________________________________________________________________________________
The CarolinasFund
________________________________________________________________________________
a series of the Nottingham Investment Trust II
Annual Report 2000
FOR THE YEAR ENDED FEBRUARY 29
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
105 N. Washington St. PO Box 4365
Rocky Mount, NC 27803
Phone 800.773.3863 Fax 252.972.1908
Dear CarolinasFund Shareholder;
As previously announced, the management and board of the CarolinasFund have
determined that liquidation of the CarolinasFund is the most prudent course of
action moving forward. Shareholders of the CarolinasFund have received
instructions on the redemption of accounts and transfer options.
Since the inception of The CarolinasFund on January 1, 1995, the North Carolina
and South Carolina economies have continued to prosper; however, the equity
markets have not favored the small to mid-cap companies, which make up the
majority of our portfolio holdings.
This phenomenon was evident in the performance of our benchmark, The Russell
2000 during this time period. During this five-year period, the Russell 2000
only outperformed the Dow once, in calendar year 1997. It should be noted that
The CarolinasFund outpaced the Russell 2000, the Dow, and the NASDAQ that year,
which was our best in terms of absolute and relative performance.
The Dow and The S&P are dominated by relatively few large and super-large cap
stocks, which have continued to advance at an unprecedented pace during this
extended Bull Market. With only fleeting periods of out-performance, small and
mid-cap stocks simply have not participated in the market's meteoric upswing.
Additionally, with nearly one-third of our portfolio concentrated in NC/SC
financial stocks, our performance lagged the broad market indices, particularly
recently when interest rate and profitability concerns have penalized this
sector severely. The Fund's lack of investment success translated into an
inability to attract new assets, the result of which has been an asset base,
which is insufficient to cover the fixed operating costs of the fund.
Since the fund's inception, the management group has subsidized the operating
costs to limit the expenses charged to shareholders. In spite of repeated and
continuous efforts, the asset base simply has not increased, leaving the
prospect of an unlimited stream of future subsidies to the CarolinasFund.
Management of the CarolinasFund appreciates your loyalty and support over the
course of your investment in the fund, and regrets that this venture was not
able to continue longer into our region's future or into a market which would
favor the small to mid-cap stocks, which populate this area.
<PAGE>
The CarolinasFund
INSTITUTIONAL SHARES
Performance Update - $10,000 Investment
For the period from May 22, 1995 (Commencement
of Operations) to February 29, 2000
[Line Graph Here]:
- --------------------------------------------------------------------------------
Institutional S&P 500 Russell 2000
Shares Total Return 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
5/31/99 16,441 26,796 17,095
8/31/99 15,225 27,264 16,731
11/30/99 14,590 28,768 17,826
2/29/00 14,754 28,384 22,745
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 Returns
- -----------------------------------------------------------------
One Year Three Years Since Inception
- -----------------------------------------------------------------
(5.31)% 5.15% 8.50%
- -----------------------------------------------------------------
The graph assumes an initial $10,000 investment at May 22, 1995. All dividends
and distributions are reinvested.
At February 29, 2000, the Institutional Shares of The CarolinasFund would have
grown to $14,754 - total investment return of 47.54% since May 22, 1995.
At February 29, 2000, a similar investment in the Russell 2000 Index would have
grown to $22,745 - total investment return of 127.45%; and the S&P 500 Total
Return Index would have grown to $28,384 - total investment return of 183.84%
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 29, 2000
[Line Graph Here]:
- --------------------------------------------------------------------------------
Investor S&P 500 Russell 2000
Shares Total Return Index Index
- --------------------------------------------------------------------------------
01/03/1995 9,650.00 10,000.00 10,000.00
02/28/1995 10,171.00 10,663.00 10,377.00
05/31/1995 10,432.00 11,752.00 10,942.00
08/31/1995 11,516.00 12,455.00 12,404.00
11/30/1995 11,671.00 13,502.00 12,583.00
02/29/1996 12,066.00 14,362.00 13,297.00
05/31/1996 12,628.00 15,094.00 14,863.00
08/31/1996 12,124.00 14,788.00 13,769.00
11/30/1996 12,764.00 17,217.00 14,661.00
02/28/1997 12,959.00 18,120.00 14,964.00
05/31/1997 13,202.00 19,534.00 15,892.00
08/31/1997 14,579.00 20,799.00 17,732.00
11/30/1997 15,423.00 22,187.00 18,057.00
02/28/1998 16,956.00 24,463.00 19,459.00
05/31/1998 17,092.00 25,528.00 19,294.00
08/31/1998 14,288.00 22,482.00 14,324.00
11/30/1998 16,481.00 27,436.00 16,914.00
02/28/1999 15,750.00 29,291.00 16,736.00
05/31/1999 16,607.00 30,896.00 18,789.00
08/31/1999 15,380.00 31,436.00 18,388.00
11/30/1999 14,720.00 33,169.00 19,592.00
02/29/2000 14,895.00 32,727.00 24,999.00
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 Returns
- -----------------------------------------------------------------------------
One Year Five Years Since Inception
- -----------------------------------------------------------------------------
No Sales Load (5.43)% 7.92% 8.78%
- -----------------------------------------------------------------------------
with 3.50% Sales Load (8.74)% 7.15% 8.03%
- -----------------------------------------------------------------------------
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 29, 2000, the Investor Shares of The CarolinasFund would have grown
to $14,895 - total investment return of 48.95% since January 3, 1995. Without
the deduction of the 3.50% maximum sales load, the Investor Shares of The
CarolinasFund would have grown to $15,436 - total investment return of 54.36%
since January 3, 1995. The sales load may be reduced or eliminated for larger
purchases.
At February 29, 2000, a similar investment in the Russell 2000 Index would have
grown to $24,999 - total investment return of 149.99%; and the S&P 500 Total
Return Index would have grown to $32,727 - total investment return of 227.27%,
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.
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The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 29, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 94.76%
Beverages - 1.33%
Coca-Cola Bottling Co. ................................................... 600 $ 30,281
--------
Building Materials - 2.52%
Lowe's Companies, Inc. ................................................... 1,200 57,300
--------
Computer Software & Services - 0.69%
(a)Policy Management Systems Corporation .................................... 1,775 15,753
--------
Diversified Operations - 2.29%
Ruddick Corporation ...................................................... 3,900 52,163
--------
Electrical Equipment - 7.48%
Duke Energy Corporation .................................................. 1,550 75,078
(a)KEMET Corporation ........................................................ 1,550 95,228
--------
170,306
--------
Electronics - 4.25%
AVX Corporation .......................................................... 1,525 96,837
--------
Electronics - Semiconductor - 9.08%
(a)Cree, Inc. ............................................................... 1,100 206,663
--------
Entertainment - 2.26%
(a)Speedway Motorsports, Inc. ............................................... 1,680 51,555
--------
Financial - Banks, Commercial - 21.09%
Bank of America Corporation .............................................. 1,500 69,094
BB&T Corporation ......................................................... 2,774 64,484
Carolina First Corporation ............................................... 1,800 28,575
Centura Banks, Inc. ...................................................... 2,260 80,371
CCB Financial Corporation ................................................ 1,440 53,370
First Citizens BancShares, Inc. .......................................... 675 43,538
First Charter Corporation ................................................ 2,100 28,613
First Union Corporation .................................................. 2,000 59,000
Wachovia Corporation ..................................................... 925 52,898
--------
479,943
--------
Financial Services - 0.44%
Resource Bancshares Mortgage Group, Inc. ................................. 2,745 10,122
--------
Forest Products & Paper - 3.24%
Bowater Incorporated ..................................................... 1,500 73,781
--------
(Continued)
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The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 29, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Industrial Materials - Specialty - 2.49%
Martin Marietta Materials, Inc. ...................................... 1,600 $ 56,800
--------
Insurance - Life & Health - 4.17%
Jefferson-Pilot Corporation .......................................... 975 50,639
The Liberty Corporation .............................................. 1,320 44,385
--------
95,024
--------
Iron & Steel - 3.16%
Nucor Corporation .................................................... 1,450 71,956
--------
Machine - Diversified - 2.02%
United Dominion Industries Limited ................................... 2,500 46,094
--------
Manufactured Housing - 0.60%
Oakwood Homes Corporation ............................................ 5,200 13,650
--------
Packaging & Containers - 2.21%
Sonoco Products Company .............................................. 2,728 50,298
--------
Real Estate Investment Trust - 1.92%
Summit Properties Inc. ............................................... 2,300 43,700
--------
Restaurants & Food Service - 2.10%
(a)Ryan's Family Steak Houses, Inc. ..................................... 5,000 47,813
--------
Retail - General Merchandise - 2.40%
Family Dollar Stores, Inc. ........................................... 3,150 54,731
--------
Telecommunications Equipment - 5.04%
(a)RF Micro Devices, Inc. ............................................... 830 114,799
--------
Textiles - 3.71%
Collins & Aikman Corporation ......................................... 4,000 20,250
Springs Industries, Inc. ............................................. 900 31,894
(a)Unifi, Inc. .......................................................... 3,350 32,034
--------
84,178
--------
Utilities - Electric - 7.94%
Carolina Power & Light Company ....................................... 2,000 59,375
SCANA Corporation .................................................... 5,099 121,420
--------
180,795
--------
(Continued)
</TABLE>
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<S> <C> <C> <C>
The CarolinasFund
PORTFOLIO OF INVESTMENTS
February 29, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Utilities - Gas - 2.33%
Piedmont Natural Gas Company, Inc. ......................................... 2,150 $ 53,078
----------
Total Common Stocks (Cost $1,882,477) ...................................... 2,157,620
----------
INVESTMENT COMPANIES - 5.98%
Evergreen Money Market Institutional Money
Market Fund Institutional Service Shares ................................... 100,129 100,129
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................... 35,914 35,914
(Cost $136,043) ----------
136,043
----------
Total Value of Investments (Cost $2,018,520 (b)) ....................................... 100.74 % $2,293,663
Liabilities in Excess of Other Assets .................................................. (0.74)% (16,905)
------ ----------
Net Assets ...................................................................... 100.00 % $2,276,758
====== ==========
(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 a follows:
Unrealized appreciation ............................................ $ 585,427
Unrealized depreciation ............................................ (310,284)
---------
Net unrealized appreciation ................................... $ 275,143
=========
See accompanying notes to financial statements
</TABLE>
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<S> <C> <C>
The CarolinasFund
STATEMENT OF ASSETS AND LIABILITIES
February 29, 2000
ASSETS
Investments, at value (cost $2,018,520) ................................................................. $ 2,293,663
Income receivable ....................................................................................... 5,203
Other assets ............................................................................................ 384
-----------
Total assets ....................................................................................... 2,299,250
-----------
LIABILITIES
Accrued expenses ........................................................................................ 22,492
-----------
NET ASSETS .................................................................................................... $ 2,276,758
===========
NET ASSETS CONSIST OF
Paid-in capital ......................................................................................... $ 2,042,101
Undistributed net investment income ..................................................................... 1,827
Accumulated net realized loss on investments ............................................................ (42,313)
Net unrealized appreciation on investments .............................................................. 275,143
-----------
$ 2,276,758
===========
INSTITUTIONAL CLASS
Net asset value, offering and redemption price per share ($1,025,706 / 82,124 shares) ................... $ 12.49
===========
INVESTOR CLASS
Net asset value, offering and redemption price per share ($1,251,052 / 103,408 shares) .................. $ 12.10
===========
Maximum offering price per share (100 - 96.5 of $12.10) ................................................. $ 12.54
===========
See accompanying notes to financial statements
</TABLE>
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The CarolinasFund
STATEMENT OF OPERATIONS
Year ended February 29, 2000
INVESTMENT INCOME
Income
Dividends ......................................................................................... $ 74,948
---------
Expenses
Investment advisory fees (note 2) ................................................................. 31,002
Fund administration fees (note 2) ................................................................. 5,428
Distribution and service fees - Investor class (note 3) ........................................... 10,117
Custody fees ...................................................................................... 3,267
Registration and filing administration fees (note 2) .............................................. 3,689
Fund accounting fees (note 2) ..................................................................... 33,000
Audit fees ........................................................................................ 11,703
Legal fees ........................................................................................ 6,631
Securities pricing fees ........................................................................... 3,512
Shareholder recordkeeping fees .................................................................... 3,000
Other accounting fees (note 2) .................................................................... 8,585
Shareholder servicing expenses .................................................................... 4,200
Registration and filing expenses .................................................................. 5,000
Printing expenses ................................................................................. 3,052
Amortization of deferred organization expenses .................................................... 7,769
Trustee fees and meeting expenses ................................................................. 3,854
Other operating expenses .......................................................................... 4,087
---------
Total expenses ................................................................................ 147,896
---------
Less:
Expense reimbursements (note 2) .......................................................... (17,066)
Investment advisory fees waived (note 2) ................................................. (31,002)
Fund administration fees waived (note 2) ................................................. (3,831)
Distribution and service fees waived - Investor Class (note 3) ........................... (2,689)
Fund accounting fees waived (note 2) ..................................................... (15,977)
Shareholder recordkeeping fees waived (note 2) ........................................... (750)
Other accounting fees waived (note 2) .................................................... (6,949)
---------
Net expenses .................................................................................. 69,632
---------
Net investment income .................................................................... 5,316
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from investment transactions ......................................................... 643
Decrease in unrealized appreciation on investments ..................................................... (162,217)
---------
Net realized and unrealized loss on investments ................................................... (161,574)
---------
Net decrease in net assets resulting from operations .......................................... $(156,258)
=========
See accompanying notes to financial statements
</TABLE>
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The CarolinasFund
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
February 29, February 28,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS
Operations
Net investment income (loss) $ 5,316 $ (4,018)
Net realized gain from investment transactions 643 864,496
Decrease in unrealized appreciation on investments (162,217) (1,206,312)
--------------- ------------------
Net decrease in net assets resulting from operations (156,258) (345,834)
--------------- ------------------
Distributions to shareholders from
Net investment income (3,489) 0
Net realized gain from investment transactions (165,638) (692,322)
--------------- ------------------
Decrease in net assets resulting from distributions (169,127) (692,322)
--------------- ------------------
Capital share transactions
Decrease in net assets resulting from capital share transactions (a) (1,125,289) (531,597)
--------------- ------------------
Total decrease in net assets (1,450,674) (1,569,753)
NET ASSETS
Beginning of year 3,727,432 5,297,185
--------------- ------------------
End of year(including undistributed net investment income $ 2,276,758 $ 3,727,432
of $1,827 at February 29, 2000) =============== ==================
(a) A summary of capital share activity follows:
</TABLE>
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<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Year ended Year ended
February 29, 2000 February 28, 1999
Shares Value Shares Value
--------------------------------------------------------------------------------
- ------------------------------------------------
INSTITUTIONAL CLASS
- ------------------------------------------------
Shares sold 2,224 $ 31,925 7,615 $ 127,042
Shares issued for reinvestment of distributions 4,656 58,275 13,319 197,642
Shares redeemed (1,244) (17,275) (10,198) (154,777)
---------------- ------------------ --------------- ------------------
Net increase 5,636 $ 72,925 10,736 $ 169,907
================ ================== =============== ==================
- ------------------------------------------------
INVESTOR CLASS
- ------------------------------------------------
Shares sold 1,304 $ 17,518 39,215 $ 686,284
Shares issued for reinvestment of distributions 8,861 107,044 34,155 493,202
Shares redeemed (101,837) (1,322,776) (114,228) (1,880,990)
---------------- ------------------ --------------- ------------------
Net decrease (91,672) $ (1,198,214) (40,858) $ (701,504)
================ ================== =============== ==================
- ------------------------------------------------
FUND SUMMARY
- ------------------------------------------------
Shares sold 3,528 $ 49,443 46,830 $ 813,326
Shares issued for reinvestment of distributions 13,517 165,319 47,474 690,844
Shares redeemed (103,081) (1,340,051) (124,426) (2,035,767)
---------------- ------------------ --------------- ------------------
Net decrease (86,036) $ (1,125,289) (30,122) $ (531,597)
================ ================== =============== ==================
See accompanying notes to financial statements
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
The CarolinasFund
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
INSTITUTIONAL CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
February 29, February 28, February 28, February 28, February 29,
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $14.01 $17.83 $13.55 $12.57 $10.72
(Loss) income from investment operations
Net investment income 0.06 0.05 0.05 0.01 0.02
Net realized and unrealized (loss)
gain on investments (0.78) (1.08) 4.23 0.97 1.88
----------- ----------- ----------- ------------ -----------
Total from investment operations (0.72) (1.03) 4.28 0.98 1.90
----------- ----------- ----------- ------------ -----------
Distributions to shareholders from
Net investment income (0.04) 0.00 0.00 0.00 (0.02)
Net realized gain from investment transactions (0.76) (2.79) 0.00 0.00 (0.03)
----------- ----------- ----------- ------------ -----------
Total distributions (0.80) (2.79) 0.00 0.00 (0.05)
----------- ----------- ----------- ------------ -----------
Net asset value, end of year $12.49 $14.01 $17.83 $13.55 $12.57
=========== =========== =========== ============ ===========
Total return (5.31)% (6.66)% 31.59 % 7.81 % 17.68 %
=========== =========== =========== ============ ===========
Ratios/supplemental data
Net assets, end of year $1,025,706 $1,071,567 $1,172,074 $735,087 $24,576
=========== =========== =========== ============ ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 4.47 % 3.75 % 3.61 % 4.85 % 8.40 %
After expense reimbursements and waived fees 2.00 % 1.75 % 1.75 % 1.73 % 1.69 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (2.04)% (1.67)% - - (6.07)%
After expense reimbursements and waived fees 0.43 % 0.33 % 0.36 % 0.22 % 0.64 %
Portfolio turnover rate 8.96 % 22.24 % 7.00 % 5.00 % 16.00 %
See accompanying notes to financial statements (Continued)
</TABLE>
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<S> <C> <C> <C> <C> <C> <C>
The CarolinasFund
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
February 29, February 28, February 28, February 28, February 29,
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $13.61 $17.48 $13.36 $12.44 $10.54
Income (loss) from investment operations
Net investment income (loss) 0.00 (0.04) (0.02) (0.02) 0.01
Net realized and unrealized (loss)
gain on investments (0.75) (1.04) 4.14 0.94 1.95
------------ ------------ ------------ ----------- ------------
Total from investment operations (0.75) (1.08) 4.12 0.92 1.96
------------ ------------ ------------ ----------- ------------
Distributions to shareholders from
Net investment income (0.00) 0.00 0.00 0.00 (0.03)
Net realized gain from investment transactions (0.76) (2.79) 0.00 0.00 (0.03)
------------ ------------ ------------ ----------- ------------
Total distributions (0.76) (2.79) 0.00 0.00 (0.06)
------------ ------------ ------------ ----------- ------------
Net asset value, end of year 12.10 $13.61 $17.48 $13.36 $12.44
============ ============ ============ =========== ============
Total return (a) (5.43)% (7.11)% 30.84 % 7.41 % 18.59 %
============ ============ ============ =========== ============
Ratios/supplemental data
Net assets, end of year $1,251,052 $2,655,865 $4,125,111 $2,706,214 $1,897,814
============ ============ ============ =========== ============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 4.95 % 4.26 % 4.12 % 5.33 % 9.45 %
After expense reimbursements and waived fees 2.38 % 2.25 % 2.25 % 2.22 % 2.17 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (2.53)% (2.23)% - - (7.21)%
After expense reimbursements and waived fees 0.04 % (0.22)% (0.14)% (0.20)% 0.06 %
Portfolio turnover rate 8.96 % 22.24 % 7.00 % 5.00 % 16.00 %
(a) Total return does not reflect payment of a sales charge.
See accompanying notes to financial statements
</TABLE>
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
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 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.
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.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
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 29.
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 first $250 million of
average daily net assets and 0.65% of average daily net assets over $250
million.
The Advisor currently intends to voluntarily waive all or a portion of its
fee and to reimburse expenses of the Fund to limit total Fund operating
expenses to a maximum of 2.00% of the average daily net assets of the
Fund's Institutional Class and a maximum of 2.50% of the average daily net
assets of the Fund's Investor Class. There can be no assurance that the
foregoing voluntary fee waivers or reimbursements will continue. The
Advisor has voluntarily waived a portion of its fee amounting to $31,002
($0.14 per share) and has reimbursed expenses amounting to $17,066 for the
year ended February 29, 2000.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
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, 0.125% of the next $50 million, and 0.10% of average daily net
assets over $150 million. The Administrator also receives a monthly fee of
$2,000 for accounting and record-keeping services for the initial class of
shares and $750 per month for each additional class of shares. The contract
with the Administrator provides that the aggregate fees for the
aforementioned administration, accounting, and recordkeeping services shall
not be less than $4,000 per month. The Administrator also charges the Fund
for certain expenses involved with the daily valuation of portfolio
securities. The Administrator has voluntarily waived a portion of its fees
totaling $27,507 ($0.12 per share) for the year ended February 29, 2000.
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.
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
year ended February 29, 2000, the Distributor retained sales charges in the
amount of $66.
Certain Trustees and officers of the Trust are also officers or directors
of the Advisor, the Distributor, or the Administrator.
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 $10,117 of such expenses under the Plan for
the year ended February 29, 2000. The Distributor has waived a portion of
its fee amounting to $2,689.
(Continued)
<PAGE>
The CarolinasFund
NOTES TO FINANCIAL STATEMENTS
February 29, 2000
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $266,066 and $1,496,359, respectively, for the year ended
February 29, 2000.
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. Of the $0.76 per share distribution for
the year ended February 29, 2000, all should be classified as long-term
capital gains. Shareholders should consult a tax advisor on how to report
distributions for state and local income tax purposes.
NOTE 6 - OTHER MATTERS
On March 20, 2000, the Board of Trustees approved a plan to liquidate the
Fund. The portfolio was liquidated and the Fund paid final income and
capital gain distributions on March 23, 2000. It is the intention of the
Advisor and the Administrator for the Fund to distribute all of its assets
by May 1, 2000.
<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 portfolio of investments, as of February 29, 2000,
and the related statement of operations for the year then ended, the statements
of changes in net assets for the years ended February 29, 2000 and February 28,
1999, and financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
February 29, 2000, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
CarolinasFund as of February 29, 2000, the results of its operations for the
year ended, and the changes in its net assets and the financial highlights for
the respective stated periods, in conformity with generally accepted accounting
principles.
/S/ Deloitte & Touche LLP
Princeton, New Jersey
March 22, 2000
