at
no charge by calling the Funds.
25
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
EQUITY FUND
Institutional Class
-------------------
(For a Share Outstanding Throughout each Year Represented)
Year ended 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 (in thousands) $9,822 $8,150 $4,405 $1,966 $1,130
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 %
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
SMALL COMPANY FUND
Institutional Class
-------------------
(For a Share Outstanding Throughout each Year Represented)
Year ended 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 (in thousands) $24,078 $11,566 $6,519 $3,740 $2,609
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 %
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
BALANCED FUND
Institutional Class
-------------------
(For a Share Outstanding Throughout each Year Represented)
Year ended 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 (in thousands) $9,603 $6,078 $3,875 $3,319 $2,296
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 %
</TABLE>
28
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
THE BROWN CAPITAL MANAGEMENT FUNDS
INSTITUTIONAL SHARES
________________________________________________________________________________
Additional information about the Funds is available in the Funds' Statement of
Additional Information. The Funds' Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Funds' performance during its last fiscal year.
These Reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-800-525-3863
By mail: The Brown Capital Management Funds
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.ncfunds.com
Information about the Funds can also be reviewed and copied at the Securities
Exchange Commission's ("Commission") Public Reference Room in Washington, D.C.
Inquiries on the operations of the public reference room may be made by calling
the Commission at 1-800-SEC-0330. Reports and other information about each Fund
are available on the Commission's Internet site at http://www.sec.gov and copies
of this information may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-6009.
Investment Company Act file number 811-06199
<PAGE>
Cusip Number 66976M839 NASDAQ Ticker WSTSX
________________________________________________________________________________
WST GROWTH & INCOME FUND
A series of
The Nottingham Investment Trust II
INSTITUTIONAL CLASS SHARES
________________________________________________________________________________
PROSPECTUS
June 1, 1999
The WST Growth & Income Fund seeks total return from a combination of capital
appreciation and current income. This Prospectus relates to the Institutional
Class Shares of the Fund. The Fund also offers two additional classes of shares:
Investor Class Shares and Class C Shares, which are offered by other
prospectuses.
Advisor
-------
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND.................................................................2
- --------
Investment Objective...............................................2
Principal Investment Strategies....................................2
Principal Risks Of Investing In The Fund...........................4
Bar Chart and Performance Table....................................6
Fees And Expenses Of The Fund......................................8
MANAGEMENT OF THE FUND...................................................9
- ----------------------
The Investment Advisor.............................................9
The Administrator.................................................11
The Transfer Agent................................................11
The Distributor...................................................11
INVESTING IN THE FUND...................................................12
- ---------------------
Minimum Investment................................................12
Purchase And Redemption Price.....................................12
Purchasing Shares.................................................13
Redeeming Your Shares.............................................15
OTHER IMPORTANT INVESTMENT INFORMATION..................................17
- --------------------------------------
Dividends, Distributions And Taxes................................17
Financial Highlights..............................................18
Additional Information....................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The WST Growth & Income Fund (the "Fund") seeks total return from a combination
of capital appreciation and current income.
PRINCIPAL IVESTMENT STRATEGIES
The Fund will seek to achieve its objective by investing primarily in a flexible
portfolio of:
o equity securities
o fixed income securities
o money market instruments
The capital appreciation portion of the Fund's objective will be achieved by
investing in equity securities. The income portion of the Fund's objective will
be achieved by investing in fixed income securities and money market
instruments.
Wilbanks, Smith & Thomas Asset Management, Inc. ("the Advisor") will vary the
percentage of Fund assets invested in equities, fixed income securities, and
money market instruments according to the Advisor's judgment of market and
economic conditions, and based on the Advisor's view of which asset class can
best achieve the Fund's objectives.
Equity Securities
Selection of equity securities will be based primarily on the expected capital
appreciation potential.
The percentage invested in equity securities will generally comprise not less
than 70% and not more than 90% of the portfolio.
The equity portion of the Fund's portfolio will consist generally of common
stocks, convertible preferred stocks, participating preferred stocks, preferred
equity redemption cumulative stocks, preferred stocks and convertible bonds
traded (grade "BB" or higher) on domestic securities exchanges or on the
over-the-counter markets. Foreign equity securities will be limited to those
available on domestic U.S. exchanges and denominated in U.S. dollars.
2
<PAGE>
The Advisor utilizes a 'top down' approach to equity selection.
--------------------------------------------------------------------
Macroeconomic Analysis and Projected Trends
Research consisting of four primary areas
(market interest rates, Federal Reserve policy, inflation, and economic
growth, as typically measured by gross domestic product)
--------------------------------------------------------------------
------------------------------------------
Sector Analysis
Research and analysis of sectors within
the research universe
------------------------------------------
--------------------
Industry Analysis
Industry analysis of companies
within each sector
--------------------
From an initial research universe of approximately 5,400 companies, a "screen"
is performed to identify securities with a projected earnings per share growth
rate of 12% or more, market capitalization of not less than $750 million, price
earnings' ratios within appropriate relative ranges compared to comparable
sector and industry companies, and a projection of increasing earnings
estimates.
At this point, the Advisor utilizes a philosophy known as "GARP," growth at
reasonable price, as its underlying equity investment selection philosophy. The
screens, referred to in the paragraph above, result in a universe of
approximately 400 companies, which then receive active research by the Advisor's
Investment Committee. From this universe of 400 companies the Advisor reduces
the equity universe to approximately 75 companies which, depending upon the then
current price in the equities markets for that company, are eligible for
purchase by in the Fund.
The Advisor will base security selection on the following factors:
o financial history of the company
o consistency of earnings
o return on equity
o cash flow
o strength of management
o ratios such as price/earnings, price/book value, price/sales, and
price/cash flow
o historical valuations and future prospects of the company
Under normal market conditions, the Fund will include 25-45 companies in its
portfolio.
The Advisor performs rigorous research on individual companies in the final
equity universe through direct contact with senior management in addition to
Wall Street research analysis. The Advisor's research analysts construct
financial models based upon the data gathered from various sources, to assist in
each securities' qualification under the Advisor's security selection criteria.
3
<PAGE>
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
o the anticipated price appreciation has been achieved or is no longer
probable;
o alternative investments offer superior total return prospects; or
o fundamentals change adversely.
Fixed Income Securities
Selection of fixed income securities will be primarily for income.
The percentage invested in fixed income securities and money market instruments,
in the aggregate, will generally comprise not less than 10% and not more than
30% of the portfolio.
The Advisor will allocate approximately 50% of the fixed income portion of the
Fund to duration strategies using U.S. Treasury securities. The remaining 50% of
fixed income securities are selected based upon investment analysis by the
Advisor, attempting to identify securities that are undervalued. Fixed income
securities are identified as undervalued in circumstances, for instance, where
the Advisor believes the credit rating of the company is subject to an increase,
which has the potential to reduce the price spread to a comparable maturity U.S.
Treasury security, and in turn increase in price. Fixed income securities may
also be identified as undervalued if the spread (difference in yield to an
underlying treasury of comparable maturity) for a particular security is too
large relative to similar fixed income securities within similar maturities and
similar credit quality.
The Fund may invest in fixed income securities that may be rated below "Baa" by
Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's
Ratings Groups ("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch")
or which, if unrated, are of comparable quality as determined by the Advisor
(so-called "junk bonds"). The Fund will not invest more than 50% of the total
fixed income portion of its portfolio (and not more that 15% of the Fund's total
assets) in junk bonds. The Fund will not invest in junk bonds rated lower than
"Caa" by Moody's or "CCC" by Standard & Poor's or Fitch or equivalent unrated
securities.
Money Market Instruments
Money market instruments will typically represent a portion of the Fund's
portfolio as a method to: (1) temporarily invest monies received by the Fund
prior to investing in equity or fixed income securities; (2) accumulate cash for
anticipated purchases of portfolio securities; and (3) provide for shareholder
redemptions and the payment of operating expenses of the Fund.
4
<PAGE>
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents, investment grade bonds,
U.S. Government Securities, repurchase agreements, or money market instruments
as a temporary defensive position, when the Advisor determines that market
conditions warrant such investments. When the Fund invests in these investments
as a temporary defensive measure, it is not pursuing its stated investment
objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested. Generally, the Fund will be subject to
the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
Credit risk is particularly significant to the Fund when investing a
portion of its assets in "junk bonds" or lower-rated securities.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates causes the value of fixed income securities to decrease, and
vice versa. There is the possibility that the value of the Fund's
investment in fixed income securities may fall because fixed income
securities generally fall in value when interest rates rise. Changes in
interest rates may have a significant effect on the Fund holding a
significant portion of its assets in fixed income securities with long term
maturities.
o Maturity Risk: Maturity risk is another factor which can effect the value
of the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
5
<PAGE>
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated "BBB" by
Standard & Poor's or "Baa" by Moody's are considered investment grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity
to pay principal and interest, and are considered to lack outstanding
investment characteristics and may be speculative.
o Junk Bonds or Lower rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by S&P or Moody's, respectively, are speculative in
nature and may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than higher rate fixed-income
securities. They are usually issued by companies without long track records
of sales and earnings, or by those companies with questionable credit
strength. These fixed income securities are considered "below investment
grade." The retail secondary market for these "junk bonds" may be less
liquid than that of higher rated securities and adverse conditions could
make it difficult at times to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value.
o Year 2000 Risk: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and the Fund
could be adversely affected if the computer systems used by the Advisor,
other service providers, or persons with whom they deal, do not properly
process and calculate date-related information and data dated on and after
January 1, 2000. This possibility is commonly known as the "Year 2000
Problem." Virtually all operations of the Trust and the Fund are computer
reliant. The Advisor, administrator, transfer agent, distributor and
custodian have informed the Trust that they are actively taking steps to
address the Year 2000 Problem with regard to their respective computer
systems and the interfaces between their respective computer systems. The
Trust and the Fund are also taking measures to obtain assurances from
necessary persons that comparable steps are being taken by the key service
providers to the Advisor, administrator, transfer agent, distributor, and
custodian. There can be no assurance that the Trust and the Fund's key
service providers will be year 2000 compliant. If not adequately addressed,
the Year 2000 Problem could result in the inability of the Trust and the
Fund to perform its mission critical functions, including trading and
settling trades of the Fund's securities, pricing of portfolio securities
and processing shareholder transactions, and the net asset value of the
Fund's shares may be materially affected.
In addition, because the Year 2000 Problem affects virtually all the
companies or entities in which the Fund may invest, these also could be
adversely impacted by the Year 2000 Problem. For example, issuers may incur
substantial costs to address the Year 2000 Problem. The extent of such
impact cannot be predicted and there can be no assurances that the Year
2000 Problem will not have an adverse effect on the issuers whose
securities are held by the Fund.
6
<PAGE>
BAR CHART AND PERMORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Institutional Class Shares of the Fund by showing (on a
calendar year basis) changes in the Institutional Class Shares' average annual
total returns during the last calendar year and since the Fund's inception, and
by showing (on a calendar year basis) how the Institutional Class Shares'
average annual returns compare to those of a broad-based securities market
index. How the Fund has performed in the past is not necessarily an indication
of how the Fund will perform in the future.
[Bar Chart of Annual Return:]
1998 19.89%
o During the 1-year period shown in the bar chart, the highest return for a
quarter was 23.49% (quarter ended December 31, 1998).
o During the 1-year period shown in the bar chart, the lowest return for a
quarter was -12.98% (quarter ended September 30, 1998).
o The year-to-date return for the Institutional Class Shares as of the most
recent calendar quarter was 4.24% (quarter ended March 31, 1999).
7
<PAGE>
- ------------------------------------------------ ------------- ---------------
Average Annual Total Returns Past 1 Since
Period ended December 31, 1998 Year Inception*
- ------------------------------------------------ ------------- ---------------
- ------------------------------------------------ ------------- ---------------
WST Growth & Income Fund Institutional Shares 19.89% 17.44%
- ------------------------------------------------ ------------- ---------------
- ------------------------------------------------ ------------- ---------------
S&P 500 Total Return Index ** 28.58% 25.03%
- ------------------------------------------------ ------------- ---------------
* The Institutional Class Shares commenced operations on September 30, 1997.
** The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
FEES AND EXPENSES OF THE FUND
The tables below describe the fees and expenses that you may pay if you buy and
hold Institutional Class Shares of the Fund.
- -------------------------------------------------------------------------------
Shareholder Fees for Institutional Class Shares
- -------------------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price).............................. None
Maximum deferred sales charge (load).............................. None
Maximum imposed sales charge (load) on reinvested dividends....... None
Redemption fee.................................................... None
Exchange fee...................................................... None
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses For Institutional Class Shares
(expenses that are deducted from Fund assets)
- -------------------------------------------------------------------------------
Management Fees............................................. 0.75 %
Distribution and/or Service (12b-1) Fees.................... 0.00 %
Other Expenses.............................................. 1.33 %
------
Total Annual Fund Operating Expenses.............. 2.08 %^1
Fee Waiver and/or Expense Reimbursement........... (0.33)%
------
Net Expenses...................................... 1.75 %
======
- -------------------------------------------------------------------------------
1. "Total Annual Fund Operating Expenses" are based upon actual expenses
incurred by the Institutional Class Shares of the Fund for the fiscal year
ended March 31, 1999. The Advisor has entered into a contractual agreement
with the Trust under which it has agreed to waive or reduce its fees and to
assume other expenses of the Fund, if necessary, in an amount that limits
"Total Fund Operating Expenses" (exclusive of interest, taxes, brokerage
fees and commissions, extraordinary expenses, and payments, if any, under a
Rule 12b-1 Plan) to not more than 1.75% of the average daily net asset of
the Institutional Class Shares of the Fund for the fiscal year ending March
31, 2000. See "Expense Limitation Agreement" for more detailed information.
8
<PAGE>
Example: This Example shows you the expenses you may pay over time by investing
in the Institutional Class Shares of the Fund. Since all funds use the same
hypothetical conditions, it should help you compare the costs of investing in
the Fund versus other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above as well as those upon
redemption.
- --------------------------------------- ------ ------- ------ --------
1 yr 3 yr 5 yr 10 yr
- --------------------------------------- ------ ------- ------ --------
Institutional Class Shares $178 $551 $949 $2,062
- --------------------------------------- ------ ------- ------ --------
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
Subject to the authority of the Board of Trustees, Wilbanks, Smith & Thomas
Asset Management, Inc., One Commercial Place, Suite 1450, Norfolk, Virginia
23510, 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 pursuant to an Amended and Restated Investment
Advisory Agreement with the Trust (the "Advisory Agreement").
The Advisor is registered under the Investment Advisors Act of 1940, as amended.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission
("SEC"). The Advisor was established as a Virginia corporation in 1990, and is
controlled by: Wayne F. Wilbanks CFA, L. Norfleet Smith, Jr., and Norwood A.
Thomas, Jr.
The Advisor currently serves as investment advisor to approximately $650 million
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation.
9
<PAGE>
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Fund may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see
"Investment Objective and Policies - Investment Transactions" in the Statement
of Additional Information.
The Investment Committee of the Advisor, composed of Wayne F. Wilbanks, CFA, L.
Norfleet Smith, Jr., and Norwood A. Thomas, Jr. (all control persons of the
Advisor) is responsible for day-to-day management of the Fund's portfolio. Mr.
Wilbanks has been with the Advisor since its formation in 1990. Messrs. Smith
and Thomas have been with the Advisor since 1992. Messrs. Wilbanks and Thomas
serve as executive officers of the Trust and will represent the Advisor at Board
of Trustees meetings.
The Advisor's Compensation. Compensation of the Advisor with regard to the Fund,
based upon the Fund's daily average net assets, is at the annual rate of 0.75%
of the first $250 million of net assets and 0.65% of all assets over $250
million. For the fiscal year ending March 31, 1999, the Advisor voluntarily
waived $31,699 of its advisory fee. As a result, the amount of compensation
received by the Advisor as a percentage of assets of the Fund during the last
fiscal year was 0.42%.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
on March 15, 1999 the Advisor entered into an expense limitation agreement with
the Trust, with respect to the Fund (the "Expense Limitation Agreement"),
pursuant to which the Advisor has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses of the Fund
(other than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of the Fund's
business, and amounts, if any, payable pursuant to a Rule 12b-1 Plan) are
limited to 1.75% of the average net assets of each Class of Shares for the
fiscal year to end March 31, 2000.
The Fund may at a later date reimburse the Advisor the fees waived or limited
and other expenses assumed and paid by the Advisor pursuant to the Expense
Limitation Agreement, provided the Fund has reached a sufficient asset size to
permit such reimbursement to be made without causing the total annual expense
ratio of the Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
10
<PAGE>
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") serves as the administrator
and fund accounting agent for the Fund. The Administrator assists the Advisor in
the performance of its administrative responsibilities to the Fund, coordinates
the services of each vendor of services to the Fund, and provides the Fund with
other necessary administrative, fund accounting and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel and facilities required to provide such services to the Fund. For
these services, the Administrator is compensated by the Trust pursuant to a Fund
Accounting and Compliance Administration Agreement
THE TRANSFER AGENT
NC Shareholder Services, LLC (the "Transfer Agent") serves as the Fund's
transfer, dividend paying, and shareholder servicing agent. As indicated later
in the section of this Prospectus, "Investing in the Fund," the Transfer Agent
will handle your orders to purchase and redeem shares of the Fund, and will
disburse dividends paid by the Fund. The Transfer Agent is compensated for its
services by the Trust pursuant to a Dividend Disbursing and Transfer Agent
Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") serves as the distributor of the
Fund's Institutional Class Shares. The Distributor may sell such shares to or
through qualified securities dealers or others.
Other Expenses. In addition to the advisory fees (and 12b-1 fees for the
Investor Class Shares and Class C Shares), the Fund pays all expenses not
assumed by the Fund's Advisor, including, without limitation: the fees and
expenses of its administrator, custodian, transfer and dividend disbursing agent
independent accountants and legal counsel; the costs of printing and mailing to
shareholders annual and semi-annual reports, proxy statements, prospectuses,
statements of additional information and supplements thereto; the costs of
printing registration statements; bank transaction charges and custodian's fees;
any proxy solicitors' fees and expenses; filing fees; any federal, state or
local income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Fund, on a basis that the Trustees
deem fair and equitable, which may be on the basis of the relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
11
<PAGE>
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Institutional Class Shares are sold and redeemed at net asset value. Shares may
be purchased by any account managed by the Advisor and any other broker-dealer
authorized to sell shares in the Fund. The minimum initial investment is $25,000
($2,000 for Individual Retirement Accounts ("IRAs"), Keogh Plans, 401(k) Plans,
or purchases under the Uniform Gifts to Minors Act). The minimum additional
investment is $500 ($100 for those participating in the Automatic Investment
Plan). The Fund may, in the Advisor's sole discretion, accept certain accounts
with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange (currently 4:00 p.m. Eastern time,
Monday through Friday), except on business holidays when the New York Stock
Exchange ("NYSE") is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund. All redemption requests
will be processed and payment with respect thereto will normally be made within
seven days after the redemption order is received. The Fund may suspend
redemption, if permitted by the Investment Company Act of 1940, as amended (the
"1940 Act), for any period during which the NYSE is closed or during which
trading is restricted by the SEC or if the SEC declares that an emergency
exists. Redemptions may also be suspended during other periods permitted by the
SEC for the protection of the Fund's shareholders. Additionally, during drastic
economic and market changes, telephone redemption privileges may be difficult to
implement. Also, if the Trustees determine that it would be detrimental to the
best interest of the Fund's remaining shareholders to make payment in cash, the
Fund may pay redemption proceeds in whole or in part by a distribution-in-kind
of readily marketable securities.
12
<PAGE>
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "WST Growth &
Income Fund," to:
WST Growth & Income Fund
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S.
investors if certain IRS requirements regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the WST Growth & Income Fund - Institutional Class Shares
Acct. # 2000001068081
For further credit to (shareholder's name and SS# or TIN#)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
13
<PAGE>
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the net asset
value on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund. Investors who establish an Automatic Investment Plan may open an account
with a minimum balance of $1,000. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series or Class of Shares of the Trust advised by the Advisor and offered for
sale in the state in which you reside. Any such exchange will be made at the
applicable net asset value plus the percentage difference between the sales
charge applicable to those shares and any sales charge previously paid by you in
connection with the shares being exchanged. Prior to making an investment
decision or giving us your instructions to exchange shares, please read the
prospectus for the series in which you wish to invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Fund. Such a
pattern may, at the discretion of the Advisor, be limited by the Fund's refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
14
<PAGE>
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
WST Growth & Income Fund
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the account number and number of
shares, or the dollar amount, to be redeemed. This request must be signed
by all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. However, the Fund may delay forwarding
a redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) The name of the Fund and the designation of Class of Shares,
2) Shareholder name and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder, and
5) Shareholder signature as it appears on the application then on file with
the Fund.
15
<PAGE>
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Small Accounts. All shares are purchased and redeemed in accordance with the
Fund's Amended and Restated Declaration of Trust and By-Laws. The Board of
Trustees reserves the right to redeem involuntarily any account having a net
asset value of less than $25,000 ($2,000 for IRAs, Keogh Plans, 401(k) Plans or
purchases under the Uniform Gifts to Minors Act) (due to redemptions, exchanges,
or transfers, and not due to market action) upon 60-days' written notice. If the
shareholder brings his account net asset value up to at least $25,000 ($2,000
for IRAs, Keogh Plans, 401(k) Plans or purchases under the Uniform Gifts to
Minors Act) during the notice period, the account will not be redeemed.
Redemptions from retirement plans may be subject to federal income tax
withholding.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
16
<PAGE>
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$25,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Share Application form.
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S. taxpayers.
Additional tax information appears in the SAI. Shareholders should rely their
own tax advisers for advice about the particular federal, state and local tax
consequences to them of investing in the Fund.
The Fund will distribute most of its income and gains to its shareholders every
year. Income dividends, if any, will be paid quarterly and capital gains
distributions, if any, will be made at least annually. Although the Fund will
not be taxed on amounts it distributes, shareholders will generally be taxed,
regardless of whether distributions are received in cash or are reinvested in
additional Fund shares. A particular distribution generally will be taxable as
either ordinary income or long-term capital gains. If a Fund designates a
distribution as a capital gain distribution, it will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares.
17
<PAGE>
If the Fund declares a dividend in October, November or December but pays it in
January, it may be taxable to shareholders as if they received it in the year it
was declared. Each year each shareholder will receive a statement detailing the
tax status of any Fund distributions for that year.
Distributions may be subject to state and local taxes, as well as federal taxes.
Shareholders who hold Fund shares in a tax-deferred account, such as a
retirement plan, generally will not have to pay tax on Fund distributions until
they receive distributions from the account.
A shareholder who sells or redeems shares will generally realize a capital gain
or loss, which will be long-term or short-term, generally depending upon the
shareholder's holding period for the Fund shares. An exchange of shares may be
treated as a sale.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S.
federal income tax liability.
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the WST Growth & Income Fund's Institutional Class
Shares for the fiscal year ended March 31, 1999, and the fiscal period ended
March 31, 1998. The financial data have been audited by Deloitte & Touche LLP,
independent auditors, whose report covering such year and period is included in
the Statement of Additional Information. This information should be read in
conjunction with the Fund's latest audited annual financial statements and notes
thereto, which are also included in the Statement of Additional Information, a
copy of which may be obtained at no charge by calling the Fund. Further
information about the performance of the Fund is contained in the Annual Report
of the Fund, a copy of which may also be obtained at no charge by calling the
Fund.
18
<PAGE>
INSTITUTIONAL CLASS SHARES
(For a Share Outstanding Throughout the Periods)
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Period from
For the fiscal September 30, 1997
year ended (commencement of
March 31, operations) to
1999 March 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ................................... $ 11.29 $ 10.02
Income from investment operations
Net investment income (loss) ................................... 0.00 0.00
Net realized and unrealized gain on investments ................ 1.48 1.27
-------------- -------------
Total from investment operations ........................... 1.48 1.27
-------------- -------------
Distributions to shareholders from
Net investment income .......................................... 0.00 0.00
-------------- -------------
Net Asset Value, End of Period ......................................... $ 12.77 $ 11.29
============== =============
Total return ........................................................... 13.11% 12.72%
============== =============
Ratios/supplemental data
Net Assets, End of Period .......................................... $ 11,419,391 $ 6,376,193
============== =============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees .................. 2.08 % 3.15 % (a)
After expense reimbursements and waived fees ................... 1.75 % 1.75 % (a)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees .................. (0.35)% (1.31)% (a)
After expense reimbursements and waived fees ................... (0.01)% 0.09 % (a)
Portfolio turnover rate ............................................ 31.11 % 23.64 %
</TABLE>
(a) Annualized.
19
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
WST GROWTH & INCOME FUND
INSTITUTIONAL CLASS SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information. The Fund's Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
These Reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-800-525-3863
By mail: WST Growth & Income Fund
Institutional Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.ncfunds.com
Information about the Fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Inquiries on the operations of the public
reference room may be made by calling the SEC at 1-800-SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet site at
http://www.sec.gov and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
Investment Company Act file number 811-06199
20
<PAGE>
Cusip Number 66976M821
________________________________________________________________________________
WST GROWTH & INCOME FUND
A series of
The Nottingham Investment Trust II
INVESTOR CLASS SHARES
________________________________________________________________________________
PROSPECTUS
June 1, 1999
The WST Growth & Income Fund seeks total return from a combination of capital
appreciation and current income. This Prospectus relates to the Investor Class
Shares of the Fund. The Fund also offers two additional classes of shares:
Institutional Class Shares and Class C Shares, which are offered by other
prospectuses.
Advisor
-------
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND.....................................................................2
- --------
Investment Objective...................................................2
Principal Investment Strategies........................................2
Principal Risks Of Investing In The Fund...............................4
Bar Chart and Performance Table........................................6
Fees And Expenses Of The Fund..........................................8
MANAGEMENT OF THE FUND.......................................................9
- ----------------------
The Investment Advisor.................................................9
The Administrator.....................................................11
The Transfer Agent....................................................11
The Distributor.......................................................11
INVESTING IN THE FUND.......................................................12
- ---------------------
Minimum Investment....................................................12
Purchase And Redemption Price.........................................12
Purchasing Shares.....................................................13
Redeeming Your Shares.................................................16
OTHER IMPORTANT INVESTMENT INFORMATION......................................19
- --------------------------------------
Dividends, Distributions And Taxes....................................19
Financial Highlights..................................................20
Additional Information........................................Back Cover
1
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The WST Growth & Income Fund (the "Fund") seeks total return from a combination
of capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund will seek to achieve its objective by investing primarily in a flexible
portfolio of:
o equity securities
o fixed income securities
o money market instruments
The capital appreciation portion of the Fund's objective will be achieved by
investing in equity securities. The income portion of the Fund's objective will
be achieved by investing in fixed income securities and money market
instruments.
Wilbanks, Smith & Thomas Asset Management, Inc. ("the Advisor") will vary the
percentage of Fund assets invested in equities, fixed income securities, and
money market instruments according to the Advisor's judgment of market and
economic conditions, and based on the Advisor's view of which asset class can
best achieve the Fund's objectives.
Equity Securities
Selection of equity securities will be based primarily on the expected capital
appreciation potential.
The percentage invested in equity securities will generally comprise not less
than 70% and not more than 90% of the portfolio.
The equity portion of the Fund's portfolio will consist generally of common
stocks, convertible preferred stocks, participating preferred stocks, preferred
equity redemption cumulative stocks, preferred stocks and convertible bonds
traded (grade "BB" or higher) on domestic securities exchanges or on the
over-the-counter markets. Foreign equity securities will be limited to those
available on domestic U.S. exchanges and denominated in U.S. dollars.
2
<PAGE>
The Advisor utilizes a 'top down' approach to equity selection.
--------------------------------------------------------------------
Macroeconomic Analysis and Projected Trends
Research consisting of four primary areas (market interest
rates, Federal Reserve policy, inflation, and economic
growth, as typically measured by gross domestic product)
--------------------------------------------------------------------
------------------------------------------
Sector Analysis
Research and analysis of sectors within
the research universe
------------------------------------------
--------------------
Industry Analysis
Industry analysis of companies
within each sector
--------------------
From an initial research universe of approximately 5,400 companies, a "screen"
is performed to identify securities with a projected earnings per share growth
rate of 12% or more, market capitalization of not less than $750 million, price
earnings' ratios within appropriate relative ranges compared to comparable
sector and industry companies, and a projection of increasing earnings
estimates.
At this point, the Advisor utilizes a philosophy known as "GARP," growth at
reasonable price, as its underlying equity investment selection philosophy. The
screens, referred to in the paragraph above, result in a universe of
approximately 400 companies, which then receive active research by the Advisor's
Investment Committee. From this universe of 400 companies the Advisor reduces
the equity universe to approximately 75 companies which, depending upon the then
current price in the equities markets for that company, are eligible for
purchase by in the Fund.
The Advisor will base security selection on the following factors:
o financial history of the company
o consistency of earnings
o return on equity
o cash flow
o strength of management
o ratios such as price/earnings, price/book value, price/sales, and
price/cash flow
o historical valuations and future prospects of the company
Under normal market conditions, the Fund will include 25-45 companies in its
portfolio.
The Advisor performs rigorous research on individual companies in the final
equity universe through direct contact with senior management in addition to
Wall Street research analysis. The Advisor's research analysts construct
financial models based upon the data gathered from various sources, to assist in
each securities' qualification under the Advisor's security selection criteria.
3
<PAGE>
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
o the anticipated price appreciation has been achieved or is no longer
probable;
o alternative investments offer superior total return prospects; or
o fundamentals change adversely.
Fixed Income Securities
Selection of fixed income securities will be primarily for income.
The percentage invested in fixed income securities and money market instruments,
in the aggregate, will generally comprise not less than 10% and not more than
30% of the portfolio.
The Advisor will allocate approximately 50% of the fixed income portion of the
Fund to duration strategies using U.S. Treasury securities. The remaining 50% of
fixed income securities are selected based upon investment analysis by the
Advisor, attempting to identify securities that are undervalued. Fixed income
securities are identified as undervalued in circumstances, for instance, where
the Advisor believes the credit rating of the company is subject to an increase,
which has the potential to reduce the price spread to a comparable maturity U.S.
Treasury security, and in turn increase in price. Fixed income securities may
also be identified as undervalued if the spread (difference in yield to an
underlying treasury of comparable maturity) for a particular security is too
large relative to similar fixed income securities within similar maturities and
similar credit quality.
The Fund may invest in fixed income securities that may be rated below "Baa" by
Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's
Ratings Groups ("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch")
or which, if unrated, are of comparable quality as determined by the Advisor
(so-called "junk bonds"). The Fund will not invest more than 50% of the total
fixed income portion of its portfolio (and not more that 15% of the Fund's total
assets) in junk bonds. The Fund will not invest in junk bonds rated lower than
"Caa" by Moody's or "CCC" by Standard & Poor's or Fitch or equivalent unrated
securities.
Money Market Instruments
Money market instruments will typically represent a portion of the Fund's
portfolio as a method to: (1) temporarily invest monies received by the Fund
prior to investing in equity or fixed income securities; (2) accumulate cash for
anticipated purchases of portfolio securities; and (3) provide for shareholder
redemptions and the payment of operating expenses of the Fund.
4
<PAGE>
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents, investment grade bonds,
U.S. Government Securities, repurchase agreements, or money market instruments
as a temporary defensive position, when the Advisor determines that market
conditions warrant such investments. When the Fund invests in these investments
as a temporary defensive measure, it is not pursuing its stated investment
objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested. Generally, the Fund will be subject to
the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
Credit risk is particularly significant to the Fund when investing a
portion of its assets in "junk bonds" or lower-rated securities.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates causes the value of fixed income securities to decrease, and
vice versa. There is the possibility that the value of the Fund's
investment in fixed income securities may fall because fixed income
securities generally fall in value when interest rates rise. Changes in
interest rates may have a significant effect on the Fund holding a
significant portion of its assets in fixed income securities with long term
maturities.
o Maturity Risk: Maturity risk is another factor which can effect the value
of the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
5
<PAGE>
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated "BBB" by
Standard & Poor's or "Baa" by Moody's are considered investment grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity
to pay principal and interest, and are considered to lack outstanding
investment characteristics and may be speculative.
o Junk Bonds or Lower rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by S&P or Moody's, respectively, are speculative in
nature and may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than higher rate fixed-income
securities. They are usually issued by companies without long track records
of sales and earnings, or by those companies with questionable credit
strength. These fixed income securities are considered "below investment
grade." The retail secondary market for these "junk bonds" may be less
liquid than that of higher rated securities and adverse conditions could
make it difficult at times to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value.
o Year 2000 Risk: Like other mutual funds, financial and business
organizations and individuals around the world, the Trust and the Fund
could be adversely affected if the computer systems used by the Advisor,
other service providers, or persons with whom they deal, do not properly
process and calculate date-related information and data dated on and after
January 1, 2000. This possibility is commonly known as the "Year 2000
Problem." Virtually all operations of the Trust and the Fund are computer
reliant. The Advisor, administrator, transfer agent, distributor and
custodian have informed the Trust that they are actively taking steps to
address the Year 2000 Problem with regard to their respective computer
systems and the interfaces between their respective computer systems. The
Trust and the Fund are also taking measures to obtain assurances from
necessary persons that comparable steps are being taken by the key service
providers to the Advisor, administrator, transfer agent, distributor, and
custodian. There can be no assurance that the Trust and the Fund's key
service providers will be year 2000 compliant. If not adequately addressed,
the Year 2000 Problem could result in the inability of the Trust and the
Fund to perform its mission critical functions, including trading and
settling trades of the Fund's securities, pricing of portfolio securities
and processing shareholder transactions, and the net asset value of the
Fund's shares may be materially affected.
In addition, because the Year 2000 Problem affects virtually all issuers,
the companies or entities in which the Fund may invest also could be
adversely impacted by the Year 2000 Problem. For example, issuers may incur
substantial costs to address the Year 2000 Problem. The extent of such
impact cannot be predicted and there can be no assurances that the Year
2000 Problem will not have an adverse effect on the issuers whose
securities are held by the Fund.
6
<PAGE>
BAR CHART AND PERMORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Investor Class Shares of the Fund by showing (on a calendar
year basis) changes in the Investor Class Shares' average annual total returns
during the last calendar year and since the Investor Class's inception, and by
showing (on a calendar year basis) how the Investor Class Shares' average annual
returns compare to those of a broad-based securities market index. How the Fund
has performed in the past is not necessarily an indication of how the Fund will
perform in the future.
[Bar Chart of Annual Return:]
1998 19.31%
o During the 1-year period shown in the bar chart, the highest return for a
quarter was 23.30% (quarter ended December 31, 1998).
o During the 1-year period shown in the bar chart, the lowest return for a
quarter was -13.12% (quarter ended September 30, 1998).
o The year-to-date return for the Investor Class Shares as of the most recent
calendar quarter was 4.11% (quarter ended March 31, 1999).
o Sales loads are not reflected in the chart above. If these amounts were
reflected, returns would be less than those shown.
7
<PAGE>
- ------------------------------------------------- -------------- --------------
Average Annual Total Returns Past 1 Since
Period ended December 31, 1998* Year Inception**
- ------------------------------------------------- -------------- --------------
- ------------------------------------------------- -------------- --------------
WST Growth & Income Fund Investor Class Shares 14.84% 11.60%
- ------------------------------------------------- -------------- --------------
- ------------------------------------------------- -------------- --------------
S&P 500 Total Return Index *** 28.58% 23.40%
- ------------------------------------------------- -------------- --------------
* The maximum sales load is reflected in the table.
** The Investor Class Shares commenced operations on October 3, 1997.
*** The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
FEES AND EXPENSES OF THE FUND
The tables below describe the fees and expenses that you may pay if you buy and
hold shares of the Fund.
- --------------------------------------------------------------- ----------
Shareholder Fees for Investor Class Shares
- --------------------------------------------------------------- ----------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price)............................ 3.75 %
Maximum deferred sales charge (load)............................ None
Maximum imposed sales charge (load) on reinvested dividends..... None
Redemption fee.................................................. None
Exchange fee.................................................... None
- --------------------------------------------------------------- ----------
- --------------------------------------------------------------------------
Annual Fund Operating Expenses For Investor Class Shares
(expenses that are deducted from Fund assets)
- --------------------------------------------------------------------------
Management Fees................................................ 0.75 %
Distribution and/or Service (12b-1) Fees....................... 0.50 %
Other Expenses................................................. 1.31 %
-----
Total Annual Fund Operating Expenses................. 2.56 %^1
Fee Waiver and/or Expense Reimbursement.............. (0.31)%
-----
Net Expenses......................................... 2.25 %
=====
- --------------------------------------------------------------------------
1. "Total Annual Fund Operating Expenses" are based upon actual expenses
incurred by the Investor Class Shares of the Fund for the fiscal year ended
March 31, 1999. The Advisor has entered into a contractual agreement with
the Trust under which it has agreed to waive or reduce its fees and to
assume other expenses of the Fund, if necessary, in an amount that limits
"Total Fund Operating Expenses" (exclusive of interest, taxes, brokerage
fees and commissions, extraordinary expenses, and payments, if any, under a
Rule 12b-1 Plan) to not more than 1.75% of the average daily net asset of
the Investor Class Shares of the Fund for the fiscal year ending March 31,
2000. See "Expense Limitation Agreement" for more detailed information.
8
<PAGE>
Example: This Example shows you the expenses you may pay over time by investing
in the Investor Class Shares of the Fund. Since all funds use the same
hypothetical conditions, it should help you compare the costs of investing in
the Fund versus other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above as well as those upon
redemption.
- ------------------------------- ------ -------- -------- --------
1 yr 3 yr 5 yr 10 yr
- ------------------------------- ------ -------- -------- --------
Investor Class Shares $595 $1,052 $1,535 $2,863
- ------------------------------- ------ -------- -------- --------
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
Subject to the authority of the Board of Trustees, Wilbanks, Smith & Thomas
Asset Management, Inc., One Commercial Place, Suite 1450, Norfolk, Virginia
23510, 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 pursuant to an Amended and Restated Investment
Advisory Agreement with the Trust (the "Advisory Agreement").
The Advisor is registered under the Investment Advisors Act of 1940, as amended.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission
("SEC"). The Advisor was established as a Virginia corporation in 1990, and is
controlled by: Wayne F. Wilbanks CFA, L. Norfleet Smith, Jr., and Norwood A.
Thomas, Jr.
The Advisor currently serves as investment advisor to approximately $650 million
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation.
9
<PAGE>
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Fund may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see
"Investment Objective and Policies - Investment Transactions" in the Statement
of Additional Information.
The Investment Committee of the Advisor, composed of Wayne F. Wilbanks, CFA, L.
Norfleet Smith, Jr., and Norwood A. Thomas, Jr. (all control persons of the
Advisor) is responsible for day-to-day management of the Fund's portfolio. Mr.
Wilbanks has been with the Advisor since its formation in 1990. Messrs. Smith
and Thomas have been with the Advisor since 1992. Messrs. Wilbanks and Thomas
serve as executive officers of the Trust and will represent the Advisor at Board
of Trustees meetings.
The Advisor's Compensation. Compensation of the Advisor with regard to the Fund,
based upon the Fund's daily average net assets, is at the annual rate of 0.75%
of the first $250 million of net assets and 0.65% of all assets over $250
million. For the fiscal year ending March 31, 1999, the Advisor voluntarily
waived $31,699 of its advisory fee. As a result, the amount of compensation
received by the Advisor as a percentage of assets of the Fund during the last
fiscal year was 0.42%.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
on March 15, 1999 the Advisor entered into an expense limitation agreement with
the Trust, with respect to the Fund (the "Expense Limitation Agreement"),
pursuant to which the Advisor has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses of the Fund
(other than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of the Fund's
business, and amounts, if any, payable pursuant to a Rule 12b-1 Plan) are
limited to 1.75% of the average net assets of each Class of Shares for the
fiscal year to end March 31, 2000.
The Fund may at a later date reimburse the Advisor the fees waived or limited
and other expenses assumed and paid by the Advisor pursuant to the Expense
Limitation Agreement, provided the Fund has reached a sufficient asset size to
permit such reimbursement to be made without causing the total annual expense
ratio of the Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
10
<PAGE>
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") serves as the administrator
and fund accounting agent for the Fund. The Administrator assists the Advisor in
the performance of its administrative responsibilities to the Fund, coordinates
the services of each vendor of services to the Fund, and provides the Fund with
other necessary administrative, fund accounting and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel and facilities required to provide such services to the Fund. For
these services, the Administrator is compensated by the Trust pursuant to a Fund
Accounting and Compliance Administration Agreement
THE TRANSFER AGENT
NC Shareholder Services, LLC (the "Transfer Agent") serves as the Fund's
transfer, dividend paying, and shareholder servicing agent. As indicated later
in the section of this Prospectus, "Investing in the Fund," the Transfer Agent
will handle your orders to purchase and redeem shares of the Fund, and will
disburse dividends paid by the Fund. The Transfer Agent is compensated for its
services by the Trust pursuant to a Dividend Disbursing and Transfer Agent
Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") serves as the distributor of the
Fund's Investor Class Shares. The Distributor may such Fund shares to or through
qualified securities dealers or others.
Distribution Plan. For the Investor Class Shares of the Fund, the Fund has
adopted a Distribution Plan in accordance with Rule 12b-1 ("Distribution Plan")
under the Investment Company Act of 1940, as amended ("1940 Act"). The
Distribution Plan provides that the Fund will annually pay the Distributor up to
0.50% of the average daily net assets of the Fund's Investor Class Shares for
activities primarily intended to result in the sale of those Investor Class
Shares or the servicing of those shares, including to compensate entities for
providing distribution and shareholder servicing with respect to the Fund's
Investor Class Shares (this compensation is commonly referred to as "12b-1
fees"). Because the 12b-1 fees are paid out of the Fund's assets on an on-going
basis, these fees, over time, will increase the cost of your investment and may
cost you more than paying other types of sales loads.
Other Expenses. In addition to the advisory fees and 12b-1 fees for the Investor
Class and Class C Shares, the Fund pays all expenses not assumed by the Fund's
Advisor, including, without limitation: the fees and expenses of its
administrator, custodian, transfer and dividend disbursing agent independent
accountants and legal counsel; the costs of printing and mailing to shareholders
annual and semi-annual reports, proxy statements, prospectuses, statements of
additional information and supplements thereto; the costs of printing
registration statements; bank transaction charges and custodian's fees; any
proxy solicitors' fees and expenses; filing fees; any federal, state or local
income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Fund, on a basis that the Trustees
deem fair and equitable, which may be on the basis of the relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
11
<PAGE>
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Investor Class Shares are sold subject to a maximum sales charge of 3.75%, so
that the term "offering price" includes the front-end sales load. Shares are
redeemed at net asset value. Shares may be purchased by any account managed by
the Advisor and any other broker-dealer authorized to sell shares in the Fund.
The minimum initial investment is $5,000 ($2,000 for Individual Retirement
Accounts ("IRAs"), Keogh Plans, 401(k) Plans, or purchases under the Uniform
Gifts to Minors Act). The minimum additional investment is $500 ($100 for those
participating in the Automatic Investment Plan). The Fund may, in the Advisor's
sole discretion, accept certain accounts with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Sales Charges. The public offering price of Investor Class Shares of the Fund
equals net asset value plus a sales charge. The Distributor receives this sales
charge and may reallow it in the form of dealer discounts and brokerage
commissions as follows:
<TABLE>
<S><C> <C> <C> <C>
- ------------------------------------- ----------------- ----------------- ----------------------------
Sales Dealers Discounts and
Charge As % of Sales Charge Brokerage Commissions as %
Amount of Transaction At Public Net Amount As % of Public of Public Offering Price
Offering Price Invested Offering Price
- ------------------------------------- ----------------- ----------------- ----------------------------
Less than $250,000 3.93% 3.75% 3.65%
$250,000 but less than $500,000 2.04% 2.00% 1.90%
$500,000 or more 1.01% 1.00% 0.90%
- ------------------------------------- ----------------- ----------------- ----------------------------
</TABLE>
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers. Pursuant to the terms of the
Distribution Agreement, the sales charge payable to the Distributor and the
dealer discounts may be suspended, terminated or amended. The Distributor, at
its expense, may, from time to time, provide additional promotional incentives
to dealers who sell Fund shares.
12
<PAGE>
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange (currently 4:00 p.m. Eastern time,
Monday through Friday), except on business holidays when the New York Stock
Exchange ("NYSE") is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund. All redemption requests
will be processed and payment with respect thereto will normally be made within
seven days after the redemption order is received. The Fund may suspend
redemption, if permitted by the 1940 Act, for any period during which the NYSE
is closed or during which trading is restricted by the SEC or if the SEC
declares that an emergency exists. Redemptions may also be suspended during
other periods permitted by the SEC for the protection of the Fund's
shareholders. Additionally, during drastic economic and market changes,
telephone redemption privileges may be difficult to implement. Also, if the
Trustees determine that it would be detrimental to the best interest of the
Fund's remaining shareholders to make payment in cash, the Fund may pay
redemption proceeds in whole or in part by a distribution-in-kind of readily
marketable securities.
Purchasing Shares
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "WST Growth &
Income Fund," to:
WST Growth & Income Fund
Investor Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
13
<PAGE>
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S. investors if certain IRS requirements
regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the WST Growth & Income Fund - Investor Class Shares
Acct. # 2000001068081
For further credit to (shareholder's name and SS# or TIN#)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the net asset
value on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund. Investors who establish an Automatic Investment Plan may open an account
with a minimum balance of $1,000. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
14
<PAGE>
Exchange Feature. You may exchange shares of the Fund for shares of any other
series or class of shares of the Trust (other than Institutional Class Shares)
advised by the Advisor and offered for sale in the state in which you reside.
Any such exchange will be made at the applicable net asset value plus the
percentage difference between the sales charge applicable to those shares and
any sales charge, previously paid by you in connection with the shares being
exchanged. Institutional Class Shares may only be exchanged for Institutioanal
Class shares of another series of the Trust advised by the Advisor. Prior to
making an investment decision or giving us your instructions to exchange shares,
please read the prospectus for the series in which you wish to invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Fund. Such a
pattern may, at the discretion of the Advisor, be limited by the Fund's refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
Reduced Sales Charges
Rights of Accumulation. The sales charge applicable to a current purchase of
shares of the Fund by an investor is determined by adding the purchase price of
shares to be purchased to the aggregate value (at current offering price) of
shares of the Fund previously purchased and then owned, provided the Distributor
is notified by such person or his or her broker-dealer each time a purchase is
made which would so qualify. For example, a person who is purchasing Fund shares
with an aggregate value of $50,000 and who currently owns shares of the Funds
with a value of $200,000 would pay a sales charge of 2.00% of the offering price
on the new investment.
Letter of Intent. Sales charges may also be reduced through an agreement to
purchase a specified quantity of shares over a designated thirteen-month period
by completing the "Letter of Intent" section of the Account Application.
Information about the "Letter of Intent" procedure, including its terms, is
contained on the back of the Account Application.
Reinvestments. Investors may reinvest, without a sales charge, proceeds from a
redemption of Investor Shares of the Fund in Investor Shares of the Fund or in
shares of another series of the Trust affiliated with the Advisor and sold with
a sales charge, within 90 days after the redemption. If the other class charges
a sales charge higher than the sales charge the investor paid in connection with
the shares redeemed, the investor must pay the difference. In addition, the
shares of the class to be acquired must be registered for sale in the investor's
state of residence. The amount that may be so reinvested may not exceed the
amount of the redemption proceeds, and the Fund or the Distributor must receive
a written order for the purchase of such shares within 90 days after the
effective date of the redemption.
15
<PAGE>
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
Group Plans. Shares of the Fund may be sold at a reduced or eliminated sales
charge to certain Group Plans under which a sponsoring organization makes
recommendations to, permits group solicitation of, or otherwise facilitates
purchases by, its employees, members or participants. Information about such
arrangements is available from the Distributor.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
WST Growth & Income Fund
Investor Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the account number and number of
shares, or the dollar amount, to be redeemed. This request must be signed
by all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
16
<PAGE>
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. However, the Fund may delay forwarding
a redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) The name of the Fund and the designation of Class of Shares,
2) Shareholder name and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder, and
5) Shareholder signature as it appears on the application then on file with
the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
17
<PAGE>
Small Accounts. All shares are purchased and redeemed in accordance with the
Fund's Amended and Restated Declaration of Trust and By-Laws. The Board of
Trustees reserves the right to redeem involuntarily any account having a net
asset value of less than $5,000 ($2,000 for IRAs, Keogh Plans, 401(k) Plans or
purchases under the Uniform Gifts to Minors Act) (due to redemptions, exchanges,
or transfers, and not due to market action) upon 60-days written notice. If the
shareholder brings his account net asset value up to at least $5,000 ($2,000 for
IRAs, Keogh Plans, 401(k) Plans or purchases under the Uniform Gifts to Minors
Act) during the notice period, the account will not be redeemed. Redemptions
from retirement plans may be subject to federal income tax withholding.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
Signature Guarantees. To protect your account and the Fund from fraud,
signature guarantees are required to be sure that you are the person who has
authorized a change in registration or standing instructions for your account.
Signature guarantees are required for (1) change of registration requests, (2)
requests to establish or to change exchange privileges or telephone and bank
wire redemption service other than through your initial account application, and
(3) redemption requests in excess of $50,000. Signature guarantees are
acceptable from a member bank of the Federal Reserve System, a savings and loan
institution, credit union (if authorized under state law), registered
broker-dealer, securities exchange, or association clearing agency and must
appear on the written request for change of registration, establishment or
change in exchange privileges, or redemption request.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$5,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Share Application form.
18
<PAGE>
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S. taxpayers.
Additional tax information appears in the SAI. Shareholders should rely their
own tax advisers for advice about the particular federal, state and local tax
consequences to them of investing in the Fund.
The Fund will distribute most of its income and gains to its shareholders every
year. Income dividends, if any, will be paid quarterly and capital gains
distributions, if any, will be made at least annually. Although the Fund will
not be taxed on amounts it distributes, shareholders will generally be taxed,
regardless of whether distributions are received in cash or are reinvested in
additional Fund shares. A particular distribution generally will be taxable as
either ordinary income or long-term capital gains. If a Fund designates a
distribution as a capital gain distribution, it will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares.
If the Fund declares a dividend in October, November or December but pays it in
January, it may be taxable to shareholders as if they received it in the year it
was declared. Each year each shareholder will receive a statement detailing the
tax status of any Fund distributions for that year.
Distributions may be subject to state and local taxes, as well as federal taxes.
Shareholders who hold Fund shares in a tax-deferred account, such as a
retirement plan, generally will not have to pay tax on Fund distributions until
they receive distributions from the account.
A shareholder who sells or redeems shares will generally realize a capital gain
or loss, which will be long-term or short-term, generally depending upon the
shareholder's holding period for the Fund shares. An exchange of shares may be
treated as a sale.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
19
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the WST Growth & Income Fund's Investor Class Shares for
the fiscal year ended March 31, 1999, and the fiscal period ended March 31,
1998. The financial data have been audited by Deloitte & Touche LLP, independent
auditors, whose report covering such year and period is included in the
Statement of Additional Information. This information should be read in
conjunction with the Fund's latest audited annual financial statements and notes
thereto, which are also included in the Statement of Additional Information, a
copy of which may be obtained at no charge by calling the Fund. Further
information about the performance of the Fund is contained in the Annual Report
of the Fund, a copy of which may also be obtained at no charge by calling the
Fund.
INVESTOR CLASS SHARES
(For a Share Outstanding Throughout the Periods)
<TABLE>
<S><C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
For the fiscal Period from October 3, 1997
year ended (commencement of operations)
March 31, to March 31, 1998
1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period ........................................... $ 11.26 $ 10.22
Income from investment operations
Net investment income (loss) ........................................... (0.04) (0.01)
Net realized and unrealized gain on investments ........................ 1.45 1.05
------------- -----------
Total from investment operations ................................... 1.41 1.04
------------- -----------
Distributions to shareholders from
Net investment income .................................................. 0.00 0.00
------------- -----------
Net Asset Value, End of Period ................................................. $ 12.67 $ 11.26
============= ===========
Total return (a) ............................................................... 12.52% 10.52%
============= ===========
Ratios/supplemental data
Net Assets, End of Period .................................................. $ 2,539,131 $ 763,186
============= ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees .......................... 2.56 % 3.63 % (b)
After expense reimbursements and waived fees ........................... 2.25 % 2.25 % (b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees .......................... (0.84)% (1.70)% (b)
After expense reimbursements and waived fees ........................... (0.53)% (0.31)% (b)
Portfolio turnover rate .................................................... 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
</TABLE>
20
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
WST GROWTH & INCOME FUND
INVESTOR CLASS SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information. The Fund's Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
These Reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-800-525-3863
By mail: WST Growth & Income Fund
Investor Class Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.ncfunds.com
Information about the Fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Inquiries on the operations of the public
reference room may be made by calling the SEC at 1-800-SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet site at
http://www.sec.gov and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
Investment Company Act file number 811-06199
<PAGE>
Cusip Number Class C Shares 66976M797
________________________________________________________________________________
WST GROWTH & INCOME FUND
A series of
The Nottingham Investment Trust II
CLASS C SHARES
________________________________________________________________________________
PROSPECTUS
June 1, 1999
The WST Growth & Income Fund seeks total return from a combination of capital
appreciation and current income. This Prospectus relates to the Class C Shares
of the Fund. The Fund also offers two additional classes of shares:
Institutional Class Shares and Investor Class Shares, which are offered by other
prospectuses.
Advisor
-------
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND...................................................................... 2
- --------
Investment Objective.....................................................2
Principal Investment Strategies..........................................2
Principal Risks Of Investing In The Fund.................................4
Bar Chart and Performance Table..........................................6
Fees And Expenses Of The Fund............................................8
MANAGEMENT OF THE FUND.........................................................9
- ----------------------
The Investment Advisor...................................................9
The Administrator.......................................................11
The Transfer Agent......................................................11
The Distributor.........................................................11
INVESTING IN THE FUND.........................................................12
- ---------------------
Minimum Investment......................................................12
Purchase And Redemption Price...........................................12
Purchasing Shares.......................................................13
Redeeming Your Shares...................................................15
OTHER IMPORTANT INVESTMENT INFORMATION........................................17
- --------------------------------------
Dividends, Distributions And Taxes......................................17
Financial Highlights....................................................18
Additional Information..........................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The WST Growth & Income Fund (the "Fund") seeks total return from a combination
of capital appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund will seek to achieve its objective by investing primarily in a flexible
portfolio of:
o equity securities
o fixed income securities
o money market instruments
The capital appreciation portion of the Fund's objective will be achieved by
investing in equity securities. The income portion of the Fund's objective will
be achieved by investing in fixed income securities and money market
instruments.
Wilbanks, Smith & Thomas Asset Management, Inc. ("the Advisor") will vary the
percentage of Fund assets invested in equities, fixed income securities, and
money market instruments according to the Advisor's judgment of market and
economic conditions, and based on the Advisor's view of which asset class can
best achieve the Fund's objectives.
Equity Securities
Selection of equity securities will be based primarily on the expected capital
appreciation potential.
The percentage invested in equity securities will generally comprise not less
than 70% and not more than 90% of the portfolio.
The equity portion of the Fund's portfolio will consist generally of common
stocks, convertible preferred stocks, participating preferred stocks, preferred
equity redemption cumulative stocks, preferred stocks and convertible bonds
traded (grade "BB" or higher) on domestic securities exchanges or on the
over-the-counter markets. Foreign equity securities will be limited to those
available on domestic U.S. exchanges and denominated in U.S. dollars.
2
<PAGE>
The Advisor utilizes a 'top down' approach to equity selection.
--------------------------------------------------------------------
Macroeconomic Analysis and Projected Trends
Research consisting of four primary areas
(market interest rates, Federal Reserve policy, inflation, and economic
growth, as typically measured by gross domestic product)
--------------------------------------------------------------------
------------------------------------------
Sector Analysis
Research and analysis of sectors within
the research universe
------------------------------------------
--------------------
Industry Analysis
Industry analysis of companies
within each sector
--------------------
From an initial research universe of approximately 5,400 companies, a "screen"
is performed to identify securities with a projected earnings per share growth
rate of 12% or more, market capitalization of not less than $750 million, price
earnings' ratios within appropriate relative ranges compared to comparable
sector and industry companies, and a projection of increasing earnings
estimates.
At this point, the Advisor utilizes a philosophy known as "GARP," growth at
reasonable price, as its underlying equity investment selection philosophy. The
screens, referred to in the paragraph above, result in a universe of
approximately 400 companies, which then receive active research by the Advisor's
Investment Committee. From this universe of 400 companies the Advisor reduces
the equity universe to approximately 75 companies which, depending upon the then
current price in the equities markets for that company, are eligible for
purchase by in the Fund.
The Advisor will base security selection on the following factors:
o financial history of the company
o consistency of earnings
o return on equity
o cash flow
o strength of management
o ratios such as price/earnings, price/book value, price/sales, and price/
cash flow
o historical valuations and future prospects of the company
Under normal market conditions, the Fund will include 25-45 companies in its
portfolio.
The Advisor performs rigorous research on individual companies in the final
equity universe through direct contact with senior management in addition to
Wall Street research analysis. The Advisor's research analysts construct
financial models based upon the data gathered from various sources, to assist in
each securities' qualification under the Advisor's security selection criteria.
3
<PAGE>
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
o the anticipated price appreciation has been achieved or is no longer
probable;
o alternative investments offer superior total return prospects; or
o fundamentals change adversely.
Fixed Income Securities
Selection of fixed income securities will be primarily for income.
The percentage invested in fixed income securities and money market instruments,
in the aggregate, will generally comprise not less than 10% and not more than
30% of the portfolio.
The Advisor will allocate approximately 50% of the fixed income portion of the
Fund to duration strategies using U.S. Treasury securities. The remaining 50% of
fixed income securities are selected based upon investment analysis by the
Advisor, attempting to identify securities that are undervalued. Fixed income
securities are identified as undervalued in circumstances, for instance, where
the Advisor believes the credit rating of the company is subject to an increase,
which has the potential to reduce the price spread to a comparable maturity U.S.
Treasury security, and in turn increase in price. Fixed income securities may
also be identified as undervalued if the spread (difference in yield to an
underlying treasury of comparable maturity) for a particular security is too
large relative to similar fixed income securities within similar maturities and
similar credit quality.
The Fund may invest in fixed income securities that may be rated below "Baa" by
Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's
Ratings Groups ("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch")
or which, if unrated, are of comparable quality as determined by the Advisor
(so-called "junk bonds"). The Fund will not invest more than 50% of the total
fixed income portion of its portfolio (and not more that 15% of the Fund's total
assets) in junk bonds. The Fund will not invest in junk bonds rated lower than
"Caa" by Moody's or "CCC" by Standard & Poor's or Fitch or equivalent unrated
securities.
Money Market Instruments
Money market instruments will typically represent a portion of the Fund's
portfolio as a method to: (1) temporarily invest monies received by the Fund
prior to investing in equity or fixed income securities; (2) accumulate cash for
anticipated purchases of portfolio securities; and (3) provide for shareholder
redemptions and the payment of operating expenses of the Fund.
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents, investment grade bonds,
U.S. Government Securities, repurchase agreements, or money market instruments
as a temporary defensive position, when the Advisor determines that market
conditions warrant such investments. When the Fund invests in these investments
as a temporary defensive measure, it is not pursuing its stated investment
objective.
4
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested. Generally, the Fund will be subject to
the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund may
be subject to credit risk to the extent that it invests in debt securities or
engages in transactions, such as securities loans, which involve a promise by
a third party to honor an obligation to the Fund. Credit risk is particularly
significant to the Fund when investing a portion of its assets in "junk
bonds" or lower-rated securities.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund, when
investing a significant portion of its assets in fixed income securities,
will vary in response to changes in interest rates. A rise in interest rates
causes the value of fixed income securities to decrease, and vice versa.
There is the possibility that the value of the Fund's investment in fixed
income securities may fall because fixed income securities generally fall in
value when interest rates rise. Changes in interest rates may have a
significant effect on the Fund holding a significant portion of its assets in
fixed income securities with long term maturities.
o Maturity Risk: Maturity risk is another factor which can effect the value of
the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated "BBB" by
Standard & Poor's or "Baa" by Moody's are considered investment grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity to
pay principal and interest, and are considered to lack outstanding investment
characteristics and may be speculative.
5
<PAGE>
o Junk Bonds or Lower rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by S&P or Moody's, respectively, are speculative in
nature and may be subject to certain risks with respect to the issuing entity
and to greater market fluctuations than higher rate fixed-income securities.
They are usually issued by companies without long track records of sales and
earnings, or by those companies with questionable credit strength. These
fixed income securities are considered "below investment grade." The retail
secondary market for these "junk bonds" may be less liquid than that of
higher rated securities and adverse conditions could make it difficult at
times to sell certain securities or could result in lower prices than those
used in calculating the Fund's net asset value.
o Year 2000 Risk: Like other mutual funds, financial and business organizations
and individuals around the world, the Trust and the Fund could be adversely
affected if the computer systems used by the Advisor, other service
providers, or persons with whom they deal, do not properly process and
calculate date-related information and data dated on and after January 1,
2000. This possibility is commonly known as the "Year 2000 Problem."
Virtually all operations of the Trust and the Fund are computer reliant. The
Advisor, administrator, transfer agent, distributor and custodian have
informed the Trust that they are actively taking steps to address the Year
2000 Problem with regard to their respective computer systems and the
interfaces between their respective computer systems. The Trust and the Fund
are also taking measures to obtain assurances from necessary persons that
comparable steps are being taken by the key service providers to the Advisor,
administrator, transfer agent, distributor, and custodian. There can be no
assurance that the Trust and the Fund's key service providers will be year
2000 compliant. If not adequately addressed, the Year 2000 Problem could
result in the inability of the Trust and the Fund to perform its mission
critical functions, including trading and settling trades of the Fund's
securities, pricing of portfolio securities and processing shareholder
transactions, and the net asset value of the Fund's shares may be materially
affected.
In addition, because the Year 2000 Problem affects virtually all the
companies or entities in which the Fund may invest, these also could be
adversely impacted by the Year 2000 Problem. For example, issuers may incur
substantial costs to address the Year 2000 Problem. The extent of such impact
cannot be predicted and there can be no assurances that the Year 2000 Problem
will not have an adverse effect on the issuers whose securities are held by
the Fund.
6
<PAGE>
BAR CHART AND PERMORMANCE TABLE*
The bar chart and table shown below provide an indication of the risks of
investing in the WST Growth & Income Fund by showing (on a calendar year basis)
changes in the Fund's average annual total returns during the last calendar year
and since the Fund's inception and by showing (on a calendar year basis) how the
Fund's average annual returns compare to those of a broad-based securities
market index. How the Fund has performed in the past is not necessarily an
indication of how the Fund will perform in the future. The bar chart is based on
the performance of the Institutional Class Shares whose fees and expenses are
the same as the Class C Shares except that the Class C Shares pay a 12b-1 fee of
0.75%.
[Institutional Class Shares Calendar Year Returns Included Here:}
1998 19.89%
o During the 1-year period shown in the bar chart, the highest return for a
quarter was 23.49% (quarter ended December 31, 1998).
o During the 1-year period shown in the bar chart, the lowest return for a
quarter was -12.98% (quarter ended September 30, 1998).
o The year-to-date return for the Institutional Class Shares as of the most
recent calendar quarter was 4.24% (quarter ended March 31, 1999).
- ----------------------------------- ---------------- -----------------
Average Annual Total Returns Past 1 Since
Period ended December 31, 1998* Year Inception**
- ----------------------------------- ---------------- -----------------
WST Growth & Income Fund 19.89% 17.44%
- ----------------------------------- ---------------- -----------------
S&P 500 Total Return Index *** 28.58% 25.03%
- ----------------------------------- ---------------- -----------------
* The returns shown in the bar chart and the table are for the Institutional
Class Shares which are not offered by this Prospectus. Class C Shares may
have annual returns that are substantially similar to the Institutional Class
Shares because each Class of Shares is invested in the same portfolio of
securities. The annual returns of the Class C Shares, as compared to the
Institutional Class Shares, will differ from those of the Institutional Class
Shares because the Class C Shares are subject to a 12b-1 fee of 0.75% of the
average daily net assets of the Class C Shares.
** The Institutional Class Shares commenced operations on September 30, 1997.
***The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
7
<PAGE>
FEES AND EXPENSES OF THE FUND
The table below describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
- --------------------------------------------------------------- ----------------
Shareholder Fees for Class C Shares
- --------------------------------------------------------------- ----------------
Maximum sales charge (load) imposed on purchases None
(as a percentage of offering price)
- --------------------------------------------------------------- ----------------
Maximum deferred sales charge (load) None
- --------------------------------------------------------------- ----------------
Maximum imposed sales charge (load) on reinvested dividends None
- --------------------------------------------------------------- ----------------
Redemption fee None
- --------------------------------------------------------------- ----------------
Exchange fee None
- --------------------------------------------------------------- ----------------
- --------------------------------------------------------------- ----------------
Annual Fund Operating Expenses For Class C Shares
(expenses that are deducted from Fund assets)
- --------------------------------------------------------------- ----------------
Management Fees..................................................... 0.75 %
Distribution and/or Service (12b-1) Fees............................ 0.75 %
Other Expenses...................................................... 1.33 %^1
----
Total Annual Fund Operating Expenses...................... 2.83 %^1
Fee Waiver and/or Expense Reimbursement...................(0.33)%
----
Net Expenses.............................................. 2.50 %
====
- --------------------------------------------------------------- ----------------
1. Because the Class C Shares have only been offered since May 3, 1999, "Other
Expenses" and "Total Annual Operating Expenses" are based on amounts
estimated for the current fiscal year. The Advisor has entered into a
contractual agreement with the Trust under which it has agreed to waive or
reduce its fees and to assume other expenses of the Fund, if necessary, in
an amount that limits "Total Fund Operating Expenses" (exclusive of
interest, taxes, brokerage fees and commissions, extraordinary expenses,
and payments, if any, under a Rule 12b-1 Plan) to not more than 1.75% of
the average daily net asset each Class of Shares. See "Expense Limitation
Agreement" for more detailed information.
8
<PAGE>
Example: This Example shows you the expenses you may pay over time by investing
in the Class C Shares of the Fund. Since all funds use the same hypothetical
conditions, it should help you compare the costs of investing in the Fund versus
other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above as well as those upon
redemption.
------------------------ ------------ ------------ ------------ ------------
1 Year 3 Years 5 Years 10 Years
------------------------ ------------ ------------ ------------ ------------
Class C Shares $253 $779 $1,331 $2,836
------------------------ ------------ ------------ ------------ ------------
MANAGEMENT OF THE FUNDS
-----------------------
THE INVESTMENT ADVISOR
Subject to the authority of the Board of Trustees, Wilbanks, Smith & Thomas
Asset Management, Inc., One Commercial Place, Suite 1450, Norfolk, Virginia
23510, 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 pursuant to an Amended and Restated Investment
Advisory Agreement with the Trust (the "Advisory Agreement").
The Advisor is registered under the Investment Advisors Act of 1940, as amended.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission
("SEC"). The Advisor was established as a Virginia corporation in 1990, and is
controlled by: Wayne F. Wilbanks CFA, L. Norfleet Smith, Jr., and Norwood A.
Thomas, Jr.
The Advisor currently serves as investment advisor to approximately $650 million
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation.
9
<PAGE>
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Fund may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see
"Investment Objective and Policies Investment Transactions" in the Statement of
Additional Information.
The Investment Committee of the Advisor, composed of Wayne F. Wilbanks, CFA, L.
Norfleet Smith, Jr., and Norwood A. Thomas, Jr. (all control persons of the
Advisor) is responsible for day-to-day management of the Fund's portfolio. Mr.
Wilbanks has been with the Advisor since its formation in 1990. Messrs. Smith
and Thomas have been with the Advisor since 1992. Messrs. Wilbanks and Thomas
serve as executive officers of the Trust and will represent the Advisor at Board
of Trustees meetings.
The Advisor's Compensation. Compensation of the Advisor with regard to the Fund,
based upon the Fund's daily average net assets, is at the annual rate of 0.75%
of the first $250 million of net assets and 0.65% of all assets over $250
million. For the fiscal year ending March 31, 1999, the Advisor voluntarily
waived $31,699 of its advisory fee. As a result, the amount of compensation
received by the Advisor as a percentage of assets of the Fund during the last
fiscal year was 0.42%.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
on March 15, 1999 the Advisor entered into an expense limitation agreement with
the Trust, with respect to the Fund (the "Expense Limitation Agreement"),
pursuant to which the Advisor has agreed to waive or limit its fees and to
assume other expenses so that the total annual operating expenses of the Fund
(other than interest, taxes, brokerage commissions, other expenditures which are
capitalized in accordance with generally accepted accounting principles, other
extraordinary expenses not incurred in the ordinary course of the Fund's
business, and amounts, if any, payable pursuant to a Rule 12b-1 Plan) are
limited to 1.75% of the average net assets of each Class of Shares for the
fiscal year to end March 31, 2000.
The Fund may at a later date reimburse the Advisor the fees waived or limited
and other expenses assumed and paid by the Advisor pursuant to the Expense
Limitation Agreement, provided the Fund has reached a sufficient asset size to
permit such reimbursement to be made without causing the total annual expense
ratio of the Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
10
<PAGE>
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") serves as the administrator
and fund accounting agent for the Fund. The Administrator assists the Advisor in
the performance of its administrative responsibilities to the Fund, coordinates
the services of each vendor of services to the Fund, and provides the Fund with
other necessary administrative, fund accounting and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel and facilities required to provide such services to the Fund. For
these services, the Administrator is compensated by the Trust pursuant to a Fund
Accounting and Compliance Administration Agreement
THE TRANSFER AGENT
NC Shareholder Services, LLC (the "Transfer Agent") serves as the Fund's
transfer, dividend paying, and shareholder servicing agent. As indicated later
in the section of this Prospectus, "Investing in the Fund," the Transfer Agent
will handle your orders to purchase and redeem shares of the Fund, and will
disburse dividends paid by the Fund. The Transfer Agent is compensated for its
services by the Trust pursuant to a Dividend Disbursing and Transfer Agent
Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") serves as the distributor of the
Fund's Class C Shares. The Distributor may sell such shares to or through
qualified securities dealers or others.
Distribution Plan. For the Class C Shares of the Fund, the Fund has adopted a
Distribution Plan in accordance with Rule 12b-1 ("Distribution Plan") under the
Investment Company Act of 1940, as amended ("1940 Act"). The Distribution Plan
provides that the Fund will annually pay the Distributor up to 0.75% of the
average daily net assets of the Fund's Class C Shares for activities primarily
intended to result in the sale of those Class C Shares or the servicing of those
shares, including to compensate entities for providing distribution and
shareholder servicing with respect to the Fund's Class C Shares (this
compensation is commonly referred to as "12b-1 fees"). Because the 12b-1 fees
are paid out of the Fund's assets on an on-going basis, these fees, over time,
will increase the cost of your investment and may cost you more than paying
other types of sales loads.
11
<PAGE>
Other Expenses. In addition to the advisory fees (and 12b-1 fees for the
Investor Class and Class C Shares), the Fund pays all expenses not assumed by
the Fund's Advisor, including, without limitation: the fees and expenses of its
administrator, custodian, transfer and dividend disbursing agent independent
accountants and legal counsel; the costs of printing and mailing to shareholders
annual and semi-annual reports, proxy statements, prospectuses, statements of
additional information and supplements thereto; the costs of printing
registration statements; bank transaction charges and custodian's fees; any
proxy solicitors' fees and expenses; filing fees; any federal, state or local
income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Fund, on a basis that the Trustees
deem fair and equitable, which may be on the basis of the relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Class C Shares are sold and redeemed at net asset value. Shares may be purchased
by any account managed by the Advisor and any other broker-dealer authorized to
sell shares in the Fund. The minimum initial investment is $5,000 ($2,000 for
Individual Retirement Accounts ("IRAs"), Keogh Plans, 401(k) Plans, or purchases
under the Uniform Gifts to Minors Act). The Fund may, in the Advisor's sole
discretion, accept certain accounts with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange (currently 4:00 p.m. Eastern time,
Monday through Friday), except on business holidays when the New York Stock
Exchange ("NYSE") is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
12
<PAGE>
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund. All redemption requests
will be processed and payment with respect thereto will normally be made within
seven days after the redemption order is received. The Fund may suspend
redemptions, if permitted by the Investment Company Act of 1940, as amended (the
"1940 Act"), for any period during which the NYSE is closed or during which
trading is restricted by the SEC or if the SEC declares that an emergency
exists. Redemptions may also be suspended during other periods permitted by the
SEC for the protection of the Fund's shareholders. Additionally, during drastic
economic and market changes, telephone redemption privileges may be difficult to
implement. Also, if the Trustees determine that it would be detrimental to the
best interest of the Fund's remaining shareholders to make payment in cash, the
Fund may pay redemption proceeds in whole or in part by a distribution-in-kind
of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "WST Growth &
Income Fund," to:
WST Growth & Income Fund
Class C Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
The application must contain your social security number or Taxpayer
Identification Number ("TIN"). If you have applied for a social security number
or TIN at the time of completing your account application but you have not
received your number, please indicate this on the application. Taxes are not
withheld from distributions to U.S. investors if certain IRS requirements
regarding the TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the WST Growth & Income Fund - Class C Shares
Acct. # 2000001068081
For further credit to (shareholder's name and SS# or TIN#)
13
<PAGE>
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the net asset
value on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund. Investors who establish an Automatic Investment Plan may open an account
with a minimum balance of $1,000. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series or Class of Shares of the Trust advised by the Advisor and offered for
sale in the state in which you reside. Any such exchange will be made at the
applicable net asset value plus the percentage difference between the sales
charge applicable to those shares and any sales charge previously paid by you in
connection with the shares being exchanged. Prior to making an investment
decision or giving us your instructions to exchange shares, please read the
prospectus for the series in which you wish to invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Fund. Such a
pattern may, at the discretion of the Advisor, be limited by the Fund's refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
14
<PAGE>
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
WST Growth & Income Fund
Class C Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
1) Your letter of instruction specifying the account number and number of
shares, or the dollar amount, to be redeemed. This request must be signed
by all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. However, the Fund may delay forwarding
a redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
15
<PAGE>
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
1) The name of the Fund and the designation of Class of Shares,
2) Shareholder name and account number,
3) Number of shares or dollar amount to be redeemed,
4) Instructions for transmittal of redemption funds to the shareholder,
and
5) Shareholder signature as it appears on the application then on file
with the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($1,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Small Accounts. All shares are purchased and redeemed in accordance with the
Fund's Amended and Restated Declaration of Trust and By-Laws. The Board of
Trustees reserves the right to redeem involuntarily any account having a net
asset value of less than $5,000 ($2,000 for IRAs, Keogh Plans, 401(k) Plans or
purchases under the Uniform Gifts to Minors Act) (due to redemptions, exchanges,
or transfers, and not due to market action) upon 60-days written notice. If the
shareholder brings his account net asset value up to at least $5,000 ($2,000 for
IRAs, Keogh Plans, 401(k) Plans or purchases under the Uniform Gifts to Minors
Act) during the notice period, the account will not be redeemed. Redemptions
from retirement plans may be subject to federal income tax withholding.
16
<PAGE>
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$5,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Share Application form.
17
<PAGE>
OTHER IMPORTANT INVESTMENT INFORMATION
--------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
The following information is meant as a general summary for U.S. taxpayers.
Additional tax information appears in the SAI. Shareholders should rely their
own tax advisers for advice about the particular federal, state and local tax
consequences to them of investing in the Fund.
The Fund will distribute most of its income and gains to its shareholders every
year. Income dividends, if any, will be paid quarterly and capital gains
distributions, if any, will be made at least annually. Although the Fund will
not be taxed on amounts it distributes, shareholders will generally be taxed,
regardless of whether distributions are received in cash or are reinvested in
additional Fund shares. A particular distribution generally will be taxable as
either ordinary income or long-term capital gains. If a Fund designates a
distribution as a capital gain distribution, it will be taxable to shareholders
as long-term capital gains, regardless of how long they have held their Fund
shares.
If the Fund declares a dividend in October, November or December but pays it in
January, it may be taxable to shareholders as if they received it in the year it
was declared. Each year each shareholder will receive a statement detailing the
tax status of any Fund distributions for that year.
Distributions may be subject to state and local taxes, as well as federal taxes.
Shareholders who hold Fund shares in a tax-deferred account, such as a
retirement plan, generally will not have to pay tax on Fund distributions until
they receive distributions from the account.
A shareholder who sells or redeems shares will generally realize a capital gain
or loss, which will be long-term or short-term, generally depending upon the
shareholder's holding period for the Fund shares. An exchange of shares may be
treated as a sale.
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax at the rate of 31% of all taxable distributions payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
18
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below has been derived from audited
financial statements of the WST Growth & Income Fund Institutional Class Shares
for the fiscal year ended March 31, 1999, and the fiscal period ended March 31,
1998. Because the Class C Shares of the WST Growth & Income Fund were not
offered to the pubic until May 3, 1999, there are no financial highlights for
the Class C Shares at this time. The financial data, related to the other
classes of shares offered, have been audited by Deloitte & Touche LLP,
independent auditors, whose report covering such year and period is included in
the Statement of Additional Information. This information should be read in
conjunction with the Fund's latest audited annual financial statements and notes
thereto, which are also included in the Statement of Additional Information, a
copy of which may be obtained at no charge by calling the Fund. Further
information about the performance of the Fund is contained in the Annual Report
of the Fund, a copy of which may also be obtained at no charge by calling the
Fund.
<TABLE>
<S> <C> <C>
INSTITUTIONAL CLASS SHARES
(For a Share Outstanding Throughout the Periods)
- ----------------------------------------------------------- ----------------- ---------------------------
For the fiscal Period from September 30,
year ended 1997 (commencement of
March 31, operations) to
1999 March 31, 1998
- ----------------------------------------------------------- ----------------- ---------------------------
Net Asset Value, Beginning of Period $11.29 $10.02
- ----------------------------------------------------------- ----------------- ---------------------------
Income from investment operations
Net investment income (loss) 0.00 0.00
Net realized and unrealized gain on investments 1.48 1.27
---- ----
Total from investment operations 1.48 1.27
---- ----
- ----------------------------------------------------------- ----------------- ---------------------------
Distributions to shareholders from
Net investment income 0.00 0.00
---- ----
- ----------------------------------------------------------- ----------------- ---------------------------
Net Asset Value, End of Period $12.77 $11.29
====== ======
- ----------------------------------------------------------- ----------------- ---------------------------
Total return 13.11 % 12.72 %
===== =====
- ----------------------------------------------------------- ----------------- ---------------------------
Ratios/supplemental data
- ----------------------------------------------------------- ----------------- ---------------------------
Net Assets, End of Period $11,419,391 $6,376,193
=========== ==========
- ----------------------------------------------------------- ----------------- ---------------------------
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.08 % 3.15 % (a)
After expense reimbursements and waived fees 1.75 % 1.75 % (a)
- ----------------------------------------------------------- ----------------- ---------------------------
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (0.35)% (1.31)% (a)
After expense reimbursements and waived fees (0.01)% 0.09 % (a)
- ----------------------------------------------------------- ----------------- ---------------------------
Portfolio turnover rate 31.11 % 23.64 %
- ----------------------------------------------------------- ----------------- ---------------------------
</TABLE>
(a) Annualized.
19
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
WST GROWTH & INCOME FUND
CLASS C SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's Statement of
Additional Information. The Fund's Annual and Semi-annual Reports include a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
These Reports and the Statement of Additional Information are available free of
charge upon request by contacting us:
By telephone: 1-800-525-3863
By mail: WST Growth & Income Fund
Class C Shares
c/o NC Shareholder Services, LLC
107 North Washington Street
Post Office Box 4365
Rocky Mount, NC 27803-0365
By e-mail: [email protected]
On the Internet: www.ncfunds.com
Information about the Fund can also be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Inquiries on the operations of the public
reference room may be made by calling the SEC at 1-800-SEC-0330. Reports and
other information about the Fund are available on the SEC's Internet site at
http://www.sec.gov and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
Investment Company Act file number 811-06199
<PAGE>
PART B
======
STATEMENT OF ADDITIONAL INFORMATION
________________________________________________________________________________
THE BROWN CAPITAL MANAGEMENT FUNDS
________________________________________________________________________________
June 1, 1999
Series of
THE NOTTINGHAM INVESTMENT TRUST II
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-525-3863
Table of Contents
INVESTMENT OBJECTIVES AND POLICIES..........................................B-1
INVESTMENT LIMITATIONS......................................................B-2
PORTFOLIO TRANSACTIONS......................................................B-4
NET ASSET VALUE.............................................................B-5
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................B-6
DESCRIPTION OF THE TRUST....................................................B-6
ADDITIONAL INFORMATION CONCERNING TAXES.....................................B-7
MANAGEMENT OF THE FUNDS.....................................................B-9
SPECIAL SHAREHOLDER SERVICES...............................................B-15
ADDITIONAL INFORMATION ON PERFORMANCE......................................B-16
FINANCIAL STATEMENTS.......................................................B-18
APPENDIX A - DESCRIPTION OF RATINGS........................................B-19
This Statement of Additional Information (the "SAI") is meant to be read in
conjunction with the Prospectus, dated June 1, 1999, for The Brown Capital
Management Equity Fund ("Equity Fund"), The Brown Capital Management Balanced
Fund ("Balanced Fund"), The Brown Capital Management Small Company Fund ("Small
Company Fund"), and The Brown Capital Management International Equity Fund
("International Equity Fund") (collectively the "Funds") and is incorporated by
reference in its entirety into each Prospectus. Because this SAI is not itself a
prospectus, no investment in shares of the Funds should be made solely upon the
information contained herein. Copies of the Funds' Prospectus may be obtained at
no charge by writing or calling the Funds at the address and phone number shown
above. Capitalized terms used but not defined herein have the same meanings as
in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Funds were organized in 1994 as diversified, open-end management companies.
The following policies supplement the Funds' investment objectives and policies
as set forth in the Prospectus for each of the Funds. Attached to this SAI is
Appendix A, which contains descriptions of the rating symbols used by Rating
Agencies for securities in which the Funds may invest.
Repurchase Agreements. Each Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to seven days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Funds will consider the creditworthiness of the vendor. If
the vendor fails to pay the agreed upon resale price on the delivery date, the
Fund will retain or attempt to dispose of the collateral. A Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Funds will not enter into any repurchase agreement which will
cause more than 10% of their net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
Money Market Instruments. The Funds may invest in money market instruments may
include U.S. Government Securities or corporate debt securities (including those
subject to repurchase agreements), provided that they mature in thirteen months
or less from the date of acquisition and are otherwise eligible for purchase by
the Funds. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When a Fund acquires a Banker's
Acceptance the bank which "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest-bearing debt obligation of a bank. Commercial Paper is an unsecured,
short-term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Funds will
invest in Commercial Paper only if it is rated one of the top two rating
categories by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps ("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Funds only through the Master Note program of
the Funds' custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Funds.
Illiquid Investments. Each Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of a Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of a Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Funds to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, a Fund were in a position where more than 10% of
its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity. The Funds may not purchase restricted
securities, which are securities that cannot be sold to the public without
registration under the federal securities laws.
INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose, means, with respect to
a Fund, the lesser of (i) 67% of the Fund's outstanding shares represented in
person or by proxy at a meeting at which more than 50% of its outstanding shares
are represented, or (ii) more than 50% of its outstanding shares. Unless
otherwise indicated, percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Equity Fund, Small Company Fund and
Balanced Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities
are not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry
or group of industries (except that securities of the U.S. Government,
its agencies and instrumentalities are not subject to these
limitations);
(3) Invest in the securities of any issuer if any of the officers or
trustees of the Trust or its Investment Advisor who own beneficially
more than 1/2 of 1% of the outstanding securities of such issuer or
together own more than 5% of the outstanding securities of such issuer;
(4) Invest for the purpose of exercising control or management of another
issuer;
(5) Invest in interests in real estate, real estate mortgage loans, real
estate limited partnerships, oil, gas or other mineral exploration or
development programs or leases, except that the Fund may invest in the
readily marketable securities of companies which own or deal in such
things;
(6) Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter under the federal securities laws,
in connection with the disposition of portfolio securities;
(7) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(8) Make short sales of securities or maintain a short position, except
short sales "against the box"; (A short sale is made by selling a
security the Fund does not own. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no additional cost securities identical to those sold short.)
(9) Participate on a joint or joint and several basis in any trading
account in securities;
(10) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(11) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be
invested in such securities;
(12) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not
readily marketable securities; included in this category are any assets
for which an active and substantial market does not exist at the time
of purchase or subsequent valuation;
(13) Issue senior securities, borrow money, or pledge its assets;
(14) With respect to the Balanced Fund and the Equity Fund, purchase foreign
securities (except the Fund may purchase foreign securities sold as
American Depository Receipts without limit);
(15) With respect to the International Equity Fund Invest 25% or more of the
value of its total assets in any one country;
(16) Write, purchase, or sell puts, calls, warrants or combinations thereof,
or purchase or sell commodities, commodities contracts, futures
contracts, or related options; or
(17) Invest in restricted securities.
As a matter of fundamental policy, the International Equity Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities
are not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry
or group of industries (except that securities of the U.S. Government,
its agencies and instrumentalities are not subject to these
limitations);
(3) Invest for the purpose of exercising control or management of another
issuer;
(4) Invest in interests in real estate, real estate mortgage loans, real
estate limited partnerships, oil, gas or other mineral exploration or
development programs or leases, except that the International Equity
Fund may invest in the readily marketable securities of companies which
own or deal in such things;
(5) Underwrite securities issued by others except to the extent the
International Equity Fund may be deemed to be an underwriter under the
federal securities laws, in connection with the disposition of
portfolio securities;
(6) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(7) Issue senior securities, borrow money, or pledge its assets, except in
accordance with the 1940 Act;
(8) Invest 25% or more of the value of its total assets in any one country;
or
(9) Write, purchase, or sell puts, calls, warrants or combinations thereof,
or purchase or sell commodities, commodities contracts, futures
contracts, or related options.
The following are the Funds' non-fundamental operating restrictions, which may
be changed by the Board of Trustees without shareholder approval.
(1) Invest in the securities of any issuer if any of the officers or
trustees of the Trust or its Investment Advisor who own beneficially
more than 1/2 of 1% of the outstanding securities of such issuer or
together own more than 5% of the outstanding securities of such issuer;
(2) Purchase securities on margin (but the International Equity Fund may
obtain such short-term credits as may be necessary for the clearance of
transactions);
(3) Make short sales of securities or maintain a short position, except
short sales "against the box"; (A short sale is made by selling a
security the International Equity Fund does not own. A short sale is
"against the box" to the extent that the International Equity Fund
contemporaneously owns or has the right to obtain at no additional cost
securities identical to those sold short.)
(4) Participate on a joint or joint and several basis in any trading
account in securities;
(5) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be
invested in such securities;
(6) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not
readily marketable securities; included in this category are any assets
for which an active and substantial market does not exist at the time
of purchase or subsequent valuation;
(7) Invest in restricted securities; or
(8) Invest more then 35% of total assets in security types that are not of
the type of the particular Fund making the investment.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsiblefor, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Funds.
The annualized portfolio turnover rate for each Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of each Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and each Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Funds are made from dealers,
underwriters and issuers. The Funds currently do not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, which may include a dealer mark-up, or otherwise involve
transactions directly with the issuer of an instrument.
Normally, most of the Funds' fixed income portfolio transactions will be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer mark-up. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Funds may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will engage
in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for each Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Funds. In addition, the Advisor is authorized to cause the
Funds to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Funds. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Funds. The Trustees will periodically review
any commissions paid by the Funds to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Funds. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by the Advisor. Conversely, the Funds may be the primary beneficiary
of the research or services received as a result of securities transactions
effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Funds will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Funds will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Funds will be made independently from those for any
other Fund and any other series of the Trust, if any, and for any other
investment companies and accounts advised or managed by the Advisor. Such other
investment companies and accounts may also invest in the same securities as a
Fund. To the extent permitted by law, the Advisor may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for
another Fund or other investment companies or accounts in executing
transactions. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another investment company
or account, the transaction will be averaged as to price and available
investments allocated as to amount, in a manner which the Advisor believes to be
equitable to the Funds and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund.
For the fiscal years ended March 31, 1997, 1998, and 1999, the Equity Fund paid
brokerage commissions of $4,382, $4,598, and $10,555, respectively, the Balanced
Fund paid brokerage commissions of $3,719, $3,019, and $4,691, respectively, and
the Small Company Fund paid brokerage commissions of $1,873, $1,715, and $3,340,
respectively. Because the International Equity Fund did not commence operations
prior to March 31, 1999, there are no brokerage commissions to report for that
fund.
NET ASSET VALUE
The net asset value per share of each Class of each Fund is determined at the
time normal trading closes on the New York Stock Exchange (currently 4:00 p.m.,
New York time), Monday through Friday, except on business holidays when the New
York Stock Exchange is closed. The New York Stock Exchange recognizes the
following holidays: New Year's Day, Martin Luther King, Jr., Day, President's
Day, Good Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, and
Christmas Day. Any other holiday recognized by the New York Stock Exchange will
be deemed a business holiday on which the net asset value of each Class of the
Funds will not be calculated.
The net asset value per share of each Class of each Fund is calculated
separately by adding the value of the Fund's securities and other assets
belonging to the Fund and attributable to that Class, subtracting the
liabilities charged to the Fund and to that Class, and dividing the result by
the number of outstanding shares of such Class. "Assets belonging to" a Fund
consist of the consideration received upon the issuance of shares of the Fund
together with all net investment income, realized gains/losses and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular investment Fund. Income, realized and unrealized capital gains and
losses, and any expenses of a Fund not allocated to a particular Class of such
Fund will be allocated to each Class of the Fund on the basis of the net asset
value of that Class in relation to the net asset value of the Fund. Assets
belonging to a Fund are charged with the direct liabilities of the Fund and with
a share of the general liabilities of the Trust, which are normally allocated in
proportion to the number of or the relative net asset values of all of the
Trust's series at the time of allocation or in accordance with other allocation
methods approved by the Board of Trustees. Certain expenses attributable to a
particular Class of shares (such as the distribution and service fees
attributable to Investor Shares) will be charged against that Class of shares.
Certain other expenses attributable to a particular Class of shares (such as
registration fees, professional fees, and certain printing and postage expenses)
may be charged against that Class of shares if such expenses are actually
incurred in a different amount by that Class or if the Class receives services
of a different kind or to a different degree than other Classes, and the Board
of Trustees approves such allocation. Subject to the provisions of the Amended
and Restated Declaration of Trust, determinations by the Board of Trustees as to
the direct and allocable liabilities, and the allocable portion of any general
assets, with respect to a Fund and the Classes of such Fund arc conclusive.
For the fiscal year ended March 31, 1997, the total expenses after fee waivers
and expense reimbursements for Institutional Shares were $36,085 for the Equity
Fund, $45,873 for the Balanced Fund and $76,033 for the Small Company Fund. For
the fiscal year ended March 31, 1998, the total expenses after fee waivers and
expense reimbursements for Institutional Shares were $76,747 for the Equity
Fund, $60,276 for the Balanced Fund and $139,847 for the Small Company Fund. For
the fiscal year ended March 31, 1999, the total expenses after fee waivers and
expense reimbursements for Institutional Shares were $100,792 for the Equity
Fund, $81,878 for the Balanced Fund, and $227,262 for the Small Company Fund.
Investor Shares of the Funds were either not authorized for issuance or were not
issued during such fiscal years.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of each Fund are offered and sold on a continuous basis and
may be purchased through authorized investment dealers or directly by contacting
the Distributor or the Funds. Selling dealers have the responsibility of
transmitting orders promptly to the Funds. The public offering price of shares
of each Fund equals net asset value. Capital Investment Group, Inc. (the
"Distributor") serves as distributor of shares of the Funds.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution (the "Plan")
for the Investor Shares of the Funds pursuant to Rule 12b-1 under the 1940 Act.
At this time, however, the Investor shares are not being offered publicly.
Redemptions. Under the 1940 Act, each Fund may suspend the right of redemption
or postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. Each Fund may also suspend or
postpone the recordation of the transfer of shares upon the occurrence of any of
the foregoing conditions.
In addition to the situations described in the Prospectus under "How Shares may
be Redeemed," each Fund may redeem shares involuntarily to reimburse the Fund
for any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust, which is an unincorporated business trust organized under
Massachusetts law on October 25, 1990, is an open-end diversified management
investment company. The Trust's Amended and Restated Declaration of Trust
authorizes the Board of Trustees to divide shares into series, each series
relating to a separate portfolio of investments, and to classify and reclassify
any unissued shares into one or more classes of shares of each such series. The
Amended and Restated Declaration of Trust currently provides for the shares of
eight series, as follows: the Capital Value Fund managed by Capital Investment
Counsel, Inc. of Raleigh, North Carolina; Investek Fixed Income Trust managed by
Investek Capital Management, Inc. of Jackson, Mississippi; The Brown Capital
Management Equity Fund, The Brown Capital Management Balanced Fund, The Brown
Capital Management Small Company Fund, and The Brown Capital Management
International Equity Fund managed by Brown Capital Management, Inc. of
Baltimore, Maryland; The WST Growth & Income Fund managed by Wilbanks, Smith &
Thomas Asset Management, Inc. of Norfolk, Virginia; and The Carolinas Fund
managed by Morehead Capital Advisors, LLC, of Charlotte, North Carolina. The
number of shares of each series shall be unlimited. The Trust does not intend to
issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as each Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Funds, will vote
together and not separately on a series-by-series basis except as otherwise
required by law or when the Board of Trustees determines that the matter to be
voted upon affects only the interests of the shareholders of a particular series
or class. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series or class affected by the matter. A series or class is affected by a
matter unless it is clear that the interests of each series or class in the
matter are substantially identical or that the matter does not affect any
interest of the series or class. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, the Rule also provides that
the ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting together, without regard to a
particular series or class.
When used in the Prospectus or this SAI, a "majority" of shareholders means the
vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class.
When issued for payment as described in the Prospectus and this SAI, shares of
each Fund will be fully paid and non-assessable.
The Amended and Restated Declaration of Trust provides that the Trustees of the
Trust will not be liable in any event in connection with the affairs of the
Trust, except as such liability may arise from his or her own bad faith, willful
misfeasance, gross negligence, or reckless disregard of duties. It also provides
that all third parties shall look solely to the Trust property for satisfaction
of claims arising in connection with the affairs of the Trust. With the
exceptions stated, the Amended and Restated Declaration of Trust provides that a
Trustee or officer is entitled to be indemnified against all liability in
connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting each Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof, such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
Each series of the Trust, including each Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. Each
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including each Fund, will designate any distribution
of long-term capital gains as a capital gain dividend in a written notice mailed
to shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long-term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including each Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including each Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Dividends paid by the Funds derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Funds will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
MANAGEMENT OF THE FUNDS
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
<TABLE>
<S> <C> <C>
TRUSTEES
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Jack E. Brinson, 65 Trustee and Chairman President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Thomas W. Steed, 40 Trustee Senior Corporate Attorney
101 Bristol Court Hardees Food Systems, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
J. Buckley Strandberg, 38 Trustee Vice President, Standard Insurance and
Post Office Box 1375 Realty, Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 Trustee* President, Brown Capital Management, Inc.,
809 Cathedral Street Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 39 Trustee* President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
________
*Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act because of his position with one of the investment advisors to the
Trust.
<TABLE>
<S> <C> <C>
OFFICERS
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Michael T. McRee, 55 President, Investek Fixed President, Investek Capital Management,
317 East Capitol Income Trust Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Wayne F. Wilbanks, 38 President, The WST Growth & President, Wilbanks, Smith & Thomas
One Commercial Place, Suite 1150 Income Fund Asset Management, Inc., Norfolk, Virginia
Norfolk, Virginia 25510
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 President, The Brown Capital President, Brown Capital Management, Inc.,
809 Cathedral Street Management Funds Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 39 President, Capital Value Fund; President, Capital Investment Group,
Post Office Box 32249 Vice President, The Raleigh, North Carolina, Vice President,
Raleigh, North Carolina 27622 CarolinasFund Capital Investment Counsel, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Elmer O. Edgerton, Jr., 57 Vice President, Capital Value President, Capital Investment Counsel
Post Office Box 32249 Fund Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Group, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Doug S. Folk, 38 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Investment, Inc., Jackson, Mississippi,
Jackson, Mississippi 39201 since 1996; previously, Portfolio Manager,
Southern Farm Bureau Life Insurance
Company, Jackson, Mississippi
- ----------------------------------------------- -------------------------------- ---------------------------------------------
R. Mark Fields, 46 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Management, Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
John M. Friedman, 55 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Management, Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Keith A. Lee, 38 Vice President, The Brown Vice President, Brown Capital Management,
309 Cathedral Street Capital Management Funds Inc., Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
C. Frank Watson, III, 28 Secretary Vice President, The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Julian G. Winters, 30 Treasurer and Assistant Legal and Compliance Director, The
105 North Washington Street Secretary Nottingham Company, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina, since 1996; previously Operations
Manager, Tar Heel Medical, Nashville, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year plus $250
per series of the Trust per meeting attended in person and $100 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
<TABLE>
<S> <C> <C> <C> <C>
Compensation Table*
Aggregate Pension Retirement
Compensation Benefits Accrued As Estimated Annual Total Compensation
Name of Person, from each of Part of Fund Benefits Upon from the Trust Paid
Position the Funds** Expenses Retirement to Trustees
- ---------------- ----------- ---------------- ---------- -----------
Eddie C. Brown None None None None
Trustee
Richard K. Bryant None None None None
Trustee
Jack E. Brinson $1,250 None None $9,750
Trustee
Thomas W. Steed $1,250 None None $9,750
Trustee
J. Buckley Strandberg $1,250 None None $9,750
Trustee
</TABLE>
* Figures are for the fiscal year ended March 31, 1999.
** The International Equity Fund did not pay compensation to any of the
Trustees during the fiscal year ended March 31, 1999.
Principal Holders of Voting Securities. As of May 7, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) 2.488% of the then outstanding Institutional Shares of the
Equity Fund, 4.487% of the Balanced Fund, and 3.893% of the Small Company Fund.
There were no shares outstanding for the International Equity Fund as of May 7,
1999. On the same date the following shareholders owned of record more than 5%
of the outstanding Institutional Shares of the Funds. Except as provided below,
no person is known by the Trust to be the beneficial owner of more than 5% of
the outstanding Institutional Shares of the Funds as of May 7, 1999.
<TABLE>
<S> <C> <C>
EQUITY FUND
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
- ---------------- --------------------- -------
Chris E. Dishman 85,124.958 shares 20.225%
Karen T. Dishman
5019 Mariposa Circle
Fresno, Texas 77545
Great West Life & Annuity 55,956.100 shares 13.294%
401(k) Plan
8515 E. Orchard Road
Englewood, Colorado 80111-5097
Brown Family Limited Partnership 40,812.742 shares 9.697%
11102 Old Carriage Road
Glen Arm, Maryland 21057
Alex Brown & Sons, Inc. 24,399.288 shares 5.797%
FBO 201-68870-16
P.O. Box 1346
Baltimore, Maryland 21203
BALANCED FUND
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
- ---------------- --------------------- -------
Brown Capital Management, Inc. 121,009.805 shares 22.543%
MoneyPurchase Pension & Profit
Sharing Trust
809 Cathedral Street
Baltimore, Maryland 21201
City of Baltimore 77,103.121 shares 14.364%
c/o Great West Life & Annuity
8515 E. Orchard Road
Englewood, Colorado 80111
First Union National Bank, NC 57,349.214 shares 10.684%
Raymond Haysbert IRA
3300 Hillen Road
Baltimore, Maryland 21218
Diana M. Epps Beneficiary UTA 40,874.022 shares 7.614%
Charles Schwab & Co., Inc. IRA
1040 Deer Ridge Drive #144
Baltimore, Maryland 21210
Total Health Care, Inc. 28,581.322 shares 5.324%
2305 N. Charles Street
Baltimore, Maryland 21218
Jesse H. Hahn 28,573.789 shares 5.323%
10 Light Street
Baltimore, Maryland 21202-1487
Delta Sigma Theta Sorority, Inc. 28,300.757 shares 5.272%
1707 New Hampshire Avenue, NW
Washington, DC 20009
SMALL COMPANY FUND
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership* Percent
- ---------------- --------------------- -------
T. Rowe Price Trust Co. 346,616.906 shares 28.770%**
FBO King Co. Deferred Compensation Plan
4555 Painters Mill Rd.
Owings Mill, Maryland 21117
Woods Fund of Chicago 130,180.572 shares 10.805%
3 First National Plaza
Suite 2010
Chicago, Illinois 60602
Louisville Presbyterian Theological 129,272.186 shares 10.730%
Seminary
1044 Alta Vista Rd.
Louisville, Kentucky 40205-1798
</TABLE>
* The shares indicated are believed by the Trust to be owned both of record and
beneficially, except shares held of record by Alex Brown & Sons, Inc. and
Great West Life & Annuity Insurance Company for the benefit of their clients.
** Deemed a "control person" of the Fund as defined by applicable SEC
regulations.
Investment Advisor. Information about Brown Capital Management, Inc., Baltimore,
Maryland (the "Advisor") and its duties and compensation as Advisor is contained
in the Prospectus.
Compensation of the Advisor with regards to the Equity Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived all or a portion of its fee and reimbursed a portion of the
Equity Fund's operating expenses for the fiscal years ended March 31, 1997,
1998, and 1999. The total fees waived amounted to $19,581, $41,375 (the Advisor
received $248 of its fee), and $51,828 (the Advisor received $2,754 of its fee),
respectively, and expenses reimbursed amounted to $45,950, $8,549, and $5,117,
respectively.
Compensation of the Advisor with regards to the Balanced Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived its fee and reimbursed a portion of the Balanced Fund's
operating expenses for the fiscal years ended March 31, 1997, 1998, and 1999.
The total fees waived amounted to $24,852, $32,686, and $44,418, respectively,
and expenses reimbursed amounted to $38,061, $18,899, and $17,850, respectively.
Compensation of the Advisor with regards to the Small Company Fund, based upon
the Fund's average daily net assets, is at the annual rate of 1.00%. The Advisor
voluntarily waived a portion of its fee and reimbursed a portion of the Small
Company Fund's operating expenses for the fiscal years ended March 31, 1997,
1998, and 1999. The total fees waived amounted to $50,549 (the Advisor received
$205 of its fee), $51,594 (the Advisor received $41,776 of its fee), and $52,153
(the Advisor received $99,714 of its fee), respectively, and expenses reimbursed
amounted to $10,610, $0, and $1,384, respectively.
Compensation of the Advisor with regards to the International Equity Fund, based
upon the Fund's average daily net assets, is at the annual rate of 1.00% of the
first $100 million of net assets and 0.75% of all assets over $100 million. The
Advisor has entered into an expense limitation agreement with the Trust, with
respect to the International Equity Fund, pursuant to which the Advisor has
agreed to waive or limit its fees and to assume other expenses so that the total
annual operating expenses of the Fund (other than interest, taxes, brokerage
commissions, other expenditures which are capitalized in accordance with
generally accepted accounting principles, other extraordinary expenses not
incurred in the ordinary course of the Fund's business, and amounts, if any,
payable pursuant to a Rule l2b-1 Plan) are limited to 2.00% of the average daily
assets of the Fund.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company (the "Administrator"), a
North Carolina corporation, whose address is 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069.
The Administrator performs the following services for the Fund: (1) coordinate
with the Custodian and monitor the services it provides to the Fund; (2)
coordinate with and monitor any other third parties furnishing services to the
Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the SEC and other federal and state regulatory authorities as may
be required by applicable law; (8) review and submit to the officers of the
Trust for their approval invoices or other requests for payment of Fund expenses
and instruct the Custodian to issue checks in payment thereof; and (9) take such
other action with respect to the Fund as may be necessary in the opinion of the
Administrator to perform its duties under the agreement. The Administrator will
also provide certain accounting and pricing services for the Fund.
Compensation of the Administrator, based upon the average daily net assets of an
equity or balanced fund, is at the following annual rates: 0.175% of the Fund's
first $50 million, 0.150% on the next $50 million, 0.125% on the next $50
million, and 0.100% on average daily net assets over $150 million. In addition,
the Administrator currently receives a monthly fee of $2,000 per Fund for
accounting and recordkeeping services and an additional fee of $750 per month
for each additional Class of shares. The Administrator charges a minimum fee of
$4,000 per month per Fund for all of its fees taken in the aggregate, analyzed
monthly. The Administrator also charges the Trust for certain costs involved
with the daily valuation of investment securities and is reimbursed for
out-of-pocket expenses.
Transfer Agent. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC (the "Transfer Agent"), a
North Carolina limited liability company, to serve as transfer, dividend paying,
and shareholder servicing agent for the Funds. The address of the Transfer Agent
is 107 North Washington Street, Post Office Box 4365, Rocky Mount, North
Carolina 27803-0365. The Transfer Agent is compensated for its services based
upon a $15 fee per shareholder per year, subject to a minimum fee of $750 per
month, per fund.
Distributor. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
each Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement (the "Distribution Agreement") approved by
the Board of Trustees of the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
each Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60-days' prior
written notice to the other party.
Custodian. First Union National Bank of North Carolina (the "Custodian"), Two
First Union Center, Charlotte, North Carolina 28288-1151, serves as custodian
for each Fund's assets. The Custodian acts as the depository for each Fund,
safekeeps its portfolio securities, collects all income and other payments with
respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties as Custodian. For its services
as Custodian, the Custodian is entitled to receive from each Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
Independent Auditors. Deloitte & Touche LLP, 2500 One PPG Place, Pittsburgh,
Pennsylvania 15222-5401, serves as independent auditors for the Funds, audits
the annual financial statements of the Funds, prepares each Fund's federal and
state tax returns, and consults with each Fund on matters of accounting and
federal and state income taxation. A copy of the most recent annual report of
the Fund will accompany this SAI whenever it is requested by a shareholder or
prospective investor.
Legal Counsel. Dechert Price & Rhoads serves as legal counsel to the Nottingham
Investment Trust II and the Funds.
SPECIAL SHAREHOLDER SERVICES
Each Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year-to-date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Funds will automatically charge the checking account for the amount specified
($100 minimum) which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Funds.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Funds to redeem the necessary number of shares periodically
(each month, or quarterly in the months of March, June, September and December)
in order to make the payments requested. Each Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Funds. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Funds. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the
Funds upon sixty days written notice or by a shareholder upon written notice to
the Funds. Applications and further details may be obtained by calling the Funds
at 1-800-525-3863, or by writing to:
The Brown Capital Management Funds
[Name of fund]
Institutional Shares
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. Each Fund may accept securities in lieu of cash in payment
for the purchase of shares in the Fund. The acceptance of such securities is at
the sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Funds to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein each Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the applicable Fund at the address shown herein. Your request should
include the following: (1) the Fund name and existing account registration; (2)
signature(s) of the registered owner(s) exactly as the signature(s) appear(s) on
the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) signature guarantees (See the Prospectus under the
heading "Signature Guarantees"); and (5) any additional documents which are
required for transfer by corporations, administrators, executors, trustees,
guardians, etc. If you have any questions about transferring shares, call or
write the Funds.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each Class of each Fund may be quoted in
advertisements, sales literature, shareholder reports or other communications to
shareholders. Each Fund computes the "average annual total return" of each Class
of the Fund by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by determining the ending
redeemable value of a hypothetical $ 1,000 initial payment. This calculation is
as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning
of the period.
P = hypothetical initial payment of $1,000 from which the maximum
sales load is deducted.
n = period covered by the computation, expressed in terms of years.
Each Fund may also compute the aggregate total return of each Class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. Each Fund may also quote other total
return information that does not reflect the effects of the sales load.
The total return quotations for the Institutional Shares of the Equity Fund,
Balanced Fund and Small Company Fund for the fiscal year ended March 31, 1999
are 9.34%, 8.99%, and -6.27%, respectively. The average annual total return
quotations for the Institutional Shares of each Fund for the five fiscal years
ended March 31, 1999 are 19.56%, 16.84%, and 16.00%, respectively. The average
annual total return quotations since inception (September 30, 1992 for the
Equity Fund and Balanced Fund and December 31, 1992 for the Small Company Fund)
of the Institutional Shares of each Fund to March 31, 1999 are 17.42%, 14.86%,
and 13.17%, respectively. The cumulative total return quotations since inception
of the Institutional Shares of each Fund through March 31, 1999 are 184.04%,
146.11%, and 116.70%, respectively. These performance quotations should not be
considered as representative of the performance of the Institutional Shares of
the Funds for any specified period in the future. No Investor Shares of the
Funds were issued during any such period quoted above. There are no performance
quotations for the International Equity Fund because the Fund commenced
operations after March 31, 1999.
Each Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, each Fund may compare its performance to
the S&P 500 Total Return Index. The Balanced Fund may also compare its
performance with a combination of the S&P 500 Total Return Index and the Lehman
Government/Corporate Bond Index. The Small Company Fund may compare its
performance, alone or in a combination, with the Russell 2000 Index, the NASDAQ
Composite Index, and the NASDAQ Industrials Index. Comparative performance may
also be expressed by reference to a ranking prepared by a mutual fund monitoring
service or by one or more newspapers, newsletters or financial periodicals. Each
Fund may also occasionally cite statistics to reflect its volatility and risk.
Each Fund may also compare its performance to other published reports of the
performance of unmanaged portfolios of companies. The performance of such
unmanaged portfolios generally does not reflect the effects of dividends or
dividend reinvestment. Of course, there can be no assurance that any Fund will
experience the same results. Performance comparisons may be useful to investors
who wish to compare a Fund's past performance to that of other mutual funds and
investment products. Of course, past performance is not a guarantee of future
results.
Each Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, each Fund may advertise its performance
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications.
These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Funds' Prospectus to obtain a
more complete view of each Fund's performance before investing. Of course, when
comparing a Fund's performance to any index, factors such as composition of the
index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for each Fund may quote total returns that are calculated
on nonstandardized base periods. The total returns represent the historic change
in the value of an investment in the Fund based on monthly reinvestment of
dividends over a specified period of time.
From time to time each Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the reflects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. Each Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). Each Fund may also depict the historical performance
of the securities in which the Fund may invest over periods reflecting a variety
of market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
Each Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended March 31, 1999,
including the financial highlights appearing in the Annual Report to
shareholders are incorporated by reference and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Funds may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment-Grade Debt Securities") or, if
unrated, are in the Advisor's opinion comparable in quality to Investment Grade
Debt Securities. The various ratings used by the nationally recognized
securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Funds may invest should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating is evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation
is very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-I+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment
attributes and is to be considered as an upper medium grade obligation.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa - Debt which is rated Baa is considered as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such debt
lacks outstanding investment characteristics and in fact has
speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered "Investment-Grade Debt Securities" by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-1; VMIG-1 - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S.
Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The
risk factors are more variable and greater in periods of economic
stress.
BBB - Bonds rated BBB have below-average protection factors but are
still considered sufficient for prudent investment. There is
considerable variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff 1 is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff 1+, Duff 1 and
Duff 1- within the highest rating category. Duff 1+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff l- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
Investment-Grade Debt Securities by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-l+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
<PAGE>
________________________________________________________________________________
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.
<PAGE>
<TABLE>
<S> <C> <C> <C>
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)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
================
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year ended Year ended
March 31, March 31,
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
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
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
</TABLE>
<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>
STATEMENT OF ADDITIONAL INFORMATION
________________________________________________________________________________
WST GROWTH & INCOME FUND
________________________________________________________________________________
June 1, 1999
A Series of
THE NOTTINGHAM INVESTMENT TRUST II
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-525-3863
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVE AND POLICIES............................................B-1
INVESTMENT LIMITATIONS.......................................................B-4
PORTFOLIO TRANSACTONS........................................................B-5
NET ASSET VALUE..............................................................B-7
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................B-7
DESCRIPTION OF THE TRUST.....................................................B-9
ADDITIONAL INFORMATION CONCERNING TAXES.....................................B-10
MANAGEMENT AND OTHER SERVICE PROVIDERS......................................B-11
SPECIAL SHAREHOLDER SERVICES................................................B-16
ADDITIONAL INFORMATION ON PERFORMANCE.......................................B-18
FINANCIAL STATEMENTS........................................................B-20
APPENDIX A..................................................................B-21
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the Prospectuses dated June 1, 1999, for the WST Growth &
Income Fund ("Fund") relating to the Fund's Institutional Class Shares, Investor
Class Shares, and Class C Shares, as each Prospectus may be amended or
supplemented from time to time, and is incorporated by reference in its entirety
into each Prospectus. Because this SAI is not itself a prospectus, no investment
in shares of the Fund should be made solely upon the information contained
herein. Copies of the Fund's Prospectus may be obtained at no charge by writing
or calling the Fund at the address and phone number shown above. Capitalized
terms used but not defined herein have the same meanings as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's investment objective and investment
strategies as set forth in the Prospectuses for each Class of Shares of the
Fund. Attached to this SAI is Appendix A, which contains descriptions of the
rating symbols used by Rating Agencies for securities in which the Fund may
invest. The Fund commenced operations in 1997 as a seperate diversified
investment portfolio of the Nottingham Investment Trust II ("Trust").
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resell it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to five days of the purchase.
Repurchase agreements are considered "loans" under the 1940 Act, collateralized
by the underlying security. The Trust will implement procedures to monitor on a
continuous basis the value of the collateral serving as security for repurchase
obligations. Additionally, the Advisor to the Fund will consider the
creditworthiness of the vendor. If the vendor fails to pay the agreed upon
resale price on the delivery date, the Fund will retain or attempt to dispose of
the collateral. The Fund's risk is that such default may include any decline in
value of the collateral to an amount which is less than 100% of the repurchase
price, any costs of disposing of such collateral, and any loss resulting from
any delay in foreclosing on the collateral. The Fund will not enter into any
repurchase agreement which will cause more than 10% of its net assets to be
invested in repurchase agreements which extend beyond seven days.
Description of Money Market Instruments. Money market instruments may include
U.S. Government Securities or corporate debt securities (including those subject
to repurchase agreements), provided that they mature in thirteen months or less
from the date of acquisition and are otherwise eligible for purchase by the
Fund. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When the Fund acquires a Banker's
Acceptance the bank which "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest bearing debt obligation of a bank. Commercial Paper is an unsecured,
short-term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated one of the top two rating
categories by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps ("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Fund only through the Master Note program of
the Fund's custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Fund.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. As a result, disposing of illiquid securities before
maturity may be time consuming and expensive and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. Under the supervision of the Board of Trustees, the Advisor determines
the liquidity of the Fund's investments and, through reports from the Advisor,
the Board monitors investments in illiquid instruments. In determining the
liquidity of the Fund's investments, the Advisor may consider various factors
including (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender features)
and (5) the nature of the marketplace for trades (including the ability to
assign or offset the Fund's rights and obligations relating to the investment).
Investments currently considered by the Fund to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days. If through a change in values, net assets or other circumstances,
the Fund were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
Restricted Securities. Within its limitation on investment in illiquid
securities, the Fund may purchase restricted securities that generally can be
sold in privately negotiated transactions, pursuant to an exemption from
registration under the federal securities laws, or in a registered public
offering. Where registration is required, the Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
Options Trading. The Fund may also purchase or sell certain put and call options
for hedging purposes. This is a highly specialized activity that entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security increases or decreases, the option buyer's risk is limited
to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying securities, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities. A listed
call option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. Put and call options purchased
by the Fund will be valued at the last sale price or, in the absence of such a
price, at the mean between bid and asked prices.
The obligation of the Fund to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the Fund
executing a closing purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying security, exercise
price and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange that
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. The Fund will
write an option on a particular security only if the Advisor believes that a
liquid secondary market will exist on an exchange for options of the same series
which will permit the Fund to make a closing purchase transaction in order to
close out its position.
When the Fund writes a covered call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received, and the Fund will realize a
gain or loss. If a secured put option is exercised, the amount paid by the Fund
for the underlying security will be partially offset by the amount of the
premium previously paid to the Fund. Premiums from expired options written by
the Fund and net gains from closing purchase transactions are treated as
short-term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
Stock Index Options. The Fund may purchase or sell put and call stock index
options for hedging purposes. Stock index options are put options and call
options on various stock indexes. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives
an amount of cash if the closing level of the stock index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the stock index and the exercise price
of the option expressed in dollars times a specified multiple. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The Fund may purchase call and put stock index options in an attempt to either
hedge against the risk of unfavorable price movements adversely affecting the
value of the Fund's securities, or securities the Fund intends to buy, or
otherwise in furtherance of the Fund's investment objectives. The Fund will sell
(write) stock index options for hedging purposes or in order to close out
positions in stock index options which the Fund has purchased.
The Fund's use of stock index options is subject to certain risks. Successful
use by the Fund of options on stock indexes will be subject to the ability of
the Advisor to correctly predict movements in the directions of the stock
market. This requires different skills and techniques than predicting changes in
the prices of individual securities. In addition, the Fund's ability to
effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indexes, depends on the degree to which price movements in the
underlying index correlate with the price movements in the Fund's portfolio
securities. Inasmuch as the Fund's portfolio securities will not duplicate the
components of an index, the correlation will not be perfect. Consequently, the
Fund will bear the risk that the prices of its portfolio securities being hedged
will not move in the same amount as the prices of the Fund's put options on the
stock indexes. It is also possible that there may be a negative correlation
between the index and the Fund's portfolio securities that would result in a
loss on both such portfolio securities and the options on stock indexes acquired
by the Fund.
Lower Rated Debt Securities. The Fund may invest in debt securities which are
rated Caa or higher by Moody's or CCC or higher by S&P or Fitch or equivalent
unrated securities. However, the Fund may not invest more than 15% of its assets
in debt securities rated lower than Baa by Moody's or BBB by S&P or Fitch or
securities not rated by Moody's, S&P or Fitch which the Advisor deems to be of
equivalent quality. Bonds rated BB or Ba or below (or comparable unrated
securities) are commonly referred to as "junk bonds" and are considered
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment standing, and be in default. As a result, investment in such
bonds will entail greater risks than those associated with investment in
investment-grade bonds (i.e., bonds rated BBB or better by S&P or Fitch or Baa
or better by Moody's).
An economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. Factors having an adverse impact on the market value of lower rated
securities will have an adverse effect on the Fund's net asset value to the
extent it invests in such securities. In addition, the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in payment
of principal or interest on its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on the
Fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Advisor could find it more difficult to sell these securities or may be able
to sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities,
under these circumstances, may be less than the prices used in calculating the
Fund's net asset value.
Since investors generally perceive that there are greater risks associated with
the medium to lower rated securities of the type in which the Fund may invest,
the yields and prices of such securities may tend to fluctuate more than those
for higher rated securities. In the lower quality segments of the fixed-income
securities market, changes in perceptions of issuers' creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in higher
quality segments of the fixed-income securities market resulting in greater
yield and price volatility.
Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The Advisor will
attempt to reduce these risks through diversification of the Fund's portfolio
and by analysis of each issuer and its ability to make timely payments of income
and principal, as well as broad economic trends in corporate developments.
Borrowing. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary or emergency purposes and 15% of its total assets to meet
redemption requests, which might otherwise require untimely disposition of
portfolio holdings. To the extent the Fund borrows for these purposes, the
effects of market price fluctuations on the portfolio's net asset value will be
exaggerated. If, while such borrowing is in effect, the value of the Fund's
assets declines, the Fund could be forced to liquidate portfolio securities when
it is disadvantageous to do so. The Fund would incur interest and other
transaction costs in connection with borrowing. The Fund will borrow only from a
bank. The Fund will not make any further investments if the borrowing exceeds 5%
of its total assets until such time as repayment has been made to bring the
total borrowing below 5% of its total assets.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, appropriate
securities in an amount sufficient to meet the purchase price. Purchasing
securities on a when-issued or forward commitment basis involves a risk of loss
if the value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in value of the Fund's
other assets. In addition, no income accrues to the purchaser of when-issued
securities during the period prior to issuance. Although a fund would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities for its portfolio, the Fund may dispose of a
when-issued security or forward commitment prior to settlement if the Advisor
deems it appropriate to do so. The Fund may realize short-term gains or losses
upon such sales.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose means the lesser of (i)
67% of the Fund's outstanding shares represented in person or by proxy at a
meeting at which more than 50% of its outstanding shares are represented, or
(ii) more than 50% of its outstanding shares. Unless otherwise indicated,
percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities, borrow money, or pledge its assets, except
that it may borrow from banks as a temporary measure (a) for
extraordinary or emergency purposes, in amounts not exceeding 5% of its
total assets or (b) to meet redemption requests, in amounts not
exceeding 15% of its total assets. The Fund will not make any
investments if borrowing exceeds 5% of its total assets until such time
as total borrowing represents less than 5% of Fund assets;
2. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities of any
class of securities of any one issuer (except that securities of the
U.S. government, its agencies, and instrumentalities are not subject to
this limitation);
3. Invest 25% or more of the value of its total assets in any one industry
(except that securities of the U.S. Government, its agencies, and
instrumentalities are not subject to this limitation);
4. Invest for the purpose of exercising control or management of another
issuer;
5. Purchase or sell commodities or commodities contracts; real estate
(including limited partnership interests, but excluding readily
marketable interests in real estate investment trusts or other
securities secured by real estate or interests therein or readily
marketable securities issued by companies that invest in real estate or
interests therein); or interests in oil, gas, or other mineral
exploration or development programs or leases (although it may invest
in readily marketable securities of issuers that invest in or sponsor
such programs or leases);
6. Underwrite securities issued by others except to the extent that the
disposition of portfolio securities, either directly from an issuer or
from an underwriter for an issuer, may be deemed to be an underwriting
under the federal securities laws;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Invest its assets in the securities of one or more investment companies
except to the extent permitted by the 1940 Act; and
9. Make loans of money or securities, except that the Fund may invest in
repurchase agreements, money market instruments, and other debt
securities.
The following investment limitations are not fundamental and may be changed
without shareholder approval. As a matter of non-fundamental policy, the Fund
may not:
1. Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors) if more than 5% of its total assets would be
invested in such securities;
2. Invest more than 10% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) securities for
which no readily available market exists or which have legal or
contractual restrictions on resale, (b) fixed-time deposits that are
subject to withdrawal penalties and have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days;
3. Invest in the securities of any issuer if those officers or Trustees of
the Trust and those officers and directors of the Advisor who
individually own more than 1/2 of 1% of the outstanding securities of
such issuer together own more than 5% of such issuer's securities;
4. Write, purchase, or sell puts, calls, straddles, spreads, or
combinations thereof or futures contracts or related options (except
that the Fund may engage in options transactions to the extent
described in the Prospectus);
5. Make short sales of securities or maintain a short position, except
short sales "against the box." (A short sale is made by selling a
security the Fund does not own. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no additional cost securities identical to those sold short.)
While the Fund has reserved the right to make short sales "against the
box," the Advisor has no present intention of engaging in such
transactions at this time or during the coming year; and
6. Purchase foreign securities other than those traded on domestic U.S.
exchanges and other foreign debt securities as described in the
Prospectus.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
The annualized portfolio turnover rate for the Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of the Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and the Fund may engage in short term trading to achieve its
investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The Fund's fixed income portfolio transactions will normally be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer markup. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the spread or commission, if
any, both for the specific transaction and on a continuing basis. The sale of
Fund shares may be considered when determining the firms that are to execute
brokerage transactions for the Fund. In addition, the Advisor is authorized to
cause the Fund to pay a broker-dealer which furnishes brokerage and research
services a higher spread or commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such spread or commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Advisor to the Fund. Such brokerage and research
services might consist of reports and statistics relating to specific companies
or industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. Supplementary research
information so received is in addition to, and not in lieu of, services required
to be performed by the Advisor and does not reduce the advisory fees payable by
the Fund. The Trustees will periodically review any spread or commissions paid
by the Fund to consider whether the spread or commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which the Advisor exercises
investment discretion. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of securities transactions
effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor, if it believes it can obtain the best execution of transactions from
such broker; however, at this time the Advisor has not utilized the affiliated
brokerage firm's services. The Fund will not execute portfolio transactions
through, acquire securities issued by, make savings deposits in or enter into
repurchase agreements with the Advisor or an affiliated person of the Advisor
(as such term is defined in the Investment Company Act of 1940, as amended
("1940 Act") acting as principal, except to the extent permitted by the
Securities and Exchange Commission ("SEC"). In addition, the Fund will not
purchase securities during the existence of any underwriting or selling group
relating thereto of which the Advisor, or an affiliated person of the Advisor,
is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations in
comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Fund will be made independently from those for any
other series of the Trust, and for any other investment companies and accounts
advised or managed by the Advisor. Such other investment companies and accounts
may also invest in the same securities as the Fund. To the extent permitted by
law, the Advisor may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other investment companies or
accounts in executing transactions. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Fund and another
investment company or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Advisor
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or sold
by the Fund.
For the fiscal year ended March 31, 1999, and the fiscal period ended March 31,
1998, the Fund paid brokerage commissions of $24,500 and $15,215, respectively.
NET ASSET VALUE
The net asset value per share of each Class of Shares of the Fund is normally
determined at the time regular trading closes on the New York Stock Exchange
(currently 4:00 p.m., New York time, Monday through Friday), except on business
holidays when the New York Stock Exchange is closed. The New York Stock Exchange
recognizes the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Fourth of July, Labor Day,
Thanksgiving Day, and Christmas Day. Any other holiday recognized by the New
York Stock Exchange will be considered a business holiday on which the net asset
value of each Class of Shares of the Fund will not be calculated.
The net asset value per share of each Class of the Fund is calculated separately
by adding the value of the Fund's securities and other assets belonging to the
Fund and attributable to that Class, subtracting the liabilities charged to the
Fund and to that Class, and dividing the result by the number of outstanding
shares of such Class. "Assets belonging to" the Fund consist of the
consideration received upon the issuance of shares of the Fund together with all
net investment income, realized gains/losses and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a particular
investment Fund. Income, realized and unrealized capital gains and losses, and
any expenses of the Fund not allocated to a particular Class of the Fund will be
allocated to each Class of the Fund on the basis of the net asset value of that
Class in relation to the net asset value of the Fund. Assets belonging to the
Fund are charged with the direct liabilities of the Fund and with a share of the
general liabilities of the Trust, which are normally allocated in proportion to
the number of or the relative net asset values of all of the Trust's series at
the time of allocation or in accordance with other allocation methods approved
by the Board of Trustees. Certain expenses attributable to a particular Class of
shares (such as the distribution and service fees attributable to Investor
Shares) will be charged against that Class of shares. Certain other expenses
attributable to a particular Class of shares (such as registration fees,
professional fees, and certain printing and postage expenses) may be charged
against that Class of shares if such expenses are actually incurred in a
different amount by that Class or if the Class receives services of a different
kind or to a different degree than other Classes, and the Board of Trustees
approves such allocation. Subject to the provisions of the Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets, with respect to
the Fund and the Classes of the Fund are conclusive.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of sixty days or less are valued
at amortized costs, which approximates market value. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith under policies approved by the Trustees.
For the fiscal year ended March 31, 1999, the total expenses of the Fund, after
fee waivers of $31,699 were $174,045. For the period since commencement of
operations (September 30, 1997) through March 31, 1998, the total expenses of
the Fund, after fee waivers of $30,497 and expense reimbursements of $5,047,
were $45,193.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of the Fund are offered and sold on a continuous basis and may
be purchased through authorized investment dealers or directly by contacting the
Distributor or the Fund. Selling dealers have the responsibility of transmitting
orders promptly to the Fund. The public offering price of shares of the Fund
equals net asset value, plus any applicable sales charge for that Class of
shares.
Plan Under Rule 12b-1. The Trust has adopted Plans of Distribution (each a
"Plan" and collectively, the "Plans") for the Investor Class Shares and Class C
Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act (see "Distribution
Plan" in the Prospectus). Under the Plan, the Fund will pay 0.50% of the
Investor Class Shares' average net assets annually and 0.75% of the Class C
Shares' average net assets annually to finance any activity which is primarily
intended to result in the sale of Investor Class Shares and Class C Shares of
the Fund and the servicing of shareholder accounts, provided the Trust's Board
of Trustees has approved the category of expenses for which payment is being
made. Potential benefits of the Plans to the Fund include improved shareholder
servicing, savings to the Fund in transfer agency costs, benefits to the
investment process from growth and stability of assets and maintenance of a
financially healthy management organization.
It is anticipated that a portion of the 12b-1 fees received by the Distributor
will be used to defray various costs incurred or paid by the Distributor in
connection with the printing and mailing to potential investors of Fund
prospectuses, statements of additional information, any supplements thereto, and
shareholder reports, and holding seminars and sales meetings with wholesale and
retail sales personnel designed to promote the sale of Investor Class Shares and
Class C Shares. The Distributor may also use a portion of the 12b-1 fees
received to provide compensation to financial intermediaries and third-party
broker-dealers for their services in connection with the sale of Investor Class
Shares and Class C Shares.
Each Plan is known as a "compensation" plan because payments are made for
services rendered to the Fund with respect to the Investor Class Shares or the
Class C Shares regardless of the level of expenditures made by the Distributor.
The Board of Trustees of the Trust will, however, take into account such
expenditures for purposes of reviewing operations under each Plan and concerning
their annual consideration of each Plan's renewal. The Distributor has indicated
that it expects its expenditures to include, without limitation: (a) the
printing and mailing to prospective investors of Fund prospectuses, statements
of additional information, any supplements thereto and shareholder reports with
respect to the Investor Class Shares and Class C Shares of the Fund; (b) those
relating to the development, preparation, printing and mailing of
advertisements, sales literature and other promotional materials describing
and/or relating to the Investor Class Shares and Class C Shares of the Fund; (c)
holding seminars and sales meetings designed to promote the distribution of the
Fund's Investor Class Shares and Class C Shares; (d) obtaining information and
providing explanations to wholesale and retail distributors of the Fund's
investment objectives and policies and other information about the Fund; (e)
training sales personnel regarding the Investor Class Shares and Class C Shares
of the Fund; and (f) financing any other activity that the Distributor
determines is primarily intended to result in the sale of Investor Class Shares
and Class C Shares.
All of the distribution expenses incurred by the Distributor and others, such as
broker-dealers, in excess of the amount paid by the Fund will be borne by such
persons without any reimbursement from the Fund. Subject to seeking best price
and execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms, which receive payments under the Plans.
From time to time the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
Each Plan and the Amended and Restated Distribution Agreement with the
Distributor have been approved by the Board of Trustees of the Trust, including
a majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust and who have no direct or indirect financial interest in
the Plans or any related agreements ("Rule 12b-1 Trustees"), by vote cast in
person or at a meeting duly called for the purpose of voting on each of the
Plans and the Amended and Restated Distribution Agreement. Continuation of each
Plan and the Amended and Restated Distribution Agreement must be approved
annually by the Board of Trustees in the same manner as specified above.
Each year the Trustees must determine whether continuation of each of the Plans
is in the best interest of shareholders of the Fund and that there is a
reasonable likelihood of its providing a benefit to the Fund, and the Board of
Trustees has made such a determination for the current year of operations under
the Plans. Each Plan and the Amended and Restated Distribution Agreement may be
terminated at any time without penalty by a majority of the Rule 12b-1 Trustees
or by a majority vote of the shareholders of a particular Class of the Fund. Any
material amendment, including an increase in the maximum percentage payable
under a Plan, must likewise be approved by a majority vote of the outstanding
voting shares of the affected Class, as well as by a majority vote of the Rule
12b-1 Trustees. Also, any other material amendment to a Plan must be approved by
a majority vote of the trustees including a majority of the Rule 12b-1 Trustees.
In addition, in order for each of the Plans to remain effective, the selection
and nomination of the Rule 12b-1 Trustees must be effected by the Trustees who
themselves are Rule 12b-1 Trustees. Persons authorized to make payments under
each of the Plans must provide written reports at least quarterly to the Board
of Trustees for their review.
For the fiscal year ended March 31, 1999, the Fund expended $7,113 under the
Plan for the Investor Class Shares. For the period since the Fund commenced
operations (September 30, 1997) through the period ended March 31, 1998, the
Fund expended $847 under the Plan for the Investor Class Shares. Such costs were
spent primarily on compensation to sales personnel for the sale of Investor
Class Shares.
Redemptions. Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. The Fund may also suspend or postpone
the recordation of the transfer of shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectus under "Redeeming Your
Shares," the Fund may redeem shares involuntarily to reimburse the Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust, which is an open-end management investment company, is an
unincorporated business trust organized under Massachusetts's law on October 25,
1990. The Trust's Amended and Restated Declaration of Trust authorizes the Board
of Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Trust currently
consists of the following eight series: WST Growth & Income Fund managed by
Wilbanks, Smith & Thomas Asset Management, Inc. of Norfolk, Virginia; Capital
Value Fund managed by Capital Investment Counsel, Inc. of Raleigh, North
Carolina; Investek Fixed Income Trust managed by Investek Capital Management,
Inc. of Jackson, Mississippi; The Brown Capital Management Equity Fund, The
Brown Capital Management Balanced Fund, The Brown Capital Management Small
Company Fund, and the Brown Capital Management International Equity Fund managed
by Brown Capital Management, Inc. of Baltimore, Maryland, and The CarolinasFund
managed by Morehead Capital Advisors, L.L.C. of Charlotte, North Carolina and
Capital Investment Counsel, Inc. The number of shares of each series shall be
unlimited. The Trust does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as the Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Fund, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. The Trust has adopted an Amended and Restated
Rule 18f-3 Multi-Class Plan which contains the general characteristics of, and
conditions under which the Trust may offer, multiple Classes of Shares of each
of its series. Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series or class affected by the matter. A matter
affects a series or class unless it is clear that the interests of each series
or class in the matter are substantially identical or that the matter does not
affect any interest of the series or class. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a series only if approved by a
majority of the outstanding shares of such series. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together,
without regard to a particular series or class.
When used in the Prospectus or this SAI, a "majority" of shareholders means the
vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class.
When issued for payment as described in the Prospectus and this SAI, shares of
the Fund will be fully paid and non-assessable.
The Amended and Restated Declaration of Trust provides that the Trustees of the
Trust will not be liable in any event in connection with the affairs of the
Trust, except as such liability may arise from his or her own bad faith, willful
misfeasance, gross negligence, or reckless disregard of duties. It also provides
that all third parties shall look solely to the Trust property for satisfaction
of claims arising in connection with the affairs of the Trust. With the
exceptions stated, the Amended and Restated Declaration of Trust provides that a
Trustee or officer is entitled to be indemnified against all liability in
connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own federal, state, local, and foreign tax situations.
Each series of the Trust, including the Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. The
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including the Fund, will designate any distribution of
long term capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including the Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including the Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Dividends paid by the Fund derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Fund will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
MANAGEMENT AND OTHER SERVICE PROVIDERS
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
<TABLE>
<S> <C> <C>
TRUSTEES
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Jack E. Brinson, 65 Trustee and Chairman President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Thomas W. Steed, 40 Trustee Senior Corporate Attorney
101 Bristol Court Hardees Food Systems, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
J. Buckley Strandberg, 38 Trustee Vice President, Standard Insurance and
Post Office Box 1375 Realty, Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 Trustee* President, Brown Capital Management, Inc.,
809 Cathedral Street Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 39 Trustee* President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
____________________
* Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act.
OFFICERS
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Michael T. McRee, 55 President, Investek Fixed President, Investek Capital Management,
317 East Capitol Income Trust Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Wayne F. Wilbanks, 38 President, The WST Growth & President, Wilbanks, Smith & Thomas
One Commercial Place, Suite 1150 Income Fund Asset Management, Inc., Norfolk, Virginia
Norfolk, Virginia 25510
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 President, The Brown Capital President, Brown Capital Management, Inc.,
809 Cathedral Street Management Funds Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 39 President, Capital Value Fund; President, Capital Investment Group,
Post Office Box 32249 Vice President, The Raleigh, North Carolina, Vice President,
Raleigh, North Carolina 27622 CarolinasFund Capital Investment Counsel, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Elmer O. Edgerton, Jr., 57 Vice President, Capital Value President, Capital Investment Counsel
Post Office Box 32249 Fund Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Group, Raleigh, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Doug S. Folk, 38 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Investment, Inc., Jackson, Mississippi,
Jackson, Mississippi 39201 since 1996; previously, Portfolio Manager,
Southern Farm Bureau Life Insurance
Company, Jackson, Mississippi
- ----------------------------------------------- -------------------------------- ---------------------------------------------
R. Mark Fields, 46 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Management, Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
John M. Friedman, 55 Vice President, Investek Fixed Vice President, Investek Capital
317 East Capitol Income Trust Management, Inc., Jackson, Mississippi
Jackson, Mississippi 39201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Keith A. Lee, 38 Vice President, The Brown Vice President, Brown Capital Management,
309 Cathedral Street Capital Management Funds Inc., Baltimore, Maryland
Baltimore, Maryland 21201
- ----------------------------------------------- -------------------------------- ---------------------------------------------
C. Frank Watson, III, 28 Secretary Vice President, The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Julian G. Winters, 30 Treasurer and Assistant Legal and Compliance Director, The
105 North Washington Street Secretary Nottingham Company, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina, since 1996; previously Operations
Manager, Tar Heel Medical, Nashville, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year plus $250
per series of the Trust per meeting attended in person and $100 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
<TABLE>
<S> <C> <C> <C> <C>
Compensation Table*
Pension Total
Retirement Compensation
Aggregate Benefits Estimated from the
Compensation Accrued As Annual Trust
Name of Person, from the Part of Fund Benefits Upon Paid to
Position Fund Expenses Retirement Trustees
-------- ---- -------- ---------- --------
Eddie C. Brown
Trustee None None None None
Richard K. Bryant
Trustee None None None None
Jack E. Brinson
Trustee $1,250 None None $9,750
Thomas W. Steed
Trustee $1,250 None None $9,750
J. Buckley Strandberg
Trustee $1,250 None None $9,750
</TABLE>
* Figures are as of the Fund's fiscal year ended March 31, 1999.
Principal Holders of Voting Securities. As of May 7, 1999, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 1% of the then outstanding shares of each Class of
the Fund. On the same date the following shareholders owned of record more than
5% of the outstanding shares of beneficial interest of a Class of the Fund.
Except as provided below, no person is known by the Trust to be the beneficial
owner of more than 5% of the outstanding shares of a Class of the Fund as of May
7, 1999.
<TABLE>
<S> <C> <C>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
INSTITUTIONAL SHARES
Charles Schwab & Co., Inc. 215,093.662 shares 22.531%
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Koochekzadeh Partnership 155,664.385 shares 16.306%
5600 Wisconsin Ave., Apt. 19C
Chevy Chase, MD 20815
Wheat First Securities, Inc. 59,822.676 shares 6.266%
Birdsong Charitable Foundation, Inc.
Attn: George Y. Birdsong
612 Madison Ave.
Suffolk, VA 23434
INVESTOR SHARES
R. Dean Irwin Ltd. Employees Pension Plan 13,206.283 shares 5.980%
350 North Clark Street
Chicago, IL 60610-4796
DFH Properties LLC 11,705.177 shares 5.300%
2726 Croasdaile Drive
Suite 101
Durham, NC 27705-2500
</TABLE>
Investment Advisor. Information about Wilbanks, Smith & Thomas Asset Management,
Inc. (the "Advisor") and its duties and compensation as Advisor is contained in
the Prospectuses for each class of shares of the Fund.
The Advisor will receive a monthly management fee equal to an annual rate of
0.75% of the first $250 million of the average daily net assets of the Fund and
0.65% on assets over $250 million. For the fiscal year ended March 31, 1999, the
Advisor received $40,044 of its fee, after waivers of $31,699. For the period
since the Fund commenced operations (September 30, 1997) through March 31, 1998,
the Advisor received $463 of its fee, after waivers of $18,741 and reimbursed
$5,047 of the Fund's operating expenses.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company (the "Administrator"), a
North Carolina corporation, whose address is 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069.
The Administrator performs the following services for the Fund: (1) coordinate
with the Custodian and monitor the services it provides to the Fund; (2)
coordinate with and monitor any other third parties furnishing services to the
Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the SEC and other federal and state regulatory authorities as may
be required by applicable law; (8) review and submit to the officers of the
Trust for their approval invoices or other requests for payment of Fund expenses
and instruct the Custodian to issue checks in payment thereof; and (9) take such
other action with respect to the Fund as may be necessary in the opinion of the
Administrator to perform its duties under the agreement. The Administrator will
also provide certain accounting and pricing services for the Fund.
Compensation of the Administrator, based upon the average daily net assets of an
equity or balanced fund, is at the following annual rates: 0.175% of the Fund's
first $50 million, 0.150% on the next $50 million, 0.125% on the next $50
million, and 0.100% on average daily net assets over $150 million. In addition,
the Administrator currently receives a monthly fee of $2,000 per Fund and $750
for each additional Class of Shares (although the fees are allocated equally as
an expense to each Class) for accounting and recordkeeping services. The
Administrator charges a minimum fee of $4,000 per month per Fund for all of its
fees taken in the aggregate, analyzed monthly. The Administrator also charges
the Trust for certain costs involved with the daily valuation of investment
securities and is reimbursed for out-of-pocket expenses. For the fiscal year
ending March 31, 1999, the Fund paid the Administrator $49,740 for its services.
Transfer Agent. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC (the "Transfer Agent"), a
North Carolina limited liability company, to serve as transfer, dividend paying,
and shareholder servicing agent for the Fund. The address of the Transfer Agent
is 107 North Washington Street, Post Office Box 4365, Rocky Mount, North
Carolina 27803-0365. The Transfer Agent is compensated for its services based
upon a $15 fee per shareholder per year, subject to a minimum fee of $750 per
month. For the fiscal year ending March 31, 1999, the Fund paid the Transfer
Agent $7,500 for its services.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622, acts as an underwriter and distributor of the Fund's
shares for the purpose of facilitating the registration of shares of the Fund
under state securities laws and to assist in sales of Fund shares pursuant to an
Amended and Restated Distribution Agreement approved by the Board of Trustees of
the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
Either party upon 60-days' prior written notice to the other party may terminate
the Amended and Restated Distribution Agreement.
For the fiscal year ended March 31, 1999, the aggregate dollar amount of sales
charges on the sales of Investor Class Shares of the Fund was $43,189, of which
the Distributor retained sales charges of $1,070. For the period since the Fund
commenced operations (September 30, 1997) through March 31, 1998, the aggregate
dollar amount of sales charges on the sale of Investor Class Shares of the Fund
was $16,467, of which the Distributor retained sales charges of $434.
Custodian. First Union National Bank of North Carolina ("Custodian") serves as
custodian for the Fund's assets. The Custodian's mailing address is Two First
Union Center, Charlotte, North Carolina 28288. The Custodian acts as the
depository for the Fund, safekeeps its portfolio securities, collects all income
and other payments with respect to portfolio securities, disburses monies at the
Fund's request and maintains records in connection with its duties as Custodian.
For its services as Custodian, the Custodian is entitled to receive from the
Fund an annual fee based on the average net assets of the Fund held by the
Custodian.
Independent Auditors. Deloitte & Touche, LLP, 2500 One PPG Place, Pittsburgh,
Pennsylvania 15222-5401, serves as independent auditors for the Fund, audits the
annual financial statements, prepares federal and state tax returns for the
Fund, and consults with the Fund on matters of accounting and federal and state
income taxation. A copy of the most recent annual report of the Fund will
accompany this SAI whenever it is requested by a shareholder or prospective
investor.
Legal Counsel. Dechert Price & Rhoads serves as legal counsel to the Nottingham
Investment Trust II and the Fund.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Administrator will automatically charge the checking account for the amount
specified ($100 minimum) which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $5,000 or
more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Fund to redeem the necessary number of shares periodically (each
month, or quarterly in the months of March, June, September and December) in
order to make the payments requested. The Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Fund. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Fund. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the Fund
upon sixty days written notice or by a shareholder upon written notice to the
Fund. Applications and further details may be obtained by calling the Fund at
1-800-525-3863, or by writing to:
WST Growth & Income Fund
[Investor Class Shares], [Class C Shares], or [Institutional Shares]
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
Purchases in Kind. The Fund may accept securities in lieu of cash in payment for
the purchase of shares in the Fund. The acceptance of such securities is at the
sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the Fund at the address shown herein. Your request should include the
following: (1) the Fund name and existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the Fund.
Reduced Sales Charges for Investor Class Shares
Concurrent Purchases. For purposes of qualifying for a lower sales charge,
investors have the privilege of combining concurrent purchases of the Fund and
another series of the Trust advised by the Advisor and sold with a sales charge.
For example, if a shareholder concurrently purchases shares in another series of
the Trust affiliated with the Advisor and sold with a sales charge at the total
public offering price of $125,000, and shares in the Fund at the total public
offering price of $125,000, the sales charge would be that applicable to a
$250,000 purchase as shown in the appropriate table above. This privilege may be
modified or eliminated at any time or from time to time by the Trust without
notice thereof.
Rights of Accumulation. Pursuant to the right of accumulation, investors are
permitted to purchase shares at the public offering price applicable to the
total of (a) the total public offering price of the shares of the Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the purchaser's combined holdings of the shares of all of the series of the
Trust advised by the Advisor and sold with a sales charge. To receive the
applicable public offering price pursuant to the right of accumulation,
investors must, at the time of purchase, provide sufficient information to
permit confirmation of qualification, and confirmation of the purchase is
subject to such verification. This right of accumulation may be modified or
eliminated at any time or from time to time by the Trust without notice.
Letters of Intent. Investors may qualify for a lower sales charge by executing a
letter of intent. A letter of intent allows an investor to purchase shares of
the Fund over a 13-month period at reduced sales charges based on the total
amount intended to be purchased plus an amount equal to the then current net
asset value of the purchaser's combined holdings of the shares of all of the
series of the Trust advised by the Advisor and sold with a sales charge. Thus, a
letter of intent permits an investor to establish a total investment goal to be
achieved by any number of purchases over a 13-month period. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the intended investment.
The letter of intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day backdating period can be used to include earlier purchases at the
investor's cost (without a retroactive downward adjustment of the sales charge);
the 13-month period would then begin on the date of the first purchase during
the 90-day period. No retroactive adjustment will be made if purchases exceed
the amount indicated in the letter of intent. Investors must notify the
Administrator or the Distributor whenever a purchase is being made pursuant to a
letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the
Administrator or the Distributor. This letter of intent option may be modified
or eliminated at any time or from time to time by the Trust without notice.
Reinvestments. Investors may reinvest, without a sales charge, proceeds from a
redemption of shares of the Fund in shares of the Fund or in shares of another
series of the Trust advised by the Advisor and sold with a sales charge, within
90 days after the redemption. If the other series charges a sales charge higher
than the sales charge the investor paid in connection with the shares redeemed,
the investor must pay the difference. In addition, the shares of the series to
be acquired must be registered for sale in the investor's state of residence.
The amount that may be so reinvested may not exceed the amount of the redemption
proceeds, and a written order for the purchase of such shares must be received
by the Fund or the Distributor within 90 days after the effective date of the
redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
Purchases by Related Parties and Groups. Reductions in sales charges apply to
purchases by a single "person," including an individual, members of a family
unit, consisting of a husband, wife and children under the age of 21 purchasing
securities for their own account, or a trustee or other fiduciary purchasing for
a single fiduciary account or single trust estate.
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar value of
shares purchased by all members of the qualified group and still owned by the
group plus the shares currently being purchased. For purposes of this paragraph,
a qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Fund at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls, or has the power to vote five percent or more of the outstanding
voting securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls, or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
Sales at Net Asset Value. The Fund may sell shares at a purchase price equal to
the net asset value of such shares, without a sales charge, to Trustees,
officers, and employees of the Trust, the Fund, and the Advisor, and to
employees and principals of related organizations and their families and certain
parties related thereto, including clients and related accounts of the Advisor.
In addition, the Fund may sell shares at a purchase price equal to the net asset
value of such shares, without a sales charge, to investment advisors, financial
planners and their clients who are charged a management, consulting or other fee
for their services; and clients of such investment advisors or financial
planners who place trades for their own accounts if the accounts are linked to
the master account of such investment advisor or financial planner on the books
and records of the broker or agent. The public offering price of shares of the
Fund may also be reduced to net asset value per share in connection with the
acquisition of the assets of or merger or consolidation with a personal holding
company or a public or private investment company.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each Class of the Fund may be quoted in
advertisements, sales literature, shareholder reports or other communications to
shareholders. The Fund computes the "average annual total return" of each Class
of the Fund by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by determining the ending
redeemable value of a hypothetical $1,000 initial payment. This calculation is
as follows:
P(1+T)n = ERV
Where: T = Average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted.
n = period covered by the computation, expressed in terms of
years.
The Fund may also compute the aggregate total return of each Class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund may also quote other total
return information that does not reflect the effects of the sales load.
The average annual total returns for the Institutional Shares of the Fund for
the fiscal year ended March 31, 1999, and for the period since date of initial
public investment (September 30, 1997) through March 31, 1999 were 13.11% and
17.59%, respectively. The cumulative total return of the Institutional Shares of
the Fund since date of initial public investment through March 31, 1999, was
27.49%.
The average annual total returns for the Investor Shares of the Fund for the
fiscal year ended March 31, 1999, and for the period since date of initial
public investment of the Investor Shares (October 3, 1997) through March 31,
1999 were 8.30% and 12.59%, respectively. Without reflecting the effects of the
maximum sales load, the average annual total returns for the previous periods
were 12.52% and 15.52%, respectively. The cumulative total return of the
Investor Shares of the Fund since date of initial public investment through
March 31, 1999, was 19.34%. Without reflecting the effects of the maximum sales
load, the cumulative total return of the Investor Shares of the Fund since date
of initial public investment through March 31, 1999, was 23.99%.
Because the Class C Shares of the Fund commenced operations after March 31,
1999, there are no performance returns available for the Class C Shares.
The Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Total Return Index, the Lehman Aggregate Bond Index, the Russell
2000 Index, or a combination of such indices. Comparative performance may also
be expressed by reference to a ranking prepared by a mutual fund monitoring
service or by one or more newspapers, newsletters or financial periodicals. The
Fund may also occasionally cite statistics to reflect its volatility and risk.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, the Fund may advertise its performance compared
to similar funds or portfolios using certain indices, reporting services, and
financial publications.
These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period of
time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). The Fund may also depict the historical performance of
the securities in which the Fund may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended March 31, 1999,
including the financial highlights appearing in the Annual Report to
shareholders are incorporated by reference and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment-Grade Debt Securities") (or if
not rated, of equivalent quality as determined by the Advisor). Not more than
50% of the total fixed income portion of the portfolio (not more than 15% of
total assets of the entire Fund) will be invested in fixed income securities
that are not Investment-Grade Debt Securities. The various ratings used by the
nationally recognized securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's(R) Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P"), a division of the
McGraw-Hill Companies, Inc., for bonds that are deemed to be Investment-Grade
Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for debt in
higher rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and principal
in accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While such bonds may
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to municipal notes and
indicates very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given a
plus (+) designation.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds that are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Debt that is rated A possesses many favorable investment attributes
and is to be considered as an upper medium grade obligation. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Debt, which is rated Baa, is considered as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such debt
lacks outstanding investment characteristics and in fact has speculative
characteristics as well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
Bonds, which are rated Ba, B, Caa, Ca or C by Moody's, are not considered
Investment-Grade Debt Securities by the Advisor. Bonds rated Ba are judged to
have speculative elements because their future cannot be considered as well
assured. Uncertainty of position characterizes bonds in this class, because the
protection of interest and principal payments often may be very moderate and not
well safeguarded.
Bonds, which are rated B generally, lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds,
which are rated Caa, are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds, which are rated Ca, represent obligations, which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriated may be more affected by external conditions. Ample alternate
liquidity is maintained.
The following summarizes the highest rating used by Moody's for short-term notes
and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds, which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
Investment-Grade Debt Securities by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
<PAGE>
________________________________________________________________________________
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>
PART C
======
FORM N-1A
OTHER INFORMATION
ITEM 23. Exhibits
--------
(a)(1) Amended and Restated Declaration of Trust.^9
(a)(2) Certificate of Establishment and Designation for the Brown Capital
Management International Equity Fund.
(a)(3) Certificate of Establishment and Designation for the WST Growth &
Income Fund Class C Shares.^17
(b) Amended and Restated By-Laws.^9
(c) Certificates for shares are not issued. Articles V, VI, VIII, IX and
X of the Amended and Restated Declaration of Trust, previously filed
as Exhibit (a)(1) hereto, define the rights of holders of Shares.^9
(d)(1) Investment Advisory Agreement between the Nottingham Investment Trust
II and Capital Investment Counsel, Inc., as Advisor to the Capital
Value Fund.^1
(d)(2) Amendment to the Investment Advisory Agreement between the Nottingham
Investment Trust II and Capital Investment Counsel, Inc., as Advisor
to the Capital Value Fund.^10
(d)(3) Investment Advisory Agreement between the Nottingham Investment Trust
II and Investek Capital Management, Inc., as Advisor to the Investek
Fixed Income Trust.^2
(d)(4) Investment Advisory Agreement for the Brown Capital Management Equity
Fund.^4
(d)(5) Investment Advisory Agreement for the Brown Capital Management
Balanced Fund.^4
(d)(6) Investment Advisory Agreement for the Brown Capital Management Small
Company Fund.^4
(d)(7) Amended and Restated Investment Advisory Agreement between the
Nottingham Investment Trust II and Brown Capital Management, Inc. for
the Brown Capital Management Funds.^15
(d)(8) Investment Advisory Agreement for the WST Growth & Income Fund.^12
(d)(9) Amended and Restated Investment Advisory Agreement between the
Nottingham Investment Trust II and Wilbanks, Smith & Thomas Asset
Management, Inc. for the WST Growth & Income Fund.^15
(d)(10) Investment Advisory Agreement between the Nottingham Investment Trust
II and Morehead Capital Advisor, LLC, as Advisor to The
CarolinasFund.^13
(d)(11) Investment Sub-Advisory Agreement between the Nottingham Investment
Trust II and Capital Investment Counsel, Inc., as Sub-Advisor to The
CarolinasFund.^14
(e)(1) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for the Capital Value
Fund.^10
(e)(2) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for the Investek Fixed
Income Trust.^11
(e)(3) Distribution Agreement for the Brown Capital Management Equity
Fund.^9
(e)(4) Distribution Agreement for the Brown Capital Management Balanced
Fund.^9
(e)(5) Distribution Agreement for the Brown Capital Management Small Company
Fund.^9
(e)(6) Amended and Restated Distribution Agreement between the Nottingham
Investment Trust II and Capital Investment Group, Inc., as
Distributor for the Brown Capital Management Funds.^15
(e)(7) Distribution Agreement for the WST Growth & Income Fund.^11
(e)(8) Amended and Restated Distribution Agreement between the Nottingham
Investment Trust II and Capital Investment Group, Inc., as
Distributor for the WST Growth & Income Fund.^15
(e)(9) Distribution Agreement between the Nottingham Investment Trust II and
Capital Investment Group, Inc., as Distributor for The
CarolinasFund.^13
(f) Not Applicable.
(g) Custodian Agreement between the Nottingham Investment Trust II and
First Union National Bank of North Carolina, as Custodian.^12
(h)(1) Fund Accounting and Compliance Administration Agreement between the
Nottingham Investment Trust II and The Nottingham Company, Inc., as
Administrator.^14
(h)(2) Dividend Disbursing and Transfer Agent Agreement between Capital
Management Investment Trust and NC Shareholder Services, LLC, as
Transfer Agent.^14
(h)(3) Expense Limitation Agreement between Nottingham Investment Trust II
and Brown Capital Management, Inc. ^15
(h)(4) Expense Limitation Agreement between Nottingham Investment Trust II
and Wilbanks, Smith & Thomas Asset Management, Inc.^15
(h)(5) Expense Limitation Agreement between Nottingham Investment Trust II
and Morehead Capital Advisors LLC.^17
(i)(1) Opinion and Consent of Counsel for the CarolinasFund.^13
(i)(2) Opinion and Consent of Dechert Price & Rhoads regarding the legality
of the securities being registered with respect to the Brown Capital
Management International Equity Fund.^14
(i)(3) Opinion and Consent of Dechert Price & Rhoads regarding the legality
of the securities being registered with respect to the WST Growth &
Income Fund's Class C Shares.^15
(i)(4) Consent of Dechert Price & Rhoads with respect to The
CarolinasFund.^16
(j) Consent of Deloitte & Touche LLP, Independent Public Accountants.
(k) Not applicable.
(l) Initial Capital Agreement.^1
(m)(1) Distribution Plan under Rule 12b-1 for the Capital Value Fund.^10
(m)(2) Distribution Plan under Rule 12b-1 for the Investek Fixed Income
Trust.^11
(m)(3) Distribution Plan under Rule 12b-1 for the Brown Capital Management
Equity Fund.^9
(m)(4) Distribution Plan under Rule 12b-1 for the Brown Capital Management
Balanced Fund.^9
(m)(5) Distribution Plan under Rule 12b-1 for the Brown Capital Management
Small Company Fund.^9
(m)(6) Distribution Plan under Rule 12b-1 for the WST Growth & Income Fund's
Investor Class Shares.^12
(m)(7) Distribution Plan under Rule 12b-1 for the WST Growth & Income Fund's
Class C Shares.^15
(m)(8) Distribution Plan under Rule 12b-1 for The CarolinasFund.^13
(n) Financial Data Schedules.
(o)(1) Amended and Restated Plan Pursuant to Rule 18f-3 under the Investment
Company Act of 1940.^13
(o)(2) Amended and Restated Rule 18f-3 Multi-Class Plan.^15
(p) Copy of Power of Attorney.^6
- -----------------------
1. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on October 29, 1990 (File No. 33-37458).
2. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on September 20, 1991 (File No. 33-37458).
3. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on May 22, 1992 (File No. 33-37458).
4. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on May 27, 1992 (File No. 33-37458).
5. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 30, 1993 (File No. 33-37458).
6. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 26, 1994 (File No. 33-37458).
7. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 29, 1994 (File No. 33-37458).
8. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on October 7, 1994 (File No. 33-37458).
9. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on June 2, 1995 (File No. 33-37458).
10. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on August 1, 1995 (File No. 33-37458).
11. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 12, 1996 (File No. 33-37458).
12. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on July 24, 1997 (File No. 33-37458).
13. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 20, 1998 (File No. 33-37458).
14. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on February 24, 1999 (File No. 33-37458).
15. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on March 16, 1999 (File No. 33-37458).
16. Incorporated herein by reference to Registrant's Registration Statement
on Form N-1A filed on April 30, 1999 (File No. 33-37458).
17. To be filed by Amendment.
ITEM 24. Persons Controlled by or Under Common Control with the Registrant
-----------------------------------------------------------------
No person is controlled by or under common control with the
Registrant.
ITEM 25. Indemnification
---------------
Reference is hereby made to the following sections of the following
documents filed or included by reference as exhibits hereto:
Article V, Sections 5.1 through 5.4 of the Registrant's Declaration
of Trust, Section 8(b) of the Registrant's Investment Advisory
Agreements, Section 8(b) of the Registrant's Administration
Agreement, and Section 6 of the Registrant's Distribution
Agreements.
The Trustees and officers of the Registrant and the personnel of
the Registrant's administrator are insured under an errors and
omissions liability insurance policy. The Registrant and its
officers are also insured under the fidelity bond required by Rule
17g-1 under the Investment Company Act of 1940, as amended.
ITEM 26. Business and other Connections of the Investment Advisor
--------------------------------------------------------
See the Statement of Additional Information section entitled
"Trustees and Officers" for the activities and affiliations of the
officers and directors of the investment advisers of the
Registrant. Except as so provided, to the knowledge of Registrant,
none of the directors or executive officers of the investment
advisers is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or
employment of a substantial nature. The investment advisers
currently serve as investment advisers to numerous institutional
and individual clients.
ITEM 27. Principal Underwriter
---------------------
(a) Capital Investment Group, Inc. is underwriter and distributor for
The Chesapeake Aggressive Growth Fund, The Chesapeake Growth Fund,
The Chesapeake Core Growth Fund, Capital Value Fund, Investek Fixed
Income Trust, The Brown Capital Management Equity Fund, The Brown
Capital Management Balanced Fund, The Brown Capital Management
Small Company Fund, The Brown Capital Management International
Equity Fund, WST Growth & Income Fund, Blue Ridge Total Return
Fund, SCM Strategic Growth Fund, and The CarolinasFund.
(b)
<TABLE>
<S> <C> <C>
Name and Principal Position(s) and Offices Position(s) and Offices
Business Address with Underwriter with Fund
================== ======================= =======================
Richard K. Bryant President Trustee and officer of Trust; President of
17 Glenwood Ave. Capital Value Fund; no position with other
Raleigh, NC series of Trust
E.O. Edgerton, Jr. Vice President Vice President of Capital Value Fund;
17 Glenwood Ave. no position with other series of the Trust
Raleigh, NC
</TABLE>
(c) Not applicable
ITEM 28. Location of Accounts and Records
--------------------------------
All account books and records not normally held by First Union
National Bank of North Carolina, the Custodian to the Nottingham
Investment Trust II, are held by the Nottingham Investment Trust
II, in the offices of The Nottingham Company, Inc., Fund Accountant
and Administrator, NC Shareholder Services, LLC, Transfer Agent to
the Nottingham Investment Trust II, or by each of the Advisors to
the Nottingham Investment Trust II.
The address of The Nottingham Company, Inc. is 105 North Washington
Street, P.O. Drawer 69, Rocky Mount, North Carolina 27802-0069. The
address of NC Shareholder Services, LLC is 107 North Washington
Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. The address of First Union National Bank of North
Carolina is Two First Union Center, Charlotte, North Carolina
28288-1151. The address of Capital Investment Counsel, Inc.,
Advisor to the Capital Value Fund and Sub-Advisor to The
CarolinasFund, is Glenwood Avenue, Raleigh, North Carolina 27622.
The address of Investek Capital Management, Inc., Advisor to
Investek Fixed Income Trust, is 317 East Capitol Street, Jackson,
Mississippi 39207. The address of Brown Capital Management, Inc.,
Advisor to The Brown Capital Management Equity Fund, The Brown
Capital Management Balanced Fund, The Brown Capital Management
Small Company Fund, and The Brown Capital Management International
Equity Fund is 809 Cathedral Street, Baltimore, Maryland 21201. The
address of Wilbanks, Smith and Thomas Asset Management, Inc.,
Advisor to the WST Growth & Income Fund, is One Commercial Place,
Suite 1450, Norfolk, Virginia 23510. The address of Morehead
Capital Advisors LLC, Advisor to The CarolinasFund, is 1712 East
Boulevard, Charlotte, North Carolina, 28203.
ITEM 29. Management Services
-------------------
None
ITEM 30. Undertakings
------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended ("1933
Act") and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City of Rocky Mount, and
State of North Carolina on the 28th day of May, 1999.
THE NOTTINGHAM INVESTMENT TRUST II
By: /s/ C. Frank Watson, III
______________________________
C. Frank Watson, III
Secretary
Pursuant to the requirements of the 1933 Act, this Amendment to the Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated.
* Trustee
_____________________________________________________________
Jack E. Brinson Date
* Trustee
_____________________________________________________________
Eddie C. Brown Date
* Trustee
_____________________________________________________________
Richard K. Bryant Date
* Trustee
_____________________________________________________________
Thomas W. Steed, III Date
* Trustee
______________________________________________________________
J. Buckley Strandberg Date
/s/ Julian G. Winters May 28, 1999 Treasurer
_______________________________________________________________
Julian G. Winters Date
* By: /s/ C. Frank Watson, III Dated: May 28, 1999
_____________________________________________
C. Frank Watson, III
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
(FOR POST-EFFECTIVE AMENDMENT NO. 38)
-------------------------------------
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- ------------ ---------------
(a)(2) Certificate of Designation.
(j) Consent of Deloitte & Touche LLP, Independent Public
Accountants.
(n) Financial Data Schedule.
THE NOTTINGHAM INVESTMENT TRUST II
Certificate of Designation
Brown Capital Management International Equity Fund
The undersigned, being the Secretary of Nottingham Investment Trust II
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
THAT, pursuant to the authority conferred upon the Trustees of the Trust by
Section 6.2 and Section 11.4 of the Agreement and Amended and Restated
Declaration of Trust of the Trust, as amended from time to time (hereinafter
referred to as the "Declaration of Trust"), and by the affirmative vote of a
Majority of the Trustees at a meeting duly called and held on March 15, 1999,
the Declaration of Trust is amended as follows:
(1) Designation. There is hereby established and designated as of that
date the Brown Capital Management International Equity Fund (hereinafter
referred to as the "Fund"). The beneficial interest in the Fund shall be divided
into Institutional Shares having a nominal or par value of $0.00 per Share, of
which an unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Shares of the Fund shall have the rights and preferences
provided in Section 6.2 of the Declaration of Trust and the Rule 18f-3
Multi-Class Plan of the Trust, as amended from time to time.
(a) Amendment, etc. Subject to the provisions and limitations of
Section 11.4 of the Declaration of Trust and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a Majority of
the Trustees (or by an officer of the Trust pursuant to the vote of a Majority
of the Trustees), provided that, if any amendment adversely affects the rights
of the Shareholders of the Fund, such amendment may be adopted by an instrument
signed in writing by a Majority of the Trustees (or an officer of the Trust
pursuant to the vote of a Majority of the Trustees) when authorized to do so by
the vote in accordance with Section 10.1 of the Declaration of Trust of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote, without regard to Series.
(b) Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meanings as are assigned to those terms in
the Declaration of Trust filed with the Secretary of State of The Commonwealth
of Massachusetts.
The Trustees further direct that, upon the execution of this
Certificate of Designation, the Trust take all necessary action to file a copy
of this Certificate of Designation with the Secretary of State of The
Commonwealth of Massachusetts and at any other place required by law or by the
Declaration of Trust.
IN WITNESS WHEREOF, the undersigned has set his hand and seal effective as of
the 15th day of March, 1999.
/s/ C. Frank Watson, III
[CORPORATE SEAL] _______________________________
C. Frank Watson, III, Secretary
<PAGE>
ACKNOWLEDGEMENT
NORTH CAROLINA
Edgecombe March 15, 1999
_________________ County, ss.: __________________
Then personally appeared the above named C. Frank Watson, III, and
acknowledged the foregoing instrument to be his free act and deed. Before me,
/s/ Sarah W. Narron
________________________
Notary Public
My commission expires: November 30, 2002 [NOTARY SEAL, NASH COUNTY, NC]
____________________
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of The Brown Capital Management Equity Fund, The Brown Capital Management
Balanced Fund, The Brown Capital Management Small Company Fund & The Brown
Capital Management International Equity Fund:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 38 to Registration Statement No. 33-37458 of The Brown Captial Management
Equity Fund, The Brown Capital Management Balanced Fund, The Brown Capital
Management Small Company Fund & The Brown Capital Management International
Equity Fund (each, a Series of The Nottingham Investment Trust II) of our
reports dated April 23, 1999, appearing in the Annual Reports for the year ended
March 31, 1999, and to the reference to us under the heading "Financial
Highlights" in the Prospectus, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 24, 1999
<PAGE>
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of WST Growth & Income Fund:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 38 to Registration Statement No. 33-37458 of WST Growth & Income Fund (a
Series of The Nottingham Investment Trust II) of our report dated April 23,
1999, appearing in the Annual Report for the year ended March 31, 1999, and to
the reference to us under the heading "Financial Highlights" in the Prospectus,
which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 24, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> The Nottingham Investment Trust II
<SERIES>
<NUMBER> 1
<NAME> Institutional Class Shares
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,299,579
<INVESTMENTS-AT-VALUE> 13,883,333
<RECEIVABLES> 81,307
<ASSETS-OTHER> 28,775
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,993,415
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,893
<TOTAL-LIABILITIES> 34,893
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,995,891
<SHARES-COMMON-STOCK> 894,317
<SHARES-COMMON-PRIOR> 564,801
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (621,123)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,583,754
<NET-ASSETS> 13,958,522
<DIVIDEND-INCOME> 133,143
<INTEREST-INCOME> 32,478
<OTHER-INCOME> 0
<EXPENSES-NET> 174,045
<NET-INVESTMENT-INCOME> (8,424)
<REALIZED-GAINS-CURRENT> (578,937)
<APPREC-INCREASE-CURRENT> 1,853,775
<NET-CHANGE-FROM-OPS> 1,266,414
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 361,611
<NUMBER-OF-SHARES-REDEEMED> 32,095
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,819,143
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (42,186)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71,743
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205,744
<AVERAGE-NET-ASSETS> 9,568,248
<PER-SHARE-NAV-BEGIN> 11.29
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.77
<EXPENSE-RATIO> 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> The Nottingham Investment Trust II
<SERIES>
<NUMBER> 2
<NAME> Investor Class Shares
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,299,579
<INVESTMENTS-AT-VALUE> 13,883,333
<RECEIVABLES> 81,307
<ASSETS-OTHER> 28,775
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,993,415
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34,893
<TOTAL-LIABILITIES> 34,893
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,995,891
<SHARES-COMMON-STOCK> 200,364
<SHARES-COMMON-PRIOR> 67,770
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (621,123)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,583,754
<NET-ASSETS> 13,958,522
<DIVIDEND-INCOME> 133,143
<INTEREST-INCOME> 32,478
<OTHER-INCOME> 0
<EXPENSES-NET> 174,045
<NET-INVESTMENT-INCOME> (8,424)
<REALIZED-GAINS-CURRENT> (578,937)
<APPREC-INCREASE-CURRENT> 1,853,775
<NET-CHANGE-FROM-OPS> 1,266,414
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 143,763
<NUMBER-OF-SHARES-REDEEMED> 11,169
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,819,143
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (42,186)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71,743
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 205,744
<AVERAGE-NET-ASSETS> 9,568,248
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 12.52
<EXPENSE-RATIO> 2.25
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> The Nottingham Investment Trust II
<SERIES>
<NUMBER> 3
<NAME> Brown Capital Management Equity Fund
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 7,336,191
<INVESTMENTS-AT-VALUE> 9,864,375
<RECEIVABLES> 947,489
<ASSETS-OTHER> 1,485
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,813,349
<PAYABLE-FOR-SECURITIES> 982,695
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,485
<TOTAL-LIABILITIES> 991,180
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,040,715
<SHARES-COMMON-STOCK> 422,602
<SHARES-COMMON-PRIOR> 372,570
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 253,270
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,528,184
<NET-ASSETS> 9,822,169
<DIVIDEND-INCOME> 68,207
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 100,792
<NET-INVESTMENT-INCOME> (32,585)
<REALIZED-GAINS-CURRENT> 528,673
<APPREC-INCREASE-CURRENT> 343,908
<NET-CHANGE-FROM-OPS> 839,996
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 261,668
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,530
<NUMBER-OF-SHARES-REDEEMED> 44,515
<SHARES-REINVESTED> 11,017
<NET-CHANGE-IN-ASSETS> 1,672,399
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (13,735)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 13,735
<GROSS-ADVISORY-FEES> 54,582
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 157,737
<AVERAGE-NET-ASSETS> 8,397,283
<PER-SHARE-NAV-BEGIN> 21.87
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 2.12
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.69
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.22
<EXPENSE-RATIO> 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> The Nottingham Investment Trust II
<SERIES>
<NUMBER> 4
<NAME> Brown Capital Management Balanced Fund
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 7,407,292
<INVESTMENTS-AT-VALUE> 9,116,472
<RECEIVABLES> 673,535
<ASSETS-OTHER> 555,247
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,345,254
<PAYABLE-FOR-SECURITIES> 734,092
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,258
<TOTAL-LIABILITIES> 742,350
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,699,029
<SHARES-COMMON-STOCK> 540,211
<SHARES-COMMON-PRIOR> 361,039
<ACCUMULATED-NII-CURRENT> 13
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 194,682
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,709,180
<NET-ASSETS> 9,602,904
<DIVIDEND-INCOME> 60,726
<INTEREST-INCOME> 72,026
<OTHER-INCOME> 0
<EXPENSES-NET> 81,878
<NET-INVESTMENT-INCOME> 50,874
<REALIZED-GAINS-CURRENT> 338,978
<APPREC-INCREASE-CURRENT> 195,131
<NET-CHANGE-FROM-OPS> 584,983
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 50,801
<DISTRIBUTIONS-OF-GAINS> 161,031
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 220,097
<NUMBER-OF-SHARES-REDEEMED> 52,851
<SHARES-REINVESTED> 11,926
<NET-CHANGE-IN-ASSETS> 3,525,167
<ACCUMULATED-NII-PRIOR> (60)
<ACCUMULATED-GAINS-PRIOR> 16,735
<OVERDISTRIB-NII-PRIOR> 60
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44,418
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 144,146
<AVERAGE-NET-ASSETS> 6,833,552
<PER-SHARE-NAV-BEGIN> 16.83
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.39
<PER-SHARE-DIVIDEND> 0.13
<PER-SHARE-DISTRIBUTIONS> 0.44
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 17.78
<EXPENSE-RATIO> 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> The Nottingham Investment Trust II
<SERIES>
<NUMBER> 5
<NAME> Brown Capital Management Small Company Fund
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Mar-31-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 21,754,059
<INVESTMENTS-AT-VALUE> 22,681,054
<RECEIVABLES> 1,864,795
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,545,849
<PAYABLE-FOR-SECURITIES> 455,685
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,579
<TOTAL-LIABILITIES> 468,264
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,629,174
<SHARES-COMMON-STOCK> 1,235,734
<SHARES-COMMON-PRIOR> 550,128
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,521,416
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 926,995
<NET-ASSETS> 24,077,585
<DIVIDEND-INCOME> 78,358
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 227,262
<NET-INVESTMENT-INCOME> (148,904)
<REALIZED-GAINS-CURRENT> 1,615,338
<APPREC-INCREASE-CURRENT> (3,101,684)
<NET-CHANGE-FROM-OPS> (1,635,250)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 170,496
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 805,203
<NUMBER-OF-SHARES-REDEEMED> 127,744
<SHARES-REINVESTED> 8,148
<NET-CHANGE-IN-ASSETS> 12,511,641
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 76,574
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 151,867
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 280,799
<AVERAGE-NET-ASSETS> 15,186,671
<PER-SHARE-NAV-BEGIN> 21.02
<PER-SHARE-NII> (0.12)
<PER-SHARE-GAIN-APPREC> (1.19)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.23
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.48
<EXPENSE-RATIO> 1.50
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
