As filed with the Securities and Exchange Commission on April 30, 1999
Securities Act File No. 33-37458
Investment Company Act File No. 811-06199
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 37 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 38 [X]
(Check appropriate box or boxes.)
NOTTINGHAM INVESTMENT TRUST II
------------------------------
(Exact Name of Registrant as Specified in Charter)
105 North Washington Street, Rocky Mount, North Carolina 27801-0069
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (252) 972-9922
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C. Frank Watson, III
105 North Washington Street, P.O. Drawer 69, Rocky Mount, NC 27801-0069
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(Name and Address of Agent for Service)
With Copies to:
---------------
Jane A. Kanter
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006-2401
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this filing
-----------------------------
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 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>
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 CarolinasFund
-Part A - Prospectus
-Part B - Statement of Additional Information
Part C - Other Information and Signature Page
Exhibits
<PAGE>
PART A
======
NASDAQ CUSIP
Class Symbol Number
- --------------------------------------------
INVESTOR SHARES CARVX 565543204
INSTITUTIONAL SHARES CARTX 565543709
- --------------------------------------------
________________________________________________________________________________
THE CAROLINASFUND
________________________________________________________________________________
[LOGO & NAME HERE]
A series of the
Nottingham Investment Trust II
-----------------------------------------
PROSPECTUS
June 30, 1999
The CarolinasFund (the "Fund") seeks long-term capital growth by investing
primarily in common stocks of publicly traded companies headquartered in North
and South Carolina. The Fund offers two classes of shares, Investor Shares and
Institutional Shares; both of which are offered in this prospectus.
Investment Advisor
------------------
Morehead Capital Advisors LLC
1712 East Boulevard
Charlotte, North Carolina 28203
1-800-773-3863
The Securities and Exchange Commission has not approved or disapproved the
securities being offered by this prospectus or determined whether this
prospectus is accurate and complete. 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....................................2
Financial Highlights........................................................4
Bar Charts and Performance Tables...........................................5
Fees And Expenses Of The Fund...............................................6
MANAGEMENT OF THE FUND.........................................................8
- ----------------------
The Investment Advisor......................................................8
The Administrator...........................................................9
The Transfer Agent..........................................................9
The Distributor.............................................................9
YOUR INVESTMENT IN THE FUND...................................................11
- ---------------------------
Minimum Investment.........................................................11
Purchase And RedemptionPrice...............................................11
Purchasing Shares..........................................................12
Redeeming Your Shares......................................................14
OTHER IMPORTANT INVESTMENT INFORMATION........................................17
- --------------------------------------
Dividends, Distributions And Taxes.........................................17
Year 2000..................................................................18
Additional Information.............................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The investment objective of The CarolinasFund (the "Fund") is to seek long-term
capital growth by investing primarily in common stocks of publicly traded
companies headquartered in North and South Carolina.
PRINCIPAL INVESTMENT STRATEGIES
The Fund's Advisor, Morehead Capital Advisors LLC, and the Sub-Advisor, Capital
Investment Counsel, Inc. ("Sub-Advisor"), believe that the demographic and
economic characteristics of the two states provide companies headquartered in
North and South Carolina with substantial opportunities for capital
appreciation. The economies of these two states are based on
a wide variety of industries including agriculture, textiles, banking,
insurance, real estate, mortgage banking, technology, and textiles.
In making investment decisions on behalf of the fund, the Advisor and
Sub-Advisor will generally select common stocks from the top 50 publicly traded
companies in North Carolina and South Carolina. The top 50 publicly traded
companies will be determined according to their market capitalization. The
Fund's assets will be allocated equally among those top 50 companies, so that
the Fund's investment in such companies, measured by number of shares, will be
less in the larger capitalized companies than in mid and smaller capitalized
companies. Market capitalizations will be reassessed on a quarterly basis. By
employing this strategy, the Fund's portfolio composition may periodically
change based on changes in market capitalizations.
Under normal conditions, at least 90% of the Fund's assets will be invested in
equity securities, including common stocks, convertible preferred stocks,
straight preferred stocks, warrants, and investment grade convertible bonds.
The Fund may also invest up to 10% of its total assets in securities issued by
other investment companies. Since investment companies investing in other
investment companies pay management fees and other expenses relating to those
investment companies, if such investment were made, shareholders of the Fund
would indirectly pay both the Fund's expenses and the expenses relating to those
other investment companies.
As a temporary defensive measure, the Advisor may determine that market
conditions warrant investing in investment-grade bonds, U.S. Government
Securities, repurchase agreements, and money market instruments. Under such
circumstances, the Advisor may invest up to 100% of the Fund's assets in these
investments. To the extent the Fund is invested in short-term investments, it
will not be pursuing its investment objective.
<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. There can be no assurance that the Fund
will be successful in meeting its objective. The following sections describe
some of the risks involved with the portfolio investments of the Fund.
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
performance 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.
Concentration: The Fund's concentration in companies headquartered in North and
South Carolina will tie the performance of the Fund to the economic environment
of the two states and the surrounding area. There is no assurance that the
demographic and economic characteristics and other factors that the Advisor and
Sub Advisor believe favor companies in North and South Carolina will continue in
the future. The Fund's portfolio may include some securities of smaller
companies and companies that are not nationally recognized. The prices of stocks
of such companies generally are more volatile than those of larger or more
mature companies, their securities are generally less liquid, and they are more
likely to be negatively affected by adverse economic or market conditions. The
Fund's portfolio may be invested in a smaller number of companies than a general
equity mutual fund. This may result in investments by the Fund in a smaller
number of industry sectors. These limitations may also restrict the Advisor and
Sub Advisor from using certain traditional analytical measures employed to
select investments and also exclude some strategies that could offer superior
performance or reduce fluctuations in the values of such assets.
Small-Cap \ Mid-Cap Securities: Investing in the securities of small-cap and
mid-cap 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-cap and mid-cap 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-cap
and mid-cap 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-cap and mid-cap companies often have limited product lines,
markets, or financial resources and may lack management depth. Additionally,
small-cap and mid-cap 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 mid-cap
companies than for larger, more established companies.
Although investing in securities of small to medium-sized 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 Fund may
involve a greater degree of risk than an investment in other mutual funds that
seek capital growth by investing in more established, larger companies.
<PAGE>
BAR CHARTS AND PERFORMANCE TABLES
The bar charts and tables shown below provide an indication of the risks of
investing in the Investor Shares and Institutional Shares of the Fund by showing
(on a calendar year basis) changes in the Fund's annual total return from year
to year and by showing (on a calendar year basis) how the Fund's average annual
returns for one year, three years, and since inception compare to those of
broad-based securities market indexes. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the future.
INVESTOR SHARES
[INSERT CHART HERE]
1998 7.04%
1997 25.40%
1996 9.17%
o During the 3-year period shown in the bar chart, the highest return for a
calendar quarter was 14.19% (quarter ended December 31, 1998).
o During the 3-year period shown in the bar chart, the lowest return for a
calendar quarter was -12.14% (quarter ended September 30, 1998).
o Sales loads are not reflected in the chart above. If these amounts were
reflected, returns would be less than those shown.
o The year-to-date average annual total return of the fund as of the most
recent calendar quarter ended March 31, 1999, was -8.68%
- ---------------------------------- ------------ --------------- ---------------
Average Annual Total Returns Past Past Since
Period ended December 31, 1998* 1 Year 3 Years Inception**
- ---------------------------------- ------------ --------------- ---------------
The CarolinasFund Investor Shares 3.29% 12.24% 14.32%
- ---------------------------------- ------------ --------------- ---------------
Russell 2000 Index *** -2.24% 11.66% 15.80%
- ---------------------------------- ------------ --------------- ---------------
S&P 500 Total Return Index **** 28.58% 28.20% 30.56%
- ---------------------------------- ------------ --------------- ---------------
* Maximum sales loads are reflected in the table above for the Investor
Shares.
** January 3, 1995 (Inception date of the Investor Shares)
*** The Russell 2000 Index is an unmanaged index of the 2,000 smallest
companies in the Russell 3000 Index, a widely recognized, unmanaged
index of common stock prices.
**** 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.
INSTITUTIONAL SHARES
[INSERT CHART HERE]
1998 7.51%
1997 26.13%
1996 10.49%
o During the 3-year period shown in the bar chart, the highest return for a
calendar quarter was 14.26% (quarter ended December 31, 1998).
o During the 3-year period shown in the bar chart, the lowest return for a
calendar quarter was -12.00% (quarter ended September 30, 1998).
o The year-to-date average annual total return of the fund as of the most
recent calendar quarter ended March 31, 1999, was -8.84%
- --------------------------------------- ----------- ----------- ----------------
Average Annual Total Returns Past Past Since
Period ended December 31, 1998 1 Year 3 Years Incepiton*
- --------------------------------------- ----------- ----------- ----------------
The CarolinasFund Institutional Shares 7.51% 14.43% 15.60%
- --------------------------------------- ----------- ----------- ----------------
Russell 2000 Index ** -2.24% 11.66% 14.57%
- --------------------------------------- ----------- ----------- ----------------
S&P 500 Total Return Index *** 28.58% 28.20% 29.10%
- --------------------------------------- ----------- ----------- ----------------
* May 22, 1995 (Inception date of the Institutional Shares)
** The Russell 2000 Index is an unmanaged index of the 2,000 smallest
companies in the Russell 3000 Index, a widely recognized,
unmanaged index of common stock prices.
*** 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.
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund:
Shareholder Fees
(fees paid directly from your investment)
-----------------------------------------
Investor Institutional
Shares Shares
------ ------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) ...................3.50% None
Redemption fee ...........................................None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees...........................................1.00% 1.00%
Distribution and/or Service (12b-1) Fees..................0.50% None
Other Expenses............................................2.76%* 2.75%*
---- ----
Total Annual Fund Operating Expenses.................4.26 % 3.75 %
Fee Waiver and/or Expense Reimbursement.............(2.01)% (2.00)%
---- ----
Net Expenses.........................................2.25 % 1.75 %
==== ====
* Other Expenses shown above are based upon actual expenses incurred by the
Investor Shares and Institutional Shares of the Fund for the fiscal year
ended February 28, 1999. The Advisor has entered into a contractual
agreement with the Fund 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 1.75% of the average daily
net assets for the fiscal year to end March 31, 2000. See "Expense
Limitation Agreement" for more detailed information.
Example. This Example shows you the expenses you may pay over time by investing
in 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.
- ----------------------------- ----------- ------------ ------------ ------------
Your Costs 1 Year 3 Years 5 Years 10 Years
- ----------------------------- ----------- ------------ ------------ ------------
Investor Shares $570 $1,029 $1,513 $2,844
- ----------------------------- ----------- ------------ ------------ ------------
Institutional Shares $178 $551 $949 $2,062
- ----------------------------- ----------- ------------ ------------ ------------
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
The Fund's Advisor is Morehead Capital Advisors LLC, 1712 East Boulevard,
Charlotte, North Carolina 28203. 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 Fund's assets. The Advisor manages
the investment and reinvestment of the Fund's assets. The Advisor is also
responsible for the selection of broker-dealers through which the Fund executes
portfolio transactions, subject to the brokerage policies established by the
Trustees, and it provides certain executive personnel to the Fund.
The Advisor is registered under the Investment Advisors Act of 1940, as amended.
The Advisor, organized as a North Carolina limited liability company in 1994, is
controlled by a management group consisting of Robert B. Thompson, Benjamin
Richter, Lloyd Richter, J.C. Blucher Ehringhaus, III, Managing Director, and
Richard K. Bryant (who also controls the Distributor and Sub-Advisor and is a
Trustee of the Trust). Mr. Ehringhaus retains day to day responsibility for
monitoring the allocation of securities of the investment portfolio. Mr.
Ehringhaus has been with the Advisor since 1995. Prior to that, he was Vice
President of NationsBank Trust Group.
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Fund, the Advisor is entitled to receive monthly
compensation equal to an annual rate of 1.00% of the average daily net assets of
the Fund. During the last fiscal year ending February 28, 1999, The Advisor
received no advisory fees since it waived or reimbursed 100% of those fees.
Sub-Advisor. The Advisor has delegated the day-to-day responsibilities of
managing the Fund's portfolio to Capital Investment Counsel, Inc. (the
"Sub-Advisor"). The Sub-Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. The Sub-Advisor, established as a
North Carolina corporation in 1984, is controlled by Richard K. Bryant and E.O.
Edgerton, Jr. Mr. Bryant and Mr. Edgerton also control the Distributor. Mr.
Bryant is also a principal of the Advisor. The Sub-Advisor has over $160 million
in assets under management. The Sub-Advisor serves as investment advisor to
another series of the Trust. The Sub-Advisor's address is 17 Glenwood Avenue,
Post Office Box 32249, Raleigh, North Carolina 27622.
The Sub-Advisor is compensated by the Advisor for its services and is not
directly compensated by the Fund. Kurt A. Dressler is responsible for the
Sub-Advisor's role with the Fund. He has been with the Sub-Advisor since 1996.
Prior to that he was a Portfolio Manager with Townsend Financial Services/Asset
Management in Raleigh, North Carolina.
<PAGE>
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
the Advisor has entered into an expense limitation agreement with the Trust,
with respect to the Fund ("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, 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 1.75% of the average daily assets of the 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 (5) fiscal
years, provided that the 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 and/or Sub-Advisor may consider research and brokerage
services furnished to the Advisor and/or Sub-Advisor or its affiliates. Subject
to seeking the most favorable net price and execution available, the Advisor
and/or Sub-Advisor may also consider sales of shares of the Fund as a factor in
the selection of brokers and dealers. Certain securities trades will be cleared
through Capital Investment Group, a registered broker-dealer affiliate of the
Sub-Advisor and Distributor of the Fund.
The Investment Company Act of 1940, as amended (the "1940 Act"), generally
prohibits the Fund from engaging in principal securities transactions with an
affiliate of the Advisor or Sub-Advisor. Thus, the Fund does not engage in
principal transactions with any affiliate of the Advisor. The Fund has adopted
procedures, under Rule 17e-1 under the 1940 Act, that are reasonably designed to
provide that any brokerage commission the Fund pays to an affiliate of the
Advisor or the Sub-Advisor does not exceed the usual and customary broker's
commission. In addition, the Fund will adhere to Section 11(a) of the 1934 Act
and any applicable rules thereunder governing floor trading.
THE ADMINISTRATOR
The Nottingham Company, Inc. (the "Administrator") 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.
<PAGE>
THE DISTRIBUTOR
Capital Investment Group (the "Distributor") is the principal underwriter and
distributor of the Fund's shares and serves as the Fund's exclusive agent for
the distribution of Fund shares. The Distributor is an affiliated of the
Sub-Advisor. The Distributor may sell the Fund's shares to or through qualified
securities dealers or others.
Distribution of the Fund's Shares. For the Investor Shares of the Fund, the Fund
has adopted a Distribution Plan in accordance with Rule 12b-1 (the "Distribution
Plan") under the 1940 Act. Pursuant to the Distribution Plan, the Fund
compensates its distributor, Capital Investment Group, for services rendered and
expenses borne in connection with activities primarily intended to result in the
sale of the Fund's Investor Shares (this compensation is commonly referred to as
"12b-1 fees"). The Distribution Plan provides that the Fund will pay annually
0.50% of the average daily net assets of the Fund's Investor Shares for
activities primarily intended to result in the sale of those shares, including
to reimburse entities for providing distribution and shareholder servicing with
respect to the Fund's Investor Shares. 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 management fees and Rule 12b-1 fees for the
Investor 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 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 relative net
assets of each series or the nature of the services performed and relative
applicability to each series.
YOUR INVESTMENT IN THE FUND
---------------------------
MINIMUM INVESTMENT
Investor Shares are sold subject to a sales charge of 3.50%, so that the term
"offering price" includes the front-end sales load. Institutional Shares are
sold at net asset value. All shares are redeemed at net asset value. Shares may
be purchased by any account managed by the Advisor, Sub-Advisor, and any
broker-dealer authorized to sell Fund shares.
The minimum initial investment is $2,500 ($1,000 for Individual Retirement
Accounts ("IRAs"), Keogh Plans, 401(k) Plans, or purchases under the Uniform
Transfer to Minors Act). The minimum additional investment is $100. The Fund
may, in the Advisor's sole discretion, waive such minimum investment amounts.
<PAGE>
PURCHASE AND REDEMPTION PRICE
Sales Charges. The public offering price of Investor 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>
- ------------------------------------ --------------------- -------------------- -----------------------------
Amount of Transaction At Public Charge As % of Net Sales Charge As % Sales Dealers Discounts and
Offering Price Amount Invested of Public Offering Brokerage Commissions as %
Price of Public Offering Price
- ------------------------------------ --------------------- -------------------- -----------------------------
Less than $100,000 3.63% 3.50% 3.00%
- ------------------------------------ --------------------- -------------------- -----------------------------
$100,000 but less than $250,000 3.09% 3.00% 2.50%
- ------------------------------------ --------------------- -------------------- -----------------------------
$250,000 but less than $500,000 2.56% 2.50% 2.00%
- ------------------------------------ --------------------- -------------------- -----------------------------
$500,000 or more 0.00% 0.00% 0.00%
- ------------------------------------ --------------------- -------------------- -----------------------------
</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.
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 received in good form. An order is in good form if it includes providing 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 is closed.
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.
<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 "The
CarolinasFund," to:
The CarolinasFund
[Investor Class] or [Institutional Class]
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 appropriate Class - Investor Shares or
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 to 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, Investor or Institutional Shares, 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 CarolinasFund
[Investor Class] or [Institutional Class]Mid-Cap
Acct. # 2000001292750
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 public offering price for that
class of shares. The minimum additional investment is $100. 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""Invest by Mail" stub which is attached to your Fund
confirmation statement. Otherwise, please identify your account in a letter
accompanying your purchase payment.
<PAGE>
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 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.
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.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series of the Trust offered for sale in the state in which you reside. A class
of shares other than an Institutional Class of shares may be exchanged for
another class of shares within the same series or in another series of the Trust
at the net asset value plus the percentage difference between that class' sales
charge and any sales charge, if any, previously paid in connection with the
shares being exchanged. Institutional Class shares may only be exchanged for
Institutional Class shares of another series of the Trust. 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.
Rights of Accumulation. The sales charge applicable to a current purchase of
shares of the Fund by a person listed above 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
Investor shares with an aggregate value of $50,000 and who currently owns shares
of the Funds with a value of $100,000 would pay a sales charge of 3.00% 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.
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.
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.
<PAGE>
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
The CarolinasFund
[Investor Class] or [Institutional Class]
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, class of
shares - Investor or Institutional, 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 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 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.
<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 (Investor or
Institutional),
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 $10.00 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
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 reserve the right to redeem involuntarily any account having a net
asset value of less than $1,000 (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 $1,000 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 an Fund Share Application Form.
<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.
YEAR 2000
Like other mutual funds, the Fund and the service providers for the Fund rely
heavily on the reasonably consistent operation of their computer systems. Many
software programs and certain computer hardware in use today, cannot properly
process information after December 31, 1999, because of the method by which
dates are encoded and calculated in such programs and hardware. This problem,
commonly referred to as the "Year 2000 Issue," could, among other things,
negatively impact the processing of trades, the distribution of securities, the
pricing of securities and other investment-related and settlement activities.
The Trust is currently obtaining and assessing information with respect to the
actions that have been taken and the actions that are planned to be taken by
each of its service providers to prepare their computer systems for the Year
2000. While the Trust expects that each of the Fund's service providers will
have adapted their computer systems to address the Year 2000 Issue, there can be
no assurance that this will be the case or that the steps taken by the Trust
will be sufficient to avoid any adverse impact to the Fund.
FINANCIAL HIGHLIGHTS
The financial data included in the tables below for the Investor Shares and
Institutional Shares of the Fund have been derived from audited financial
statements of the Fund. The financial data for the fiscal year ended February
28, 1999, have been audited by Deloitte & Touche LLP, independent auditors,
whose report covering such period is included in the Statement of Additional
Information. The financial data for the prior fiscal years and period were
audited by KPMG Peat Marwick. 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.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(For a Share Outstanding Throughout the Period)
INSTITUTIONAL CLASS
For the
period from
May 22, 1995
(commencement
Year ended Year ended Year ended of operations) to
February 28, February 28, February 28, February 29,
1999 1998 1997 1996
----------- ----------- ---------- -----------
Net asset value, beginning of period $17.83 $13.55 $12.57 $10.72
(Loss) income from investment operations
Net investment income 0.05 0.05 0.01 0.02
Net realized and unrealized (loss) gain on investments (1.08) 4.23 0.97 1.88
----------- ----------- ---------- -----------
Total from investment operations (1.03) 4.28 0.98 1.90
----------- ----------- ---------- -----------
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.02)
Net realized gain from investment transactions (2.79) 0.00 0.00 (0.03)
----------- ----------- ---------- -----------
Total distributions (2.79) 0.00 0.00 (0.05)
----------- ----------- ---------- -----------
Net asset value, end of period $14.01 $17.83 $13.55 $12.57
=========== =========== ========== ===========
Total return (a) (6.66)% 31.59 % 7.81 % 17.68 %
=========== =========== ========== ===========
Ratios/supplemental data
Net assets, end of period $1,071,567 $1,172,074 $735,087 $24,576
=========== =========== ========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 3.75 % 3.61 % 4.85 % 8.40 % (b)
After expense reimbursements and waived fees 1.75 % 1.75 % 1.73 % 1.69 % (b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (1.67)% - - (6.07)% (b)
After expense reimbursements and waived fees 0.33 % 0.36 % 0.22 % 0.64 % (b)
Portfolio turnover rate 22.24 % 7.00 % 5.00 % 16.00 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(For a Share Outstanding Throughout the Period)
INVESTOR CLASS For the
period from
January 3, 1995
(commencement
of operations)
Year ended Year ended Year ended Year ended to
February 28, February 28, February 28, February 29, February 28,
1999 1998 1997 1996 1995
----------- ----------- ----------- ------------ ---------
Net asset value, beginning of period $17.48 $13.36 $12.44 $10.54 $10.00
(Loss) income from investment operations
Net investment (loss) income (0.04) (0.02) (0.02) 0.01 0.04
Net realized and unrealized (loss) gain on investments (1.04) 4.14 0.94 1.95 0.50
----------- ----------- ----------- ------------ ---------
Total from investment operations (1.08) 4.12 0.92 1.96 0.54
----------- ----------- ----------- ------------ ---------
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.03) 0.00
Net realized gain from investment transactions (2.79) 0.00 0.00 (0.03) 0.00
----------- ----------- ----------- ------------ ---------
Total distributions (2.79) 0.00 0.00 (0.06) 0.00
----------- ----------- ----------- ------------ ---------
Net asset value, end of period $13.61 $17.48 $13.36 $12.44 $10.54
=========== =========== =========== ============ =========
Total return (a) (7.11)% 30.84 % 7.41 % 18.59 % 5.40 %
=========== =========== =========== ============ =========
Ratios/supplemental data
Net assets, end of period $2,655,865 $4,125,111 $2,706,214 $1,897,814 $272,383
=========== =========== =========== ============ =========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 4.26 % 4.12 % 5.33 % 9.45 % 37.10 %(b)
After expense reimbursements and waived fees 2.25 % 2.25 % 2.22 % 2.17 % 2.21 %(b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (2.23)% - - (7.21)% (32.27)%(b)
After expense reimbursements and waived fees (0.22)% (0.14)% (0.20)% 0.06 % 2.62 %(b)
Portfolio turnover rate 22.24 % 7.00 % 5.00 % 16.00 % 0.00 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
</TABLE>
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
The CarolinasFund
________________________________________________________________________________
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: 1-800-773-3863
By mail: The CarolinasFund
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>
[LOGO HERE]
PROSPECTUS
June 30, 1999
<PAGE>
PART B
======
STATEMENT OF ADDITIONAL INFORMATION
THE CAROLINASFUND
June 30, 1999
A Series of the
NOTTINGHAM INVESTMENT TRUST II
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-773-3863
Table of Contents
Page
INVESTMENT OBJECTIVE AND POLICIES.................................... 2
INVESTMENT LIMITATIONS............................................... 4
NET ASSET VALUE...................................................... 5
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION....................... 6
DESCRIPTION OF THE TRUST............................................. 7
ADDITIONAL INFORMATION CONCERNING TAXES.............................. 8
MANAGEMENT OF THE FUND............................................... 9
SPECIAL SHAREHOLDER SERVICES......................................... 13
ADDITIONAL INFORMATION ON PERFORMANCE................................ 14
APPENDIX A - DESCRIPTION OF RATINGS.................................. 16
ANNUAL REPORT OF THE FUND FOR FYE FEBRUARY 28, 1999............ attached
This Statement of Additional Information (the "Additional Statement") is meant
to be read in conjunction with the Prospectus, dated the same date as this
Additional Statement, for THE CAROLINASFUND (the "Fund"), as the Prospectus may
be amended or supplemented from time to time, and is incorporated by reference
in its entirety into the Prospectus. Because this Additional Statement 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. This Additional Statement is not a prospectus but is
incorporated by reference in the Prospectus in its entirety. Capitalized terms
used but not defined herein have the same meanings as in the Prospectus.
All references herein to the "Predecessor Fund" refer to another mutual fund of
the same name , which was an investment series of the MapleWood Investment
Trust. Pursuant to an Agreement and Plan of Reorganization dated May 15, 1998,
the Fund succeeded to the assets and liabilities of the Predecessor Fund on or
about July 1, 1998. The Investment objective policies and restrictions of the
Fund and the Predecessor Fund are substantially identical.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's investment objective and policies
as set forth in the Prospectus for each Class of Shares of the Fund. The Fund
commenced operations in 1995.
Additional Information on Fund Instruments. Attached to this Additional
Statement is Appendix A, which contains descriptions of the rating symbols used
by Rating Agencies for securities in which the Fund may invest.
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 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 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 Group ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps
("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the 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. 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.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
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, cash, U.S.
Government Securities or high-grade debt obligations 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 the 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 the approval of 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. 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);
3. 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);
4. 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;
5. Invest in warrants, valued at the lower of cost or market, exceeding more
than 5% of the value of the Fund's net assets. Included within this amount,
but not to exceed 2% of the value of the Fund's net assets, may be warrants
which are not listed on the New York or American Stock Exchange; warrants
acquired by the Fund in units or attached to securities may be deemed to be
without value;
6. Participate on a joint or joint and several basis in any trading account in
securities;
7. Purchase foreign securities;
8. Invest more than 10% of its assets in the securities of one or more
investment companies; or
9. Make loans of money or securities, except that the Fund may (i) invest in
repurchase agreements and commercial paper; (ii) purchase a portion of an
issue of publicly distributed bonds, debentures, or other debt securities;
and (iii) acquire private issues of debt securities subject to the
limitations on investments in illiquid 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;
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; or
6. Purchase any securities on margin except in connection with such short term
credits as may be necessary for the clearance of transactions.
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 (including the Distributor), if it believes it can obtain the best
execution of transactions from such broker. 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 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, 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 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 years ended February 28, 1999, 1998, 1997, the total amount of
brokerage commissions paid by the Fund and Predecessor Fund was $6,488, $2,038,
and $3,449, 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.
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 a sales charge for Investor Shares of the Fund.
Capital Investment Group, Inc. (the "Distributor") receives this sales charge as
Distributor and may reallow it in the form of dealer discounts and brokerage
commissions. The current schedule of sales charges and related dealer discounts
and brokerage commissions for the Investor Shares is set forth in the Prospectus
for the Investor Shares, along with the information on rights of accumulation
and letters of intent. See "How Shares May Be Purchased" in the Prospectus.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution (the "Plan")
for the Investor Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act
(see "How Shares May Be Purchased - Distribution Plan" in the Prospectus). Under
the Plan the Fund may expend up to 0.50% of the Investor Shares' average net
assets annually to finance any activity which is primarily intended to result in
the sale of Investor 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. Such expenditures paid as service fees
to any person who sells Investor Shares of the Fund may not exceed 0.25% of the
average annual net asset value of such shares. Potential benefits of the Plan 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.
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.
The Plan is known as a "compensation" plan because payments are made for
services rendered to the Fund with respect to the Investor Class 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 the Plan and concerning their annual
consideration of the 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 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 of
the Fund; (c) holding seminars and sales meetings designed to promote the
distribution of the Fund's Investor Class 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 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.
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 Plan.
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.
The Plan and the 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 Plan or any related
agreements, by vote cast in person or at a meeting duly called for the purpose
of voting on the Plan and such Agreement. Continuation of the Plan and the
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 the Plan 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 Plan. The
Plan and the Distribution Agreement may be terminated at any time without
penalty by a majority of those trustees who are not "interested persons" or by a
majority vote of the Fund's outstanding Investor Shares. Any amendment
materially increasing the maximum percentage payable under the Plan must
likewise be approved by a majority vote of the Investor Shares' outstanding
voting stock, as well as by a majority vote of those trustees who are not
"interested persons." In addition, any other material amendment to the Plan must
be approved by a majority vote of the trustees including a majority of the
independent Trustees of the Trust having no interest in the Plan. In addition,
in order for the Plan to remain effective, the selection and nomination of
Trustees who are not "interested persons" of the Trust must be effected by the
Trustees who themselves are not "interested persons" and who have no direct or
indirect financial interest in the Plan. Persons authorized to make payments
under the Plan must provide written reports at least quarterly to the Board of
Trustees for their review.
For the fiscal year ended February 28, 1999, the Investor Shares of the Fund
incurred $17,605 in expenditures under the Plan for payments to broker-dealers
and others for the sale or retention of assets. The Distributor waived a portion
of its fee amounting to $10,982.
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 is an unincorporated business trust organized under Massachusetts's
law on October 25, 1990. The Trust's Declaration of Trust authorizes the Board
of Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of eight series, as follows: the Fund managed
by the Advisor; 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 of Jackson, Mississippi; and
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 of
Baltimore, Maryland. The Board of Trustees has authorized the classification of
shares of all such series. 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 Fund 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 to 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 Additional Statement, a "majority" of
shareholders means the vote of the lesser of (1) 67% of the shares of the Trust
or the applicable series or class present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (2)
more than 50% of the outstanding shares of the Trust or the applicable series or
class.
When issued for payment as described in the Prospectus and this Additional
Statement, shares of the Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting 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 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 OF THE FUND
Trustees and Officers. The Trustees and executive officers of the Trust, their
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, 67 Trustee and Chairman President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Thomas W. Steed, 41 Trustee Senior Corporate Attorney
101 Bristol Court Hardees Food Systems,
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
- ----------------------------------------------- -------------------------------- ---------------------------------------------
J. Buckley Strandberg, 39 Trustee Vice President,
Post Office Box 1375 Standard Insurance and Realty,
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 Trustee* President,
809 Cathedral Street Brown Capital Management, Inc., Baltimore,
Baltimore, Maryland 21201 Maryland
- ----------------------------------------------- -------------------------------- ---------------------------------------------
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 39 Trustee* President,
Post Office Box 32249 Capital Investment Group,
Raleigh, North Carolina 27622 Raleigh, North Carolina;
Vice President
Capital Investment Counsel,
Raleigh, North Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
- -------------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes
of the 1940 Act
</TABLE>
<TABLE>
<S> <C> <C>
OFFICERS
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
- ----------------------------------------------- -------------------------------- ---------------------------------------------
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Michael T. McRee, 55 President, President,
317 East Capitol Investek Fixed Income Trust Investek Capital Management, Inc., Jackson,
Jackson, Mississippi 39201 Mississippi
- ----------------------------------------------- -------------------------------- ---------------------------------------------
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Wayne F. Wilbanks, 38 President, President,
One Commercial Place, Suite 1150 The WST Growth & Income Fund Wilbanks, Smith & Thomas Asset Management,
Norfolk, Virginia 25510 Inc., Norfolk, Virginia
- ----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 58 President, The Brown Capital President,
809 Cathedral Street Management Funds Brown Capital Management, Inc., Baltimore,
Baltimore, Maryland 21201 Maryland
- ----------------------------------------------- -------------------------------- ---------------------------------------------
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 Carolina, since 1996; previously Operations
Manager, Tar Heel Medical, Nashville, North
Carolina
- ----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year plus $250
per series of the Trust per meeting attended in person and $100 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
<TABLE>
<S> <C> <C> <C> <C>
Compensation Table*
Pension
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation Accrued As Annual From the Trust
Name of Person, From the Part of Fund Benefits Upon Paid to
Position Fund Expenses Retirement Trustees
-------- ---- -------- ---------- --------
Jack E. Brinson $750 None None $9,500
Trustee
Eddie C. Brown None None None None
Trustee
Richard K. Bryant None None None None
Trustee
Thomas W. Steed $750 None None $9,500
Trustee
J. Buckley Strandberg $750 None None $9,500
Trustee
</TABLE>
*Figures are for the fiscal year ended February 28, 1999.
Principal Holders of Voting Securities. As of April 22, 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 each 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
April 22, 1999.
<TABLE>
<S> <C> <C> <C>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership* of Class
INVESTOR SHARES
Olcoba Company 34,436.387 Shares 18.439%
P.O. Box 1000
Minneapolis, Minnesota 55480-1000
Midsouth Data Systems, Inc. 17,798.053 Shares 9.530%
Retirement Trust
25 Westridge Market Place
Candler, North Carolina 28715
Richter & Co., Inc. 11,992.449 Shares 6.421%
1712 East Blvd.
Charlotte, North Carolina 28203
Ronald H. Wrenn 11,992.449 Shares 6.421%
2423 Beretania Circle
Charlotte, North Carolina 28211
INSTITUTIONAL SHARES
Robert Stowe Jr. Foundation, Inc. 9,951.295 Shares 12.939%
P.O. Box 351
Belmont, North Carolina 28012
J. C. Blucher Ehringhaus, III 8,770.508 Shares 11.404%
IRA R/O
2565 Roswell Avenue
Charlotte, North Carolina 28209
Broyhill Family Foundation Inc. 7,417.681 Shares 9.645%
P.O. Box 500
Golfview Park
Lenoir, North Carolina 28645
Donald G. Walser, IRA R/O 5,025.113 Shares 6.534%
3318 S. Union Road
Suite 6600
Gastonia, North Carolina 28056
Bellamy, Rutenberg, Copeland, Epps, 4,735.329 Shares 6.157%
Gravely & Bowers, PA Profit Sharing
Plan & Trust
P.O. Box 357
Myrtle Beach, South Carolina 29578
Chapin Company 401K Plan 4,709.125 Shares 6.123%
P.O. Box 2568
740 E. Main Street
Myrtle Beach, South Carolina 29578
John O. Fairey & Marie J. Fairey JTWROS 4,708.526 Shares 6.122%
5016 Hillside Road
Columbia, South Carolina 29206
The Niles Stevens Trust 4,657.579 Shares 6.056%
Claude M. Epps, Jr. & J. Jackson
Thomas, Co-Trustees
P.O. Box 357
Myrtle Beach, South Carolina 29578
Robert W. Donaldson, Jr. 4,371.783 Shares 5.684%
IRA Account
2531 Forest Drive
Charlotte, North Carolina 28211
</TABLE>
Investment Advisor. Information about Morehead Capital Advisors LLC (the
"Advisor") and its duties and compensation as Advisor are contained in the
Prospectus.
The Advisor is entitled to receive a monthly management fee equal to an annual
rate of 1.00% of the average daily net assets of the Fund. For the fiscal years
ended February 28, 1999, 1998, and 1997, the Advisor waived all of the
management fee from the Fund and Predecessor Fund in the amount of $47,197,
$42,295, and $27,685, respectively, and voluntarily reimbursed a portion of the
Fund's and Predecessor Fund's operating expenses in the amount of $36,205,
$36,881, and $58,459, respectively.
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.
Sub-Advisor. Information about Capital Investment Counsel (the "Sub-Advisor")
and its duties and compensation are contained in the Prospectus. Under the
Sub-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 Sub-Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement. The Sub-Advisor
waived all its fee in the amount of $_______for the period from July 1, 1998 to
February 28, 1999.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company (the "Administrator"), a
North Carolina corporation, whose address is 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069.
The Administrator will perform the following services for the Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the Securities and Exchange Commission and other federal and
state regulatory authorities as may be required by applicable law; (8) review
and submit to the officers of the Trust for their approval invoices or other
requests for payment of Fund expenses and instruct the Custodian to issue checks
in payment thereof; and (9) take such other action with respect to the Fund as
may be necessary in the opinion of the Administrator to perform its duties under
the agreement. The Administrator will also provide certain accounting and
pricing services for the Fund.
Compensation of the Administrator, based upon the average daily net assets of an
equity or balanced fund, is at the following annual rates: 0.175% of the Fund's
first $50 million, 0.150% on the next $50 million, 0.125% on the next $50
million, and 0.100% on average daily net assets over $150 million. In addition,
the Administrator currently receives a monthly fee of $2,000 per Fund 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 ended February 28, 1999, the Administrator received from the
Fund administration fees of $9,500 and fund accounting fees of $30,000. For the
fiscal years ended February 28, 1998 and 1997, the administrator to the
Predecessor Fund (Countrywide Services, Inc., Cincinnati, Ohio) received from
the Predecessor Fund accounting and pricing fees of $25,229 and $15,000
respectively, and administrative fees of $12,000 and $7,500 respectively.
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, per fund.
For the fiscal year ended February 28, 1999, the Transfer Agent received from
the Fund shareholder recordkeeping fees of $13,250. For the fiscal years ending
February 28, 1998 and 1997, the Predecessor Fund's administrator also performed
transfer agent duties and received transfer agent fees of $24,000 and $15,000
respectively.
Distributor. Capital Investment Group, Inc. (the "Distributor"), 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 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
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 Securities and Exchange
Commission 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 Distribution Agreement.
For the fiscal year ended February 28, 1999 the Distributor earned $610 in
underwriting and broker commissions. For the fiscal years ended February 28,
1998 and 1997, the distributor to the Predecessor Fund (Alpha and Omega, Inc.)
earned $7,161 and $5,923 respectively in underwriting and broker commissions.
Custodian. First Union National Bank of North Carolina (the "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. The firm of Deloitte & Touche LLP, 2500 One PPG Place,
Pittsburgh, Pennsylvania 15222-5401, serves as independent auditors for the
Fund, and will audit the annual financial statements of the Fund and prepare the
Fund's federal and state tax returns. KMPG Peat Marwick served as auditor to the
Predecessor Fund.
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
1-800-773-3863, or by writing to:
THE CAROLINASFUND
[Investor Shares] or [Institutional Shares]
105 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
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 $25,000, and shares in the Fund at the total public
offering price of $25,000, the sales charge would be that applicable to a
$50,000 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 back-dating 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 of Investor Shares of the Fund for the one and
three year periods ended February 28, 1999, and since inception (January 3,
1995) to February 28, 1999, were -10.36%, 8.00%, and 11.55%, respectively.
Without reflecting the sales load for the Investor Shares of the Fund for such
periods, the average annual total returns of Investor Shares of the Fund for
such periods were -7.11%, 9.29%, and 12.51%, respectively. The cumulative total
return for the Investor Shares of the Fund for the period since inception
(January 3, 1995) through February 28, 1999, was 57.50%. The cumulative total
return for the Investor Shares of the Fund, computed without reflecting the
applicable sales load, for such period was 63.22%.
The average annual total returns of Institutional Shares of the Fund for the one
and three year periods ended February 28, 1999, and since inception (May 22,
1995) to February 28, 1999, were -6.66%, 9.81%, and 12.50%, respectively. The
cumulative total return for the Institutional Shares of the Fund for the period
since inception (May 22, 1995) through February 28, 1999, was 55.82%.
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 Index, the Lehman Aggregate Bond 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 reflects 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.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
Under normal market conditions, at least 90% of the Fund's net assets will be
invested in equities. As a temporary defensive position, however, the Fund may
invest up to 100% of its assets in 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.
When the Fund invests in Investment Grade Debt Securities as a temporary
defensive position, it is not pursuing it investment objective. Under normal
circumstances, however, the Fund may invest in money market or repurchase
agreement instruments as described in the Prospectus. 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 Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Group ("S&P") 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>
The CarolinasFund
1712 East Boulevard
Charlotte, NC 28203
Telephone: 704-344-1012
Facsimile: 704-333-9366
April 26, 1999
Dear CarolinasFund Shareholder,
Attached you will find the Annual Report, which reports results and portfolio
holdings, sector breakdowns, and related statistics for our fiscal year ended
February 28, 1999.
Calendar year 1998 proved to be a challenging year in terms of performance for
many of the companies within the region and for The CarolinasFund. Performance
through December 31, 1998 was as follows: Investor Shares: 7.04% and
Institutional Shares 7.51%.
Throughout most of 1998, our performance lagged the major indices such as: the
Standard & Poor's 500, the Dow Jones Industrial Average, and the NASDAQ. During
the Dow's blue chip sell-off from July 17 through August 31, a number of
Carolinas stocks did experience significant losses and failed to finish the year
strong relative to those indices.
The CarolinasFund focuses in on the 50 largest publicly traded companies in
North and South Carolina based on market capitalization (number of shares
outstanding times market price). On balance, the median market capitalization of
all holdings within The CarolinasFund has been between $1 billion and $5
billion, which is generally regarded by investment professionals as a small to
mid-cap range.
The relative performance for The CarolinasFund remained strong as our Benchmark
Index, The Russell 2000 fell, -3.45% during 1998. Small and Mid-Cap stocks
continued to underperform as sectors, and the performance divergence between
small and large-cap stock widened to a record level, according to analysts at
Saloman Smith Barney.
According to Bloomberg News, one of the world's leading vendors of business
news, stock data, and financial information, there are some 146 publicly held
companies based in the Carolinas with a market capitalization of $15 million or
more. Performance for the Bloomberg Carolinas Index, published weekly in The
Charlotte Observer, declined -5.52% during calendar year 1998.
<PAGE>
April 26, 1999
Page Two
With the US economy continuing to grow at a modest rate, many investors are
cautious about the fact that stock prices are simply too high. The S&P 500"...is
near the highest price to earnings ratios ever, 28 times the last twelve months
earnings..." according to First Call, a Wall Street financial reporting firm.
"The 50 issues with the highest ratios recently accounted for 25% of the value
of the S&P 500, and had a P/E ratio of 51. The P/E on the other 450 was 20,"
according to Morgan Stanley Dean Witter.
"Last October small-cap (price) multiples fell below the one-to-one ratio (to
the S&P's ratio), and now they are at an all-time low," states W. Whitfield
Gardener, of Gardner Lewis Asset Management. It should be noted that the
Price/Earnings ratios for many of the stocks within The CarolinasFund has been
and is now well below that of the The Standard & Poors 500 stock index.
The economy in North and South Carolina remains strong, which will help the
stocks within our portfolio over the long run. Many of these companies have
exceptionally strong balance sheets, and are rated as "long term hold" or "buy"
by analysts.
Companies within The CarolinasFund's portfolio will generally account for more
than eighty percent of the entire market capitalization of publicly held
companies within North and South Carolina. Hence, performance of The
CarolinasFund should be considered to be a rough proxy for overall stock
performance within the two-state region.
We believe that the demographic and economic characteristics of North and South
Carolina, are such that companies headquartered in the two states have a greater
than average potential for capital appreciation. The fact of the matter is that
"...every time we have had five years of small-cap underperformance, it's been
followed by five years of outperformance " according to Bert Boksen, as
small-cap fund manager for Raymond James & Associates Inc.
Access to daily price information (NAV, etc.) is provided via toll free number
800-773-3863 and NASDAQ listings are now published in the major newspapers. The
symbol for Investor Shares is CARVX - for Institutional Shares CARTX. Should you
have questions about The CarolinasFund or the attached report, please do not
hesitate to contact us at 704-344-1012.
Sincerely,
J. C. Blucher Ehringhaus, III
Managing Director
<PAGE>
________________________________________________________________________________
The CarolinasFund
________________________________________________________________________________
a series of the Nottingham Investment Trust II
Annual Report 1999
FOR THE PERIOD ENDED FEBRUARY 28
INVESTMENT ADVISOR
Morehead Capital Advisors LLC
1712 East Boulevard
Charlotte, NC 28203
The CarolinasFund
107 North Washington Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-773-3863
<PAGE>
The CarolinasFund
INSTITUTIONAL SHARES
Performance Update - $10,000 Investment
For the period from May 22, 1995 (commencement of operations)
to February 28, 1999
------------------------------------------------------
Institutional S&P 500 Russell 2000
Shares Index Index
------------------------------------------------------
5/22/95 10,000 10,000 10,000
5/31/95 10,064 10,193 9,956
8/31/95 11,125 10,802 11,286
11/30/95 11,284 11,710 11,449
2/29/96 11,768 12,457 12,098
5/31/96 12,330 13,091 13,523
8/31/96 11,843 12,825 12,527
11/30/96 12,480 14,933 13,340
2/28/97 12,687 15,716 13,616
5/31/97 12,949 16,942 14,460
8/31/97 14,307 18,039 16,134
11/30/97 15,159 19,243 16,429
2/28/98 16,695 21,217 17,705
5/31/98 16,844 22,141 17,555
8/31/98 14,092 19,499 13,033
11/30/98 16,273 23,796 15,389
2/28/99 15,582 25,405 15,228
This graph depicts the performance of The CarolinasFund Institutional Shares
versus the Russell 2000 Index and the S&P 500 Total Return Index. It is
important to note that The CarolinasFund is a professionally managed mutual fund
while the indexes are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
Average Annual Total Return
- -------------------------------------------------------
Since Inception One Year Three Years
- -------------------------------------------------------
12.50% (6.66)% 9.81%
- -------------------------------------------------------
The graph assumes an initial $10,000 investment at May 22, 1995. All dividends
and distributions are reinvested.
At February 28, 1999, the Institutional Shares of The CarolinasFund would have
grown to $15,582 - total investment return of 55.82% since May 22, 1995.
At February 28, 1999, a similar investment in the Russell 2000 Index would have
grown to $15,228 - total investment return of 52.28%; and the S&P 500 Total
Return Index would have grown to $25,405 - total investment return of 154.05%,
since May 22, 1995.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
The CarolinasFund
INVESTOR SHARES
Performance Update - $10,000 Investment
For the period from January 3, 1995 (commencement of operations)
to February 28, 1999
------------------------------------------------
Investor S&P 500 Russell 2000
Shares Index Index
------------------------------------------------
1/3/95 9,650 10,000 10,000
2/28/95 10,171 10,663 10,377
5/31/95 10,432 11,752 10,942
8/31/95 11,516 12,455 12,404
11/30/95 11,671 13,502 12,583
2/29/96 12,066 14,362 13,297
5/31/96 12,628 15,094 14,863
8/31/96 12,124 14,788 13,769
11/30/96 12,764 17,217 14,661
2/28/97 12,959 18,120 14,964
5/31/97 13,202 19,534 15,892
8/31/97 14,579 20,799 17,732
11/30/97 15,423 22,187 18,057
2/28/98 16,956 24,463 19,459
5/31/98 17,092 25,528 19,294
8/31/98 14,288 22,482 14,324
11/30/98 16,481 27,436 16,914
2/28/99 15,750 29,291 16,736
This graph depicts the performance of The CarolinasFund Investor Shares versus
the Russell 2000 Index and the S&P 500 Total Return Index. It is important to
note that The CarolinasFund is a professionally managed mutual fund while the
indexes are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only.
Average Annual Total Return
- --------------------------------------------------------------
Since Inception One Year Three Years
- --------------------------------------------------------------
No Sales Load 12.51% (7.11)% 9.29%
- --------------------------------------------------------------
With 3.50% Sales Load 11.55% (10.36)% 8.00%
- --------------------------------------------------------------
The graph assumes an initial $10,000 investment at January 3, 1995 ($9,650 after
maximum sales load of 3.50%). All dividends and distributions are reinvested.
At February 28, 1999, the Investor Shares of The CarolinasFund would have grown
to $15,750 - total investment return of 57.50% since January 3, 1995. Without
the deduction of the 3.50% maximum sales load, the Investor Shares of The
CarolinasFund would have grown to $16,322 - total investment return of 63.22%
since January 3, 1995. The sales load may be reduced or eliminated for larger
purchases.
At February 28, 1999, a similar investment in the Russell 2000 Index would have
grown to $16,736 - total investment return of 67.36%; and the S&P 500 Total
Return Index would have grown to $29,291 - total investment return of 192.91%,
since January 3, 1995.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C>
The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 28, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 95.24%
Basic Materials - 5.73%
Bowater Incorporated ..................................................... 2,900 $122,163
Sonoco Products Company .................................................. 3,728 91,336
--------
213,499
--------
Consumer, Cyclical - 14.08%
Family Dollar Stores, Inc. ............................................... 5,600 112,000
Lowe's Companies, Inc. ................................................... 2,600 154,212
Oakwood Homes Corporation ................................................ 5,200 83,850
(a)Ryan's Family Steak Houses, Inc. ......................................... 5,000 56,875
(a)Speedway Motorsports, Inc. ............................................... 3,300 117,769
--------
524,706
--------
Consumer, Non-Cyclical - 7.91%
Coca-Cola Bottling Co. ................................................... 600 33,600
Food Lion, Inc. - Class A ................................................ 9,100 86,735
Lance, Inc. .............................................................. 3,100 51,150
(a)Personnel Group of America, Inc. ......................................... 3,900 51,431
Ruddick Corporation ...................................................... 3,900 71,906
--------
294,822
--------
Financial Services - 26.64%
BankAmerica Corporation .................................................. 2,000 130,625
BB&T Corporation ......................................................... 3,244 122,867
Carolina First Corporation ............................................... 1,800 37,125
CCB Financial Corporation ................................................ 1,800 93,488
Centura Banks, Inc. ...................................................... 1,600 102,400
First Citizen's BancShares, Inc. ......................................... 800 63,900
First Union Corporation .................................................. 2,000 106,625
(a)Insignia Financial Group, Inc. ........................................... 933 12,187
Jefferson-Pilot Corporation .............................................. 1,675 113,481
Resource Bancshares Mortgage Group, Inc. ................................. 2,745 38,430
(a)Triad Guaranty Inc. ...................................................... 1,500 27,750
Triangle Bancorp, Inc. ................................................... 2,100 33,600
Wachovia Corporation ..................................................... 1,300 110,581
--------
993,059
--------
Holding Companies - Diversified - 2.57%
The Liberty Corporation .................................................. 1,900 95,831
--------
Industrial - 19.38%
AVX Corporation .......................................................... 5,100 69,806
(a)Burlington Industries, Inc. .............................................. 6,600 40,838
(a)Collins & Aikman ......................................................... 7,200 36,000
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 28, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Industrial - (Continued)
(a)Coltec Industries, Inc. .................................................... 5,000 $ 90,000
Guilford Mills, Inc. ....................................................... 2,900 35,888
Martin Marietta Materials, Inc. ............................................ 2,100 107,756
Nucor Corporation .......................................................... 2,400 106,950
(a)Quintiles Transnational Corporation ........................................ 2,100 90,562
Springs Industries, Inc. - Class A ......................................... 900 29,925
Unifi, Inc. ................................................................ 3,900 47,044
United Dominion Industries ................................................. 3,500 67,594
---------
722,363
---------
Real Estate - 2.89%
Highwoods Properties, Inc. ................................................. 2,900 69,419
Summit Properties, Inc. .................................................... 2,300 38,237
---------
107,656
---------
Technology - 5.96%
(a)Glenayre Technologies, Inc. ................................................ 7,225 25,514
(a)Kemet Corporation .......................................................... 4,600 50,600
(a)Pharmaceutical Product Development, Inc. ................................... 2,100 72,975
(a)Policy Management Systems Corporation ...................................... 2,000 73,125
---------
222,214
---------
Utilities - 10.08%
Carolina Power & Light Company ............................................. 2,500 99,687
Duke Energy Corporation .................................................... 1,800 102,375
Piedmont Natural Gas Company, Inc. ......................................... 1,800 61,425
Public Service Company of North Carolina ................................... 1,500 44,344
SCANA Corporation .......................................................... 2,900 68,150
---------
375,981
---------
Total Common Stocks (Cost $3,112,771) ...................................... 3,550,131
---------
INVESTMENT COMPANY - 4.47%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................... 166,477
---------
(Cost $166,477)
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 28, 1999
Total Value of Investments (Cost $3,279,248 (b)) .................................. 99.71% $3,716,608
Other Assets Less Liabilities ..................................................... 0.29% 10,824
--------- ----------
Net Assets ................................................................. 100.00% $3,727,432
========= ==========
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax
purposes is the same. Unrealized appreciation (depreciation) of
investments for financial reporting and federal income tax purposes
is as follows:
Unrealized appreciation ................... $ 844,430
Unrealized depreciation ................... (407,070)
---------
Net unrealized appreciation $ 437,360
=========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C>
The CarolinasFund
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999
ASSETS
Investments, at value (cost $3,279,248) .................................................................. $3,716,608
Cash ..................................................................................................... 65
Income receivable ........................................................................................ 5,575
Deferred organizational expenses (net) ................................................................... 7,769
Due from advisor (note 2) ................................................................................ 4,014
Other assets ............................................................................................. 1,382
----------
Total assets ........................................................................................ 3,735,413
----------
LIABILITIES
Accrued expenses ......................................................................................... 7,781
Payable for fund shares redeemed ......................................................................... 200
----------
Total liabilities ................................................................................... 7,981
----------
NET ASSETS ...................................................................................................... $3,727,432
==========
NET ASSETS CONSIST OF
Paid-in capital .......................................................................................... $3,171,408
Undistributed net realized gain on investments ........................................................... 118,664
Net unrealized appreciation on investments ............................................................... 437,360
----------
$3,727,432
==========
INSTITUTIONAL CLASS
Net asset value, offering and redemption price per share ($1,071,567 / 76,489 shares) .................... $ 14.01
==========
INVESTOR CLASS
Net asset value, offering and redemption price per share ($2,655,865 / 195,079 shares) ................... $ 13.61
==========
Maximum offering price per share (100 / 96.5% of $13.61) ................................................. $ 14.10
==========
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C>
The CarolinasFund
STATEMENT OF OPERATIONS
Year ended February 28, 1999
INVESTMENT LOSS
Income
Interest ........................................................................................ $ 7,229
Dividends ....................................................................................... 89,186
-----------
Total income .............................................................................. 96,415
-----------
Expenses
Investment advisory fees (note 2) ............................................................... 47,197
Fund administration fees (note 2) ............................................................... 9,500
Distribution and service fees - Investor class (note 3) ......................................... 17,605
Custody fees .................................................................................... 3,067
Registration and filing administration fees (note 2) ............................................ 2,368
Fund accounting fees (note 2) ................................................................... 30,000
Audit fees ...................................................................................... 9,500
Legal fees ...................................................................................... 18,439
Securities pricing fees ......................................................................... 2,778
Shareholder recordkeeping fees .................................................................. 13,250
Other fees ...................................................................................... 3,308
Shareholder servicing expenses .................................................................. 5,048
Registration and filing expenses ................................................................ 5,094
Printing expenses ............................................................................... 3,629
Amortization of deferred organization expenses (note 6) ......................................... 9,303
Trustee fees and meeting expenses ............................................................... 5,089
Other operating expenses ........................................................................ 9,642
-----------
Total expenses ............................................................................ 194,817
-----------
Less:
Expense reimbursements (note 2) ...................................................... (36,205)
Investment advisory fees waived (note 2) ............................................. (47,197)
Distribution and service fees waived - Investor Class (note 3) ....................... (10,982)
-----------
Net expenses .............................................................................. 100,433
-----------
Net investment loss .................................................................. (4,018)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ....................................................... 864,496
Decrease in unrealized appreciation on investments ................................................... (1,206,312)
-----------
Net realized and unrealized loss on investments ................................................. (341,816)
-----------
Net decrease in net assets resulting from operations ...................................... $ (345,834)
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
The CarolinasFund
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
February 28, February 28,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN NET ASSETS
Operations
Net investment loss ..................................................................... $ (4,018) $ (1,335)
Net realized gain from investment transactions .......................................... 864,496 3,640
(Decrease) increase in unrealized appreciation on investments ........................... (1,206,312) 1,186,197
---------- ----------
Net (decrease) increase in net assets resulting from operations .................... (345,834) 1,188,502
---------- ----------
Distributions to shareholders from
Net realized gain from investment transactions .......................................... (692,322) 0
---------- ----------
Decrease in net assets resulting from distributions ................................ (692,322) 0
---------- ----------
Capital share transactions
(Decrease) increase in net assets resulting from capital share transactions (a) ......... (531,597) 667,382
---------- ----------
Total (decrease) increase in net assets ....................................... (1,569,753) 1,855,884
NET ASSETS
Beginning of year ........................................................................... 5,297,185 3,441,301
---------- ----------
End of year ................................................................................. $ 3,727,432 $ 5,297,185
========== ==========
(a) A summary of capital share activity follows:
Year ended Year ended
February 28, 1999 February 28, 1998
Shares Value Shares Value
----------------- ----------------- ----------------- -----------------
- ------------------------------------------------------
INSTITUTIONAL CLASS
- ------------------------------------------------------
Shares sold 7,615 $ 127,042 18,697 $ 289,131
Shares issued from reinvestment of distributions 13,319 197,642 0 0
Shares redeemed (10,198) (154,777) (7,178) (106,422)
----------------- ----------------- ----------------- -----------------
Net increase 10,736 $ 169,907 11,519 $ 182,709
================= ================= ================= =================
- ------------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------------
Shares sold 39,215 $ 686,284 67,713 $ 977,120
Shares issued from reinvestment of distributions 34,155 493,202 0 0
Shares redeemed (114,228) (1,880,990) (34,329) (492,447)
----------------- ----------------- ----------------- -----------------
Net (decrease) increase (40,858) $ (701,504) 33,384 $ 484,673
================= ================= ================= =================
- ------------------------------------------------------
FUND SUMMARY
- ------------------------------------------------------
Shares sold 46,830 $ 813,326 86,410 $ 1,266,251
Shares issued from reinvestment of distributions 47,474 690,844 0 0
Shares redeemed (124,426) (2,035,767) (41,507) (598,869)
----------------- ----------------- ----------------- -----------------
Net (decrease) increase (30,122) $ (531,597) 44,903 $ 667,382
================= ================= ================= =================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
The CarolinasFund
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INSTITUTIONAL CLASS
For the
period from
May 22, 1995
(commencement
Year ended Year ended Year ended of operations) to
February 28, February 28, February 28, February 29,
1999 1998 1997 1996
----------- ----------- ---------- -----------
Net asset value, beginning of period $17.83 $13.55 $12.57 $10.72
(Loss) income from investment operations
Net investment income 0.05 0.05 0.01 0.02
Net realized and unrealized (loss) gain on investments (1.08) 4.23 0.97 1.88
----------- ----------- ---------- -----------
Total from investment operations (1.03) 4.28 0.98 1.90
----------- ----------- ---------- -----------
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.02)
Net realized gain from investment transactions (2.79) 0.00 0.00 (0.03)
----------- ----------- ---------- -----------
Total distributions (2.79) 0.00 0.00 (0.05)
----------- ----------- ---------- -----------
Net asset value, end of period $14.01 $17.83 $13.55 $12.57
=========== =========== ========== ===========
Total return (a) (6.66)% 31.59 % 7.81 % 17.68 %
=========== =========== ========== ===========
Ratios/supplemental data
Net assets, end of period $1,071,567 $1,172,074 $735,087 $24,576
=========== =========== ========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 3.75 % 3.61 % 4.85 % 8.40 % (b)
After expense reimbursements and waived fees 1.75 % 1.75 % 1.73 % 1.69 % (b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (1.67)% - - (6.07)% (b)
After expense reimbursements and waived fees 0.33 % 0.36 % 0.22 % 0.64 % (b)
Portfolio turnover rate 22.24 % 7.00 % 5.00 % 16.00 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
The CarolinasFund
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INVESTOR CLASS For the
period from
January 3, 1995
(commencement
of operations)
Year ended Year ended Year ended Year ended to
February 28, February 28, February 28, February 29, February 28,
1999 1998 1997 1996 1995
----------- ----------- ----------- ------------ ---------
Net asset value, beginning of period $17.48 $13.36 $12.44 $10.54 $10.00
(Loss) income from investment operations
Net investment (loss) income (0.04) (0.02) (0.02) 0.01 0.04
Net realized and unrealized (loss) gain on investments (1.04) 4.14 0.94 1.95 0.50
----------- ----------- ----------- ------------ ---------
Total from investment operations (1.08) 4.12 0.92 1.96 0.54
----------- ----------- ----------- ------------ ---------
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.03) 0.00
Net realized gain from investment transactions (2.79) 0.00 0.00 (0.03) 0.00
----------- ----------- ----------- ------------ ---------
Total distributions (2.79) 0.00 0.00 (0.06) 0.00
----------- ----------- ----------- ------------ ---------
Net asset value, end of period $13.61 $17.48 $13.36 $12.44 $10.54
=========== =========== =========== ============ =========
Total return (a) (7.11)% 30.84 % 7.41 % 18.59 % 5.40 %
=========== =========== =========== ============ =========
Ratios/supplemental data
Net assets, end of period $2,655,865 $4,125,111 $2,706,214 $1,897,814 $272,383
=========== =========== =========== ============ =========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 4.26 % 4.12 % 5.33 % 9.45 % 37.10 %(b)
After expense reimbursements and waived fees 2.25 % 2.25 % 2.22 % 2.17 % 2.21 %(b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (2.23)% - - (7.21)% (32.27)%(b)
After expense reimbursements and waived fees (0.22)% (0.14)% (0.20)% 0.06 % 2.62 %(b)
Portfolio turnover rate 22.24 % 7.00 % 5.00 % 16.00 % 0.00 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The CarolinasFund (the "Fund") is a diversified, open-end series of
shares of beneficial interest of The Nottingham Investment Trust II
(the "Trust"). The Trust, an open-end investment company, was organized
on October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. Prior to July 1,
1998, the Fund was operating as an open-end series of the Maplewood
Investment Trust. The Board of Trustees of the Maplewood Investment
Trust approved an agreement and plan of reorganization providing for
the transfer of all of the assets and liabilities of the CarolinasFund
to the New CarolinasFund in exchange for shares of the New
CarolinasFund. In connection with the reorganization the New
CarolinasFund shares were distributed to shareholders in liquidation of
the CarolinasFund and the CarolinasFund was terminated. As a result of
the reorganization, the Fund assumed the financial history of the
predecessor fund.
For federal income tax purposes, the reorganization qualified as a
tax-free reorganization with no tax consequences to the predecessor
fund, the Fund, or its shareholders. The holding period and aggregate
tax basis of the New CarolinasFund shares received by a shareholder of
the CarolinasFund will be the same as the holding period and aggregate
tax basis of the shareholder's CarolinasFund shares. The holding period
and tax basis of the assets in the hands of the New CarolinasFund as a
result of the reorganization will be the holding period and tax basis
of those assets in the CarolinasFund's hands immediately prior to the
reorganization.
The investment objective of the Fund is to provide long-term capital
growth by investing primarily in common stocks of publicly traded
companies headquartered in North and South Carolina. Current income is
of secondary importance.
The Fund has an unlimited number of authorized shares, which are
divided into two classes Institutional and Investor Shares. Each class
of shares has equal rights of the assets of the Fund, and the classes
of shares are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Investor Class), and realized and unrealized gains or losses on
investments are allocated to each class of shares based upon its
relative net assets. Investor Shares purchased are subject to a maximum
sales charge of three and one-half percent. Both classes have equal
voting privileges, except where otherwise required by law or when the
Board of Trustees determines that the matter to be voted on affects
only the interests of the shareholders of a particular class. The
following is a summary of significant accounting policies followed by
the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at 4:00 p.m., New York
time. Other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that
date are valued at the most recent bid price. Securities for
which market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The Fund files a tax return annually using tax accounting
methods required under provisions of the Code which may differ
from generally accepted accounting principles, the basis on
which these financial statements are prepared. Accordingly,
the character of distributions to shareholders reported in the
financial highlights may differ from that reported to
shareholders for Federal income tax purposes. Distributions
which exceed net investment income and net realized gains for
financial reporting purposes but not for tax purposes, if any,
are shown as distributions in excess of net investment income
and net realized gains in the accompanying statements.
C. Investment Transactions - Investment transactions are recorded
on trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends
at least annually on a date selected by the Trust's Trustees.
Distributions to shareholders are recorded on the ex-dividend
date. In addition, distributions may be made annually in
December out of net realized gains through October 31 of that
year. The Fund may make a supplemental distribution subsequent
to the end of its fiscal year ending February 28.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results
could differ from those estimates.
F. Risk Factors - The Fund's concentration in companies
headquartered in North and South Carolina generally will tie
the performance of the Fund to the economic environment of the
two states and the surrounding area. There is no assurance
that the demographic and economic characteristics and other
factors that the Advisor believes favor companies in North and
South Carolina will continue in the future.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Morehead Capital Advisors
LLC (the "Advisor"), provides the fund with a continuous program of
supervision of the Fund's assets, including the composition of its
portfolio, and furnishes advice and recommendations with respect to
investments, investment policies, and the purchase and sale of
securities. The Advisor is the same entity serving as investment
advisor since the Fund's inception on January 3, 1995. As compensation
for its services, the Advisor receives a fee at the annual rate of
1.00% of the Fund's average daily net assets.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class and a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class. There can be no
assurance that the foregoing voluntary fee waivers or reimbursements
will continue. The Advisor has voluntarily waived a portion of its fee
amounting to $47,197 ($0.17 per share) and has reimbursed expenses
amounting to $36,205 for the period ended February 28, 1999.
The Fund's administrator, The Nottingham Company (the "Administrator"),
provides administrative services to and is generally responsible for
the overall management and day-to-day operations of the Fund pursuant
to a fund accounting and compliance agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, and 0.125% of average daily
net assets over $100 million. The Administrator also receives a monthly
fee of $2,000 for accounting and record-keeping services for the
initial class of shares and $750 per month for each additional class of
shares. The contract with the Administrator provides that the aggregate
fees for the aforementioned administration, accounting, and
recordkeeping services shall not be less than $4,000 per month. The
Administrator also charges the Fund for certain expenses involved with
the daily valuation of portfolio securities.
The Nottingham Company became the Fund's administrator on July 1, 1998.
Prior to that date, Countrywide Fund Services ("CFS") served as the
Fund's Administrator and received for its services fees at the annual
rate of 0.15% of the Fund's first $50 million of average daily net
assets, 0.125% of the next $50 million, and 0.10% of average daily net
assets over $100 million, subject to a $1,000 minimum monthly fee. CFS
also received a monthly fee of $2,000 for accounting and record-keeping
services for the Fund.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
North Carolina Shareholder Services, LLC became the Fund's transfer
agent on July 1, 1998. Prior to that date, CFS served as the Fund's
transfer agent and received for its services fees based on the number
of shareholder accounts in the Fund, subject to a $2,000 minimum
monthly fee.
Capital Investment Group, Inc. (the "Distributor"), serves as the
Fund's principal underwriter and distributor. The Distributor receives
any sales charges imposed on purchases of Investor Shares and
re-allocates a portion of such charges to dealers through whom the sale
was made, if any. For the period from July 1, 1998, to February 28,
1999, the Distributor retained sales charges in the amount of $610.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 28, 1999
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including the Trustees who are not "interested
persons" of the Trust as defined in the Investment Company Act of 1940
(the "Act"), as amended, adopted a distribution and service plan
pursuant to Rule 12b-1 of the Act (the "Plan") applicable to the
Investor Shares. The Act regulates the manner in which a regulated
investment company may assume costs of distributing and promoting the
sales of its shares and servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain costs, which may not
exceed 0.50% per annum of the Investor Shares' average daily net assets
for each year elapsed subsequent to adoption of the Plan, for payment
to the Distributor and others for items such as advertising expenses,
selling expenses, commissions, travel, or other expenses reasonably
intended to result in sales of Investor Shares in the Fund or support
servicing of Investor Share shareholder accounts. Such expenditures
incurred as service fees may not exceed 0.25% per annum of the Investor
Shares' average daily net assets. The Fund incurred $17,605 of such
expenses under the Plan for the year ended February 28, 1999. The
Distributor has waived a portion of its fee amounting to $10,982.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $993,623 and $1,904,019 respectively, for the year ended
February 28, 1999.
NOTE 5 - DISTRIBUTIONS TO SHAREHOLDERS
For federal income tax purposes, the Fund must report distributions
from net realized gain from investment transactions that represent
long-term capital gain to its shareholders. The total $2.79 per share
distribution for the year ended February 28, 1999 represents long-term
capital gain. Shareholders should consult a tax advisor on how to
report distributions for state and local income tax purposes.
NOTE 6 - DEFERRED ORGANIZATION EXPENSES
Expenses totaling $13,968 incurred in connection with its organization
on January 3, 1995, and the registration of its shares have been
assumed by the Fund.
The organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
The CarolinasFund:
We have audited the accompanying statement of assets and liabilities of The
CarolinasFund, including the schedule of investments, as of February 28, 1999,
and the related statements of operations and changes in net assets, and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended February 28, 1998 and the financial highlights for the four
years in the period ended February 28, 1998 were audited by other auditors,
whose reports thereon dated March 27, 1998 expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of February 28,
1999, by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
CarolinasFund as of February 28, 1999, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
the year then ended in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 19, 1999
<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.^16
(a)(3) Certificate of Establishment and Designation for the WST Growth &
Income Fund Class C Shares.^16
(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.^16
(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.
(j)(1) Consent of Deloitte & Touche LLP, Independent Public Accountants.
(j)(2) Consent of KPMG Peat Marwick, Independent Public Accountants.^16
(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. 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 30th day of April, 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 April 30, 1999 Treasurer
_______________________________________________________________
Julian G. Winters Date
* By: /s/ C. Frank Watson, III Dated: April 30, 1999
_____________________________________________
C. Frank Watson, III
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
(FOR POST-EFFECTIVE AMENDMENT NO. 37)
-------------------------------------
EXHIBIT NO.
UNDER PART C
OF FORM N-1A NAME OF EXHIBIT
- ------------ ---------------
(j)(1) Consent of Deloitte & Touche LLP, Independent Public
Accountants.
(j)(2) Consent of Dechert Price & Rhoads, Legal Counsel
(n) Financial Data Schedule.
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of The Nottingham Investment Trust II and Shareholders
of The CarolinasFund:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 37 to Registration Statement No. 33-37458 of The CarolinasFund (a Series of
the Nottingham Investment Trust II) of our report dated March 19, 1999,
appearing in the Annual Report for the year ended February, 28, 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
April 29, 1999
[letterhead] Law Offices of
DECHERT PRICE & RHOADS
1775 Eye St., N.W.
Washington, DC 20006-2401
Telephone: (202) 261-3300
FAX: (202) 261-3333
April 30, 1999
Nottingham Investment Trust II
107 North Washington Street
Post Office Box 4365
Rocky Mountain, NC 27803-0365
Re: Post-Effective Amendment No. 37 to Registration
Statement on Form N-1A for Nottingham Investment Trust
II ("Trust") (File Nos. 33-37458 and 811-06199
----------------------------------------------
Dear Sirs and Madams:
We hereby consent to the reference to our firm as counsel in
the Trust's Statement of Additional Information contained in the Post-Effective
Amendment No. 37 to the Trust's Registration Statement.
Very truly yours,
Dechert Price & Rhoads
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> Nottingham Investment Trust II
<SERIES>
<NUMBER> 1
<NAME> Investor Shares
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,279,248
<INVESTMENTS-AT-VALUE> 3,716,608
<RECEIVABLES> 9,589
<ASSETS-OTHER> 9,216
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,735,413
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,981
<TOTAL-LIABILITIES> 7,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,171,408
<SHARES-COMMON-STOCK> 195,079
<SHARES-COMMON-PRIOR> 235,937
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 118,664
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 437,360
<NET-ASSETS> 3,727,432
<DIVIDEND-INCOME> 89,186
<INTEREST-INCOME> 7,229
<OTHER-INCOME> 0
<EXPENSES-NET> 100,433
<NET-INVESTMENT-INCOME> (4,018)
<REALIZED-GAINS-CURRENT> 764,496
<APPREC-INCREASE-CURRENT> (1,206,312)
<NET-CHANGE-FROM-OPS> (345,834)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 692,322
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39,215
<NUMBER-OF-SHARES-REDEEMED> 114,228
<SHARES-REINVESTED> 34,155
<NET-CHANGE-IN-ASSETS> (1,569,753)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (49,492)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,197
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194,817
<AVERAGE-NET-ASSETS> 4,719,737
<PER-SHARE-NAV-BEGIN> 17.48
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> (1.04)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.79
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.61
<EXPENSE-RATIO> 2.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000869351
<NAME> Nottingham Investment Trust II
<SERIES>
<NUMBER> 2
<NAME> Institutional Shares
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> FEB-28-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,279,248
<INVESTMENTS-AT-VALUE> 3,716,608
<RECEIVABLES> 9,589
<ASSETS-OTHER> 9,216
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,735,413
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,981
<TOTAL-LIABILITIES> 7,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,171,408
<SHARES-COMMON-STOCK> 76,489
<SHARES-COMMON-PRIOR> 65,753
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 118,664
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 437,360
<NET-ASSETS> 3,727,432
<DIVIDEND-INCOME> 89,186
<INTEREST-INCOME> 7,229
<OTHER-INCOME> 0
<EXPENSES-NET> 100,433
<NET-INVESTMENT-INCOME> (4,018)
<REALIZED-GAINS-CURRENT> 864,496
<APPREC-INCREASE-CURRENT> (1,206,312)
<NET-CHANGE-FROM-OPS> (345,834)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 692,322
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,615
<NUMBER-OF-SHARES-REDEEMED> 10,198
<SHARES-REINVESTED> 13,319
<NET-CHANGE-IN-ASSETS> (1,569,753)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (49,492)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,197
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194,817
<AVERAGE-NET-ASSETS> 4,719,737
<PER-SHARE-NAV-BEGIN> 17.83
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> (1.08)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.79
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.01
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
