Cusip Number 66976M102 NASDAQ Symbol CAPVX
________________________________________________________________________________
CAPITAL VALUE FUND
A series of the
Nottingham Investment Trust II
INVESTOR CLASS SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
The Capital Value Fund ("Fund") seeks maximum total return consisting of any
combination of capital appreciation and income. This prospectus relates to the
Investor Class Shares of the Fund. The Fund also offers T Shares, which are
offered by another prospectus.
Investment Advisor
------------------
Capital Investment Counsel, Inc.
17 Glenwood Avenue
Post Office Box 32249
Raleigh, North Carolina 27622
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other agency and are subject to investment risks including
possible loss of principal amount invested. Neither the Fund nor the Fund's
distributor is a bank. You should read the prospectus carefully before you
invest or send money.
<PAGE>
TABLE OF CONTENTS
Page
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THE FUND......................................................................2
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Investment Objective.......................................................2
Principal Investment Strategies............................................2
Principal Risks of Investing in the Fund...................................4
Bar Chart and Performance Table............................................6
Fees and Expenses of the Fund..............................................7
MANAGEMENT OF THE FUND........................................................8
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The Investment Advisor.....................................................8
The Administrator..........................................................9
The Transfer Agent.........................................................9
The Distributor............................................................9
YOUR INVESTMENT IN THE FUND..................................................10
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Minimum Investment........................................................10
Purchase and Redemption Price.............................................10
Purchasing Shares.........................................................11
Redeeming Your Shares.....................................................13
OTHER IMPORTANT INVESTMENT INFORMATION.......................................15
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Dividends, Distributions, and Taxes.......................................15
Financial Highlights......................................................16
Additional Information............................................Back Cover
<PAGE>
THE FUND
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INVESTMENT OBJECTIVE
The Capital Value Fund seeks maximum total return consisting of any combination
of capital appreciation and income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its investment objective by investing in a flexible portfolio
of:
o equity securities,
o fixed income securities, and
o money market instruments.
The capital appreciation portion of the Fund's objective will be achieved by
investing in equity securities. The income portion of the Fund's objective will
be achieved by investing in fixed income securities and money market
instruments.
Capital Investment Counsel, Inc. ("Advisor") will vary the percentage of Fund
assets invested in equity securities, fixed income securities, and money market
instruments depending upon the Advisor's view of:
o market and economic conditions,
o trends in business environment,
o trends in yields and interest rates,
o prospects for particular industries within the overall market
environment, and
o possible changes in fiscal or monetary policy.
Equity Securities. The Advisor seeks to identify equities that are undervalued
in the securities markets. Candidates for such investment will usually include
the equity securities of domestic, established companies whose underlying value
of assets owned by the company, or "break-up value," is close to or greater than
the market valuation of those same assets.
The equity portion of the Fund's portfolio will generally be comprised of common
stocks traded on domestic securities exchanges or on the over-the-counter
market. In determining whether a company is appropriate for inclusion in the
portfolio, the Advisor considers, among other things, such factors as:
o strong asset holdings in cash,
o current market value of real estate,
o favorable debt to asset and debt to equity ratios, and
o strength of management.
In addition to common stocks, the equity portion of the Fund's portfolio may
also include preferred stock, convertible preferred stock, and convertible
bonds.
2
<PAGE>
Fixed Income Securities. The Fund's fixed income investments will include
corporate debt obligations and U.S. Government Securities. The maturity of the
fixed income securities purchased and held by the Fund will depend upon:
o the current and expected trend in interest rates,
o credit quality of the fixed income securities,
o relative attractiveness of fixed income securities
versus equity securities, and
o the overall economic situation, current and expected.
Corporate debt obligations purchased by the Fund will consist of "investment
grade" securities. Investment grade securities will include those securities
that are rated at least "Baa" by Moody's Investors Services Inc. ("Moody's"),
"BBB" by Standard & Poor's Ratings Services ("S&P's"), Fitch Investors Services
Inc., or Duff & Phelps or, if not rated, of equivalent quality in the Advisor's
opinion. While the Advisor utilizes the ratings of the various credit rating
services as one factor in establishing creditworthiness, it relies primarily
upon its own analysis to determine whether an issuer is creditworthy. If a
corporate debt obligation held by the Fund falls below one of the credit ratings
described below and is no longer considered to be "investment grade" by any
credit rating service rating that particular security, the Advisor will
re-evaluate the issuer's credit standing to determine if the investment should
continue to be held by the Fund. If the Advisor determines that the issuer
remains creditworthy, the Advisor may retain the investment for the Fund.
The Advisor will consider a number of factors in determining when to purchase
and sell the investments of the Fund and when to invest for long, intermediate,
or short maturities. Such factors may include:
o money supply growth,
o rate of unemployment,
o changes in consumer, wholesale and producer prices,
o prices of raw materials and commodities,
o industrial prices,
o capital spending statistics,
o Gross National Product ("GNP"),
o industrial production data,
o impact of inflation, or
o attitudes and concerns of key officials in the Federal Reserve and U.S.
Government.
Money Market Instruments. Investments may also be made in money market
instruments under circumstances when the Advisor believes the short-term, stable
nature of money market instruments is the best means of achieving the Fund's
goal of maximum total return. The Advisor may, when it believes that a temporary
or defensive investment approach is appropriate, invest without limitation in
money market instruments.
3
<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 and there can be no assurance that the
Fund will be successful in meeting its objective. Generally, the Fund will be
subject to the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions, and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates will cause the value of fixed income securities to decrease.
The reverse is also true. Consequently, there is the possibility that the
value of the Fund's investment in fixed income securities may fall because
fixed income securities generally fall in value when interest rates rise.
Changes in interest rates may have a significant effect on the Advisor's
decision to hold a significant portion of its assets in fixed income
securities with long-term maturities. The longer the term of a fixed income
instrument, the more sensitive it will be to fluctuations in value due to
interest rate changes.
o Maturity Risk: Maturity risk is another factor that can affect the value of
the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated BBB by S&P's
or Baa by Moody's are considered investment grade securities, but are
somewhat riskier than higher rated investment-grade obligations because
they are regarded as having only an adequate capacity to pay principal and
interest, and are considered to lack outstanding investment characteristics
and may be speculative.
o Junk Bonds or Lower-rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by S&P's or Moody's, respectively, are speculative in
nature and may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than higher rated fixed income
securities. They are usually issued by companies without long track records
of sales and earnings, or by those companies with questionable credit
strength. These fixed income securities are considered "below
investment-grade." The retail secondary market for these "junk bonds" may
be less liquid than that of higher-rated securities and adverse conditions
could make it difficult at times to sell certain securities or could result
in lower prices than those used in calculating the Fund's net asset value.
4
<PAGE>
o Foreign Securities: The Fund may invest up to 10% of its total assets in
foreign securities. Because investment in foreign securities presents
special circumstances not typically associated with investment in domestic
securities that may reduce the value of these securities, such as:
additional foreign taxes on dividends; currency exchange rate fluctuations;
at times, less volume and liquidity in the markets for these securities;
unfavorable differences between U.S. and foreign economies and government
regulations; and possible additional U.S. governmental regulations and
taxation's imposed on foreign investment. Also, there may be difficulty in
obtaining accurate information regarding individual securities due to lack
of uniform accounting, auditing and financial reporting standards by
foreign countries; less public information; and less regulation of foreign
issuers. Additionally, some countries have been known to expropriate or
nationalize assets; and foreign investments may be subject to political,
financial or social instability or adverse diplomatic developments. Because
of some of these additional risks of foreign securities, the Fund will
generally limit foreign investments to those traded domestically as
American Depository Receipts ("ADRs"). ADRs are receipts issued by a U.S.
bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade
in the over-the-counter market. The prices of ADRs are denominated in U.S.
dollars while the underlying security may be denominated in a foreign
currency.
5
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in 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, five years, and since
inception compare to those of broad-based securities market indices. How the
Fund has performed in the past is not necessarily an indication of how the Fund
may perform in the future.
[BAR CHART HERE]:
Investor Class Shares
Year to Year Total Returns (as of December 31)
1992 5.27%
1993 10.79%
1994 0.95%
1995 21.47%
1996 9.87%
1997 21.44%
1998 21.32%
1999 36.41%
o During the 8-year period shown in the bar chart above, the highest return for
a calendar quarter was 30.75% (quarter ended December 31, 1999).
o During the 8-year period shown in the bar chart above, the lowest return for
a calendar quarter was -4.79% (quarter ended September 30, 1998).
o The year-to-date return as of the most recent calendar quarter was -8.63%
(quarter ended June 30, 2000).
o Sales loads are not reflected in the chart above. If these amounts were
reflected, returns would be less than those shown.
----------------------------------------- ------------ ------------ ------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1999* Year Years Inception**
----------------------------------------- ------------ ------------ ------------
Capital Value Fund Investor Class Shares 31.63% 20.94% 14.93%
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S&P 500 Total Return Index*** 21.04% 28.54% 19.69%
----------------------------------------- ------------ ------------ ------------
Lehman Brothers Aggregate Bond Index**** -0.82% 7.73% 6.54%
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* The maximum sales load is reflected in the table above.
** December 31, 1991, for the Investor Class Shares.
*** The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
**** The Lehman Brothers Aggregate Bond Index represents an unmanaged group of
securities widely regarded by investors as representative of the bond
market.
6
<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 For Investor Class Shares
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) .....................3.50%
Redemption fee .............................................None
Annual Fund Operating Expenses For Investor Class Shares
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees.............................................0.60%
Distribution and/or Service (12b-1) Fees....................0.50%
Other Expenses..............................................0.85%
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Total Annual Fund Operating Expenses.....................1.95%*
====
* "Total Annual Fund Operating Expenses" are based upon actual expenses
incurred by the Investor Class Shares of the Fund for the fiscal year ended
March 31, 2000.
Example. The Example below shows you the expenses you may pay over time by
investing in the Investor Class Shares of the Fund. Since all funds use the same
hypothetical conditions, it should help you compare the costs of investing in
the Fund versus other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
---------------------- ------------ ------------ ------------ ------------
Period Invested 1 Year 3 Years 5 Years 10 Years
---------------------- ------------ ------------ ------------ ------------
Your Costs $541 $941 $1,365 $2,545
---------------------- ------------ ------------ ------------ ------------
7
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
The Fund's Investment Advisor is Capital Investment Counsel, Inc., 17 Glenwood
Avenue, Post Office Box 32249, Raleigh, North Carolina 27622. Pursuant to an
investment advisory agreement with the Nottingham Investment Trust II ("Trust"),
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 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, organized as a North Carolina corporation in 1984, is controlled by
Richard K. Bryant and E.O. Edgerton, Jr. They also control the Fund's
distributor, Capital Investment Group, Inc. ("Distributor"). The Advisor
currently serves as investment advisor to over $130 million in assets. The
Advisor has been rendering investment counsel, utilizing investment strategies
substantially similar to that of the Fund, to individuals, banks and thrift
institutions, pension and profit sharing plans, trusts, estates, charitable
organizations, corporations, and other business and individual accounts since
its formation.
E.O. Edgerton, Jr., a principal of the Advisor and an officer of the Fund, and
W. Harold Eddins, a Portfolio Manager of the Advisor, are responsible for
day-to-day management of the Fund's portfolio. Mr. Edgerton has served in this
capacity since the inception of the Fund in 1990, while Mr. Eddins has served in
such capacity since May, 1997. Messrs. Edgerton and Eddins have been with the
Advisor since 1984 and 1987, respectively.
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Fund, the Fund pays the Advisor monthly compensation
based on the Fund's daily average net assets at the annual rate of 0.60% of the
first $250 million of the Fund's net assets and 0.50% of all assets over $250
million. As a result, during the most recent fiscal year ending March 31, 2000,
advisory fees paid to the Advisor by the Fund as a percentage of average net
assets were 0.60%.
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers. Certain securities
trades will be cleared through Capital Investment Group, Inc., a registered
broker-dealer affiliate of the Advisor and distributor of the Fund's shares.
The Investment Company Act of 1940, as amended ("1940 Act"), generally prohibits
the Fund from engaging in principal securities transactions with an affiliate of
the Advisor. Thus, the 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 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.
8
<PAGE>
THE ADMINISTRATOR
The Nottingham Company, Inc. ("Administrator") serves as the Fund's
administrator and fund accounting agent for the Fund. The Administrator assists
the Trust 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 Fund pursuant
to a Fund Accounting and Compliance Administration Agreement.
THE TRANSFER AGENT
NC Shareholder Services, LLC ("NCSS") serves as the Fund's transfer agent and
dividend disbursing agent of the Fund. As indicated later in the section of this
Prospectus, "Your Investment in the Fund," NCSS 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 Fund pursuant to
a Dividend Disbursing and Transfer Agent Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. 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 affiliate of the 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 Class Shares of the Fund,
the Fund has adopted a Distribution Plan in accordance with Rule 12b-1 under the
1940 Act ("Distribution Plan"). Pursuant to the Distribution Plan, the Fund
compensates the Distributor for services rendered and expenses borne in
connection with activities primarily intended to result in the sale of the
Fund's Investor Class 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 Class Shares for activities
primarily intended to result in the sale of those shares or servicing of
shareholders investing in those shares, including to reimburse entities for
providing distribution and shareholder servicing with respect to the Fund's
Investor Class 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 Class Shares and T Shares of the Fund, 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.
9
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YOUR INVESTMENT IN THE FUND
---------------------------
Other Class of Shares. The Fund has two classes of shares: Investor Class Shares
and T Shares available for investment. Both classes of shares are invested in
the same portfolio of securities. The only difference between the two classes of
shares is that the Investor Class Shares are subject to a front-end sales load
but lower Rule 12b-1 fees and expenses than the T Shares. The T Shares have no
front-end sales load but higher Rule 12b-1 fees and expenses.
MINIMUM INVESTMENT
Investor Class Shares are sold subject to a sales charge of 3.50%, so that the
term "offering price" includes the front-end sales load. Shares are redeemed at
net asset value.
All shares may be purchased by any account managed by the Advisor and any
broker-dealer authorized to sell Fund shares. The minimum initial investment is
$5,000 ($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 $500. The Fund may, in the Advisor's sole discretion,
waive such minimum investment amounts.
PURCHASE AND REDEMPTION PRICE
Sales Charges. The public offering price of Investor Class Shares of the Fund
equals net asset value plus a sales charge. The Distributor receives this sales
charge and may reallow it in the form of dealer discounts and brokerage
commissions as follows:
<TABLE>
<S> <C> <C> <C>
------------------------------------- ---------------------- ------------------- -------------------------------
Sales Charge Sales Dealers Discounts and
Amount of Transactions At Charge As % of Net As % of Public Brokerage Commissions as
Public Offering Price Amount Invested Offering 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 but less than $1,000,000 2.04% 2.00% 1.50%
------------------------------------- ---------------------- ------------------- -------------------------------
$1,000,000 or more 1.01% 1.00% 0.50%
------------------------------------- ---------------------- ------------------- -------------------------------
</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 for that class
of shares after an order is accepted in good form. An order is considered to be
in good form if it includes a complete and accurate application and payment in
full of the purchase amount. The net asset value for each class of shares is
calculated by dividing the value of the total assets, less liabilities
(including expenses, which are accrued daily) applicable to that class of
shares, by the total number of outstanding shares of that class. The net asset
value for each class of shares is normally determined at the time regular
trading closes on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
Eastern time, Monday through Friday, except on business holidays when the NYSE
is closed.
10
<PAGE>
Other Matters Affecting Purchases and Redemptions. Sales 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 tenders. 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 Securities and
Exchange Commission ("SEC") or if the SEC declares that an emergency exists.
Redemptions may also be suspended during other periods permitted by the SEC for
the protection of the Fund's shareholders. Additionally, during drastic economic
and market changes, telephone redemption privileges may be difficult to
implement. Also, if the Trustees determine that it would be detrimental to the
best interest of the Fund's remaining shareholders to make payment in cash, the
Fund may pay redemption proceeds in whole or in part by a distribution-in-kind
of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "Capital
Value Fund," to:
Capital Value Fund
Investor Class Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
The application must contain your Social Security Number ("SSN") or Taxpayer
Identification Number ("TIN"). If you have applied for a SSN 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 SSN
and 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 1-800-525-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the Capital Value Fund Investor Class Shares
Acct. # 2000000862110
For further credit to (shareholder's name and SSN 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 $500. Before adding funds
by bank wire, please call the Fund at 1-800-525-3863 and follow the above
directions for wire purchases. Mail orders should include, if possible, the
"Invest by Mail" stub that is attached to your fund confirmation statement.
Otherwise, please identify your account in a letter accompanying your purchase
payment.
11
<PAGE>
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-525-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the 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.
Exchange Feature. You may exchange Investor Class Shares of the Fund for
Investor Class Shares of any other series of the Trust advised by the Fund's
Advisor and offered for sale in the state in which you reside. Prior to making
an investment decision or giving the Fund your instructions to exchange shares,
please read the prospectus for the series in which you wish to invest. 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.
Frequent Trading. 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.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
Reduced Sales Charges
Concurrent Purchases. For purposes of qualifying for a lower sales charge for
Investor Class Shares, investors have the privilege of combining concurrent
purchases of the Fund and any other series of the Trust affiliated with 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 $50,000, and
Investor Class Shares in the Fund at the total public offering price of $50,000,
the sales charge would be that applicable to a $100,000 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. 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
Fund shares with an aggregate value of $50,000 and who currently owns shares of
the Funds with a value of $200,000 would pay a sales charge of 2.50% of the
offering price on the new investment.
12
<PAGE>
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" procedures, 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.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
Capital Value Fund
Investor Class Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
(1) Your letter of instruction specifying the account number and number
of shares, or the dollar amount, to be redeemed. This request must
be signed by all registered shareholders in the exact names in which
they are registered;
(2) Any required signature guarantees (see "Signature Guarantees"
below); and
(3) Other supporting legal documents, if required in the case of
estates, trusts, guardianships, custodianships, corporations,
partnerships, pension or profit sharing plans, and other
organizations.
Your redemption proceeds normally will be sent to you within 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.
13
<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),
(2) Shareholder name and account number,
(3) Number of shares or dollar amount to be redeemed,
(4) Instructions for transmittal of redemption funds to the shareholder, and
(5) Shareholder signature as it appears on the application then on file with
the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-525-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the 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.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$10,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Share Application form.
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.
14
<PAGE>
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 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.
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 Statement of Additional Information
("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 between
different series of the Trust may be treated as a sale and may be subject to
federal income taxes.
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.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the Fund. The financial data for the fiscal years ended
March 31, 2000, 1999, 1998, and 1997 have been audited by Deloitte & Touche LLP,
independent auditors, whose report covering such periods is incorporated by
reference into the SAI. The financial data for the fiscal year ended March 31,
1996 were audited by other independent auditors. This information should be read
in conjunction with the Fund's latest audited annual financial statements and
notes thereto, which are also incorporated by reference into the SAI, 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 at
1-800-525-3863.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investor Class Shares
---------------------
(For a Share Outstanding Throughout each Year)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......................... $15.32 $14.51 $12.50 $11.92 $10.75
Income from investment operations
Net investment income ........................... 0.01 0.06 0.13 0.15 0.19
Net realized and unrealized gain on investments 6.99 2.02 3.93 0.70 1.53
----------- ----------- ----------- ----------- -----------
Total from investment operations ........... 7.00 2.08 4.06 0.85 1.72
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ........................... (0.01) (0.06) (0.13) (0.15) (0.20)
Tax return of capital ........................... 0.00 0.00 0.00 (0.01) 0.00
Net realized gain from investment transactions .. (1.33) (1.21) (1.92) (0.11) (0.35)
----------- ----------- ----------- ----------- -----------
Total distributions ........................ (1.34) (1.27) (2.05) (0.27) (0.55)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ............................... $20.98 $15.32 $14.51 $12.50 $11.92
=========== =========== =========== =========== ===========
Total return (a)............................................ 46.68 % 14.67 % 32.89 % 7.08 % 16.16 %
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year .............................. $16,487,247 $11,056,274 $ 9,888,068 $ 7,738,255 $ 7,551,803
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ... 1.95 % 2.15 % 2.12 % 2.38 % 2.56 %
After expense reimbursements and waived fees .... 1.95 % 2.15 % 2.12 % 2.38 % 2.33 %
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees ... 0.06 % 0.40 % 0.91 % 1.12 % 1.44 %
After expense reimbursements and waived fees .... 0.06 % 0.40 % 0.91 % 1.12 % 1.66 %
Portfolio turnover rate .............................. 34.93 % 70.65 % 33.50 % 7.31 % 12.33 %
(a) Does not reflect the current maximum sales load of 3.5%, which was 4.5% prior to August 1, 1995.
</TABLE>
16
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
CAPITAL VALUE FUND
INVESTOR CLASS SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's SAI. Additional
information about the Fund's investments is also available in the Fund's Annual
and Semi-annual Reports to shareholders. The Fund's Annual Report includes a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
The SAI and the Annual and Semi-annual Reports are available free of charge upon
request (you may also request other information about the Fund or make
shareholder inquiries) by contacting us:
By telephone: 1-800-525-3863
By mail: Capital Value Fund
Investor Class Shares
c/o NC Shareholder Services
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 1-202-942-8090. 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 electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act file number 811-06199
<PAGE>
_______________________________________________________________________________
CAPITAL VALUE FUND
INVESTOR CLASS SHARES
________________________________________________________________________________
[logo here]
PROSPECTUS
August 1, 2000
<PAGE>
Cusip Number 66976M789
________________________________________________________________________________
CAPITAL VALUE FUND
A series of the
Nottingham Investment Trust II
T SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
The Capital Value Fund ("Fund") seeks maximum total return consisting of any
combination of capital appreciation and income. This prospectus relates to the T
Shares of the Fund. The Fund also offers Investor Class Shares, which are
offered by another prospectus.
Investment Advisor
------------------
Capital Investment Counsel, Inc.
17 Glenwood Avenue
Post Office Box 32249
Raleigh, North Carolina 27622
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other agency and are subject to investment risks including
possible loss of principal amount invested. Neither the Fund nor the Fund's
distributor is a bank. You should read the prospectus carefully before you
invest or send money.
<PAGE>
TABLE OF CONTENTS
Page
THE FUND......................................................................2
--------
Investment Objective.......................................................2
Principal Investment Strategies............................................2
Principal Risks of Investing in the Fund...................................4
Bar Chart and Performance Table............................................5
Fees and Expenses of the Fund..............................................7
MANAGEMENT OF THE FUND........................................................8
----------------------
The Investment Advisor.....................................................8
The Administrator..........................................................9
The Transfer Agent.........................................................9
The Distributor............................................................9
YOUR INVESTMENT IN THE FUND..................................................10
---------------------------
Minimum Investment........................................................10
Purchase and Redemption Price.............................................10
Purchasing Shares.........................................................11
Redeeming Your Shares.....................................................12
OTHER IMPORTANT INVESTMENT INFORMATION.......................................14
--------------------------------------
Dividends, Distributions, and Taxes.......................................14
Financial Highlights......................................................15
Additional Information............................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The Capital Value Fund seeks maximum total return consisting of any combination
of capital appreciation and income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund pursues its investment objective by investing in a flexible portfolio
of:
o equity securities,
o fixed income securities, and
o money market instruments.
The capital appreciation portion of the Fund's objective will be achieved by
investing in equity securities. The income portion of the Fund's objective will
be achieved by investing in fixed income securities and money market
instruments.
Capital Investment Counsel, Inc. ("Advisor") will vary the percentage of Fund
assets invested in equity securities, fixed income securities, and money market
instruments depending upon the Advisor's view of:
o market and economic conditions,
o trends in business environment,
o trends in yields and interest rates,
o prospects for particular industries within the overall market
environment, and
o possible changes in fiscal or monetary policy.
Equity Securities. The Advisor seeks to identify equities that are undervalued
in the securities markets. Candidates for such investment will usually include
the equity securities of domestic, established companies whose underlying value
of assets owned by the company, or "break-up value," is close to or greater than
the market valuation of those same assets.
The equity portion of the Fund's portfolio will generally be comprised of common
stocks traded on domestic securities exchanges or on the over-the-counter
market. In determining whether a company is appropriate for inclusion in the
portfolio, the Advisor considers, among other things, such factors as:
o strong asset holdings in cash,
o current market value of real estate,
o favorable debt to asset and debt to equity ratios, and
o strength of management.
In addition to common stocks, the equity portion of the Fund's portfolio may
also include preferred stock, convertible preferred stock, and convertible
bonds.
2
<PAGE>
Fixed Income Securities. The Fund's fixed income investments will include
corporate debt obligations and U.S. Government Securities. The maturity of the
fixed income securities purchased and held by the Fund will depend upon:
o the current and expected trend in interest rates,
o credit quality of the fixed income securities,
o relative attractiveness of fixed income securities versus
equity securities, and
o the overall economic situation, current and expected.
Corporate debt obligations purchased by the Fund will consist of "investment
grade" securities. Investment grade securities will include those securities
that are rated at least "Baa" by Moody's Investors Services Inc. ("Moody's"),
"BBB" by Standard & Poor's Ratings Services ("S&P's"), Fitch Investors Services
Inc., or Duff & Phelps or, if not rated, of equivalent quality in the Advisor's
opinion. While the Advisor utilizes the ratings of the various credit rating
services as one factor in establishing creditworthiness, it relies primarily
upon its own analysis to determine whether an issuer is creditworthy. If a
corporate debt obligation held by the Fund falls below one of the credit ratings
described below and is no longer considered to be "investment grade" by any
credit rating service rating that particular security, the Advisor will
re-evaluate the issuer's credit standing to determine if the investment should
continue to be held by the Fund. If the Advisor determines that the issuer
remains creditworthy, the Advisor may retain the investment for the Fund.
The Advisor will consider a number of factors in determining when to purchase
and sell the investments of the Fund and when to invest for long, intermediate,
or short maturities. Such factors may include:
o money supply growth,
o rate of unemployment,
o changes in consumer, wholesale and producer prices,
o prices of raw materials and commodities,
o industrial prices,
o capital spending statistics,
o Gross National Product ("GNP"),
o industrial production data,
o impact of inflation, or
o attitudes and concerns of key officials in the Federal Reserve and U.S.
Government.
Money Market Instruments. Investments may also be made in money market
instruments under circumstances when the Advisor believes the short-term, stable
nature of money market instruments is the best means of achieving the Fund's
goal of maximum total return. The Advisor may, when it believes that a temporary
or defensive investment approach is appropriate, invest without limitation in
money market instruments.
3
<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, and there can be no assurance that the
Fund will be successful in meeting its objective. Generally, the Fund will be
subject to the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's 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.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates will cause the value of fixed income securities to decrease.
The reverse is also true. Consequently, there is the possibility that the
value of the Fund's investment in fixed income securities may fall because
fixed income securities generally fall in value when interest rates rise.
Changes in interest rates may have a significant effect on the Advisor's
decision to hold a significant portion of its assets in fixed income
securities with long-term maturities. The longer the term of a fixed income
instrument, the more sensitive it will be to fluctuations in value due to
interest rate changes.
o Maturity Risk: Maturity risk is another factor that can affect the value of
the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated BBB by S&P's
or Baa by Moody's are considered investment grade securities, but are
somewhat riskier than higher rated investment-grade obligations because
they are regarded as having only an adequate capacity to pay principal and
interest, and are considered to lack outstanding investment characteristics
and may be speculative.
o Junk Bonds or Lower-rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by S&P's or Moody's, respectively, are speculative in
nature and may be subject to certain risks with respect to the issuing
entity and to greater market fluctuations than higher rated fixed income
securities. They are usually issued by companies without long track records
of sales and earnings, or by those companies with questionable credit
strength. These fixed income securities are considered "below
investment-grade." The retail secondary market for these "junk bonds" may
be less liquid than that of higher-rated securities and adverse conditions
could make it difficult at times to sell certain securities or could result
in lower prices than those used in calculating the Fund's net asset value.
4
<PAGE>
o Foreign Securities: The Fund may invest up to 10% of its total assets in
foreign securities. Because investment in foreign securities presents
special circumstances not typically associated with investment in domestic
securities that may reduce the value of these securities, such as:
additional foreign taxes on dividends; currency exchange rate fluctuations;
at times, less volume and liquidity in the markets for these securities;
unfavorable differences between U.S. and foreign economies and government
regulations; and possible additional U.S. governmental regulations and
taxations imposed on foreign investment. Also, there may be difficulty in
obtaining accurate information regarding individual securities due to lack
of uniform accounting, auditing and financial reporting standards by
foreign countries; less public information; and less regulation of foreign
issuers. Additionally, some countries have been known to expropriate or
nationalize assets; and foreign investments may be subject to political,
financial or social instability or adverse diplomatic developments. Because
of some of these additional risks of foreign securities, the Fund will
generally limit foreign investments to those traded domestically as
American Depository Receipts ("ADRs"). ADRs are receipts issued by a U.S.
bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade
in the over-the-counter market. The prices of ADRs are denominated in U.S.
dollars while the underlying security may be denominated in a foreign
currency.
BAR CHART AND PERFORMANCE TABLE^1
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing (on a calendar year basis) changes in the
annual total returns for the Fund's Investor Class Shares from year to year and
by showing (on a calendar year basis) how the average annual returns for the
Fund's Investor Class Shares for one year, five years, and since inception
compare to returns of a broad-based securities index. How the Fund has performed
in the past is not necessarily an indication of how the Fund may perform in the
future.
[BAR CHART HERE]:
Investor Class Shares
Year to Year Total Returns (as of December 31)
1992 5.27%
1993 10.79%
1994 0.95%
1995 21.47%
1996 9.87%
1997 21.44%
1998 21.32%
1999 36.41%
5
<PAGE>
o During the 8-year period shown in the bar chart above, the highest return for
a calendar quarter was 30.75% (quarter ended December 31, 1999).
o During the 8-year period shown in the bar chart above, the lowest return for
a calendar quarter was -4.79% (quarter ended September 30, 1998).
o The year-to-date return as of the most recent calendar quarter was -8.63%
(quarter ended June 30, 2000).
o Sales loads are not reflected in the chart above or table below, since they
are not applicable to the T Shares.
----------------------------------------- ------------ ------------ ------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1999* Year Years Inception**
----------------------------------------- ------------ ------------ ------------
Capital Value Fund Investor Class Shares 31.63% 20.94% 14.93%
----------------------------------------- ------------ ------------ ------------
S&P 500 Total Return Index*** 21.04% 28.54% 19.69%
----------------------------------------- ------------ ------------ ------------
Lehman Brothers Aggregate Bond Index**** -0.82% 7.73% 6.54%
----------------------------------------- ------------ ------------ ------------
* The maximum sales load of 3.50% for the Investor Class Shares is not
reflected in the table above, since it is not applicable to the T Shares.
** December 31, 1991, for the Investor Class Shares.
*** The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
**** The Lehman Brothers Aggregate Bond Index represents an unmanaged group of
securities widely regarded by investors as representative of the bond
market.
1 The performance information presented above is based upon the
average annual total returns of the Investor Class Shares, without
the sales load to reflect the fact that the T Shares do not charge
a sales load. That performance information has been used for this
purpose since the T Shares are a new class of shares that have no
performance history. However, the annual returns for both classes
are expected to be substantially similar because both classes of
shares are invested in the same portfolio of securities and the
annual returns would differ only to the extent that the classes do
not have the same fees and expenses.
6
<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 For T Shares
(fees paid directly from your investment)
-----------------------------------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) ..........................None
Redemption fee .................................................None
Annual Fund Operating Expenses For T Shares
(expenses that are deducted from Fund assets)
---------------------------------------------
Management Fees.................................................0.60%
Distribution and/or Service (12b-1) Fees........................0.75%
Other Expenses..................................................0.85%
----
Total Annual Fund Operating Expenses.........................2.20%*
====
* "Total Annual Fund Operating Expenses" are based upon
actual expenses incurred by the Investor Class Shares of
the Fund for the fiscal year ended March 31, 2000,
adjusted to reflect the fees and expenses of the T Shares
offered by this Prospectus.
Example. The Example below shows you the expenses you may pay over time by
investing in the T Shares of the Fund. Since all funds use the same hypothetical
conditions, it should help you compare the costs of investing in the Fund versus
other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above.
---------------------- ------------ ------------ ------------ ------------
Period Invested 1 Year 3 Years 5 Years 10 Years
---------------------- ------------ ------------ ------------ ------------
Your Costs $223 $688 $1,180 $2,534
---------------------- ------------ ------------ ------------ ------------
7
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
The Fund's Investment Advisor is Capital Investment Counsel, Inc., 17 Glenwood
Avenue, Post Office Box 32249, Raleigh, North Carolina 27622. Pursuant to an
investment advisory agreement with the Nottingham Investment Trust II ("Trust"),
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 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, organized as a North Carolina corporation in 1984, is controlled by
Richard K. Bryant and E.O. Edgerton, Jr. They also control the Fund's
distributor, Capital Investment Group, Inc. ("Distributor"). The Advisor
currently serves as investment advisor to over $130 million in assets. The
Advisor has been rendering investment counsel, utilizing investment strategies
substantially similar to that of the Fund to individuals, banks and thrift
institutions, pension and profit sharing plans, trusts, estates, charitable
organizations, corporations, and other business and individual accounts since
its formation.
E.O. Edgerton, Jr., a principal of the Advisor and an officer of the Fund, and
W. Harold Eddins, a Portfolio Manager of the Advisor, are responsible for
day-to-day management of the Fund's portfolio. Mr. Edgerton has served in this
capacity since the inception of the Fund in 1990, while Mr. Eddins has served in
such capacity since May, 1997. Messrs. Edgerton and Eddins have been with the
Advisor since 1984 and 1987, respectively.
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Fund, the Fund pays the Advisor monthly compensation
based on the Fund's daily average net assets at the annual rate of 0.60% of the
first $250 million of the Fund's net assets and 0.50% of all assets over $250
million. As a result, during the most recent fiscal year ending March 31, 2000,
advisory fees paid to the Advisor by the Fund as a percentage of average net
assets were 0.60%.
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers. Certain securities
trades will be cleared through Capital Investment Group, Inc., a registered
broker-dealer affiliate of the Advisor and distributor of the Fund's shares.
The Investment Company Act of 1940, as amended ("1940 Act"), generally prohibits
the Fund from engaging in principal securities transactions with an affiliate of
the Advisor. Thus, the 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 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.
8
<PAGE>
THE ADMINISTRATOR
The Nottingham Company, Inc. ("Administrator") serves as the Fund's
administrator and fund accounting agent for the Fund. The Administrator assists
the Trust 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 Fund pursuant
to a Fund Accounting and Compliance Administration Agreement.
THE TRANSFER AGENT
NC Shareholder Services, LLC ("NCSS") serves as the Fund's transfer agent and
dividend disbursing agent of the Fund. As indicated later in the section of this
Prospectus, "Your Investment in the Fund," NCSS 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 Fund pursuant to
a Dividend Disbursing and Transfer Agent Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. 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 affiliate of the 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 T Shares of the Fund, the Fund has
adopted a Distribution Plan in accordance with Rule 12b-1 ("Distribution Plan")
under the 1940 Act. Pursuant to the Distribution Plan, the Fund compensates the
Distributor for services rendered and expenses borne in connection with
activities primarily intended to result in the sale of the Fund's T Shares (this
compensation is commonly referred to as "12b-1 fees").
The Distribution Plan provides that the Fund will pay annually 0.75% of the
average daily net assets of the Fund's T Shares for activities primarily
intended to result in the sale of those shares or servicing of shareholders
investing in those shares, including to reimburse entities for providing
distribution and shareholder servicing with respect to the Fund's T Shares. In
no event is the Fund permitted to pay annually more than 0.25% of the average
daily net assets of the Fund's T Shares for shareholder servicing activities
with respect to that class of shares of the Fund. 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 T
Shares and Investor Class Shares of the Fund, 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.
9
<PAGE>
YOUR INVESTMENT IN THE FUND
---------------------------
Other Class of Shares. The Fund has two classes of shares: Investor Class Shares
and T Shares available for investment. Both classes of shares are invested in
the same portfolio of securities. The only difference between the two classes of
shares is that the Investor Class Shares are subject to a front-end sales load
but lower Rule 12b-1 fees and expenses than the T Shares. The T Shares have no
front-end sales load but higher Rule 12b-1 fees and expenses.
MINIMUM INVESTMENT
T Shares are sold at the net asset value applicable to the T Shares and do not
include any sales load. Shares are redeemed at the net asset value applicable to
the T Shares.
All shares may be purchased by any account managed by the Advisor and any
broker-dealer authorized to sell Fund shares. The minimum initial investment is
$5,000 ($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 $500. The Fund may, in the Advisor's sole discretion,
waive such minimum investment amounts.
PURCHASE AND REDEMPTION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value for that class
of shares after an order is accepted in good form. An order is considered to be
in good form if it includes a complete and accurate application and payment in
full of the purchase amount. The net asset value for each class of shares is
calculated by dividing the value of the total assets, less liabilities
(including expenses, which are accrued daily) applicable to that class of
shares, by the total number of outstanding shares of that class. The net asset
value for each class of shares is normally determined at the time regular
trading closes on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
Eastern time, Monday through Friday, except on business holidays when the NYSE
is closed.
Other Matters Affecting Purchases and Redemptions. Sales 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 tenders. 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 Securities and
Exchange Commission ("SEC") or if the SEC declares that an emergency exists.
Redemptions may also be suspended during other periods permitted by the SEC for
the protection of 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.
10
<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 "Capital
Value Fund," to:
Capital Value Fund
T Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
The application must contain your Social Security Number ("SSN") or Taxpayer
Identification Number ("TIN"). If you have applied for a SSN 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 SSN
and 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 1-800-525-3863, before wiring funds, to advise the Fund of the
investment, the 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 Capital Value Fund - T Shares
Acct. # 2000000862110
For further credit to (shareholder's name and SSN 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 $500. Before adding funds
by bank wire, please call the Fund at 1-800-525-3863 and follow the above
directions for wire purchases. Mail orders should include, if possible, the
"Invest by Mail" stub that is attached to your fund confirmation statement.
Otherwise, please identify your account in a letter accompanying your purchase
payment.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-525-3863. 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.
11
<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.
Exchange Feature. You may exchange T Shares of the Fund for T Shares of any
other series of the Trust advised by the Fund's Advisor and offered for sale in
the state in which you reside. Prior to making an investment decision or giving
the Fund your instructions to exchange shares, please read the prospectus for
the series in which you wish to invest. 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.
Frequent Trading. 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.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption request should be addressed
to:
Capital Value Fund
T Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption request should include:
(1) Your letter of instruction specifying the account number and number of
shares or the dollar amount to be redeemed. This request must be signed
by all registered shareholders in the exact names in which they are
registered;
(2) Any required signature guarantees (see "Signature Guarantees" below);
and
(3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 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.
12
<PAGE>
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
(1) The name of the Fund and the designation of class (T Shares),
(2) Shareholder name and account number,
(3) Number of shares or dollar amount to be redeemed,
(4) Instructions for transmittal of redemption funds to the shareholder, and
(5) Shareholder signature as it appears on the application then on file with
the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. See "Signature Guarantees" below.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-525-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the 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.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$10,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Share Application form.
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) changes 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.
13
<PAGE>
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 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.
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 Statement of Additional Information
("SAI"). Shareholders should rely on 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 between
different series of the Trust may be treated as a sale and may be subject to
federal income tax.
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.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the Investor Class Shares of the Fund. Because the T
Shares is a new class and did not commence operations prior to March 31, 2000,
there are no financial data to be present in this Prospectus for the T Shares.
The financial data for the fiscal years ended March 31, 2000, 1999, 1998, and
1997, have been audited by Deloitte & Touche LLP, independent auditors, whose
report covering such periods is incorporated by reference into the SAI. The
financial data for the fiscal year ended March 31, 1996 were audited by other
independent auditors. This information should be read in conjunction with the
Fund's latest audited annual financial statements and notes thereto, which are
also incorporated by reference into the SAI, 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 at 1-800-525-3863.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investor Class Shares
---------------------
(For a Share Outstanding Throughout each Year)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......................... $15.32 $14.51 $12.50 $11.92 $10.75
Income from investment operations
Net investment income ........................... 0.01 0.06 0.13 0.15 0.19
Net realized and unrealized gain on investments 6.99 2.02 3.93 0.70 1.53
----------- ----------- ----------- ----------- -----------
Total from investment operations ........... 7.00 2.08 4.06 0.85 1.72
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ........................... (0.01) (0.06) (0.13) (0.15) (0.20)
Tax return of capital ........................... 0.00 0.00 0.00 (0.01) 0.00
Net realized gain from investment transactions .. (1.33) (1.21) (1.92) (0.11) (0.35)
----------- ----------- ----------- ----------- -----------
Total distributions ........................ (1.34) (1.27) (2.05) (0.27) (0.55)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ............................... $20.98 $15.32 $14.51 $12.50 $11.92
=========== =========== =========== =========== ===========
Total return (a)............................................ 46.68 % 14.67 % 32.89 % 7.08 % 16.16 %
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year .............................. $16,487,247 $11,056,274 $ 9,888,068 $ 7,738,255 $ 7,551,803
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ... 1.95 % 2.15 % 2.12 % 2.38 % 2.56 %
After expense reimbursements and waived fees .... 1.95 % 2.15 % 2.12 % 2.38 % 2.33 %
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees ... 0.06 % 0.40 % 0.91 % 1.12 % 1.44 %
After expense reimbursements and waived fees .... 0.06 % 0.40 % 0.91 % 1.12 % 1.66 %
Portfolio turnover rate .............................. 34.93 % 70.65 % 33.50 % 7.31 % 12.33 %
(a) Does not reflect the current maximum sales load of 3.5%, which was 4.5% prior to August 1, 1995.
</TABLE>
15
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
CAPITAL VALUE FUND
T SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's SAI. Additional
information about the Fund's investments is also available in the Fund's Annual
and Semi-annual Reports to shareholders. The Fund's Annual Report includes a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
The SAI and the Annual and Semi-annual Reports are available free of charge upon
request (you may also request other information about the Fund or make
shareholder inquiries) by contacting us:
By telephone: 1-800-525-3863
By mail: Capital Value Fund
T Shares
c/o NC Shareholder Services
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 1-202-942-8090. 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 electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act file number 811-06199
<PAGE>
________________________________________________________________________________
CAPITAL VALUE FUND
T SHARES
________________________________________________________________________________
[logo here]
PROSPECTUS
August 1, 2000
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CAPITAL VALUE FUND
August 1, 2000
A Series of the
NOTTINGHAM INVESTMENT TRUST II
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-525-3863
Table of Contents
-----------------
OTHER INVESTMENT POLICIES......................................................2
INVESTMENT LIMITATIONS.........................................................4
PORTFOLIO TRANSACTIONS.........................................................5
NET ASSET VALUE................................................................7
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................8
DESCRIPTION OF THE TRUST.......................................................9
ADDITIONAL INFORMATION CONCERNING TAXES.......................................10
MANAGEMENT AND OTHER SERVICE PROVIDERS........................................11
SPECIAL SHAREHOLDER SERVICES..................................................15
ADDITIONAL INFORMATION ON PERFORMANCE.........................................18
FINANCIAL STATEMENTS..........................................................19
APPENDIX A....................................................................20
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the Prospectuses relating to the Capital Value Fund's ("Fund")
Investor Class Shares and T Shares, each dated the same date as this SAI, as
those Prospectuses may be amended or supplemented from time to time, and is
incorporated by reference in its entirety into those Prospectuses. Because this
SAI is not itself a prospectus, no investment in shares of the Fund should be
made solely upon the information contained herein. Copies of the Fund's
Prospectuses may be obtained at no charge by writing or calling the Fund at the
address and phone number shown above. Capitalized terms used but not defined
herein have the same meanings as in the Prospectuses.
<PAGE>
OTHER INVESTMENT POLICIES
The following policies supplement the Fund's investment objective and policies
as set forth in the Prospectuses for the Investor Class Shares and T Shares
classes of the Fund. Attached to this SAI is Appendix A, which contains
descriptions of the rating symbols used by Rating Agencies for securities in
which the Fund may invest. The Fund commenced operations November 16, 1990 as a
separate diversified investment portfolio to the Nottingham Investment Trust II
("Trust").
Equity Securities. The equity portion of the Fund's portfolio will generally be
comprised of common stocks traded on domestic securities exchanges or on the
over-the-counter market. In determining whether a common stock is a strong
candidate for inclusion in the portfolio, the Advisor considers, among other
things, such factors as: research material generated by the brokerage community;
investment and business publications and general investor attitudes as perceived
by the Advisor; valuation with respect to price-to-book value, price-to-sales,
price-to-cash flow, price-to-earnings ratios, and dividend yield, all compared
to historical valuations and future prospects for the company as judged by the
Advisor. In addition to common stocks, the equity portion of the Fund's
portfolio may also include preferred stock, convertible preferred stock, and
convertible bonds.
Foreign Securities. The Fund may invest in the securities of foreign private
issuers. The Fund may invest up to 10% of its total assets in foreign securities
in order to take advantage of opportunities for growth where, as with domestic
securities, they are depressed in price because they are out of favor with most
of the investment community. The same factors would be considered in selecting
foreign securities as with domestic securities. Foreign securities investment
presents special consideration not typically associated with investment in
domestic securities. Foreign taxes may reduce income. Currency exchange rates
and regulations may cause fluctuations in the value of foreign securities.
Foreign securities are subject to different regulatory environments than in the
United States and, compared to the United States, there may be a lack of uniform
accounting, auditing and financial reporting standards, less volume and
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial or social
instability or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions and it is possible that such restrictions could be imposed
again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will generally limit foreign investments to those traded domestically as
American Depository Receipts ("ADRs"). ADRs are receipts issued by a U.S. bank
or trust company evidencing ownership of securities of a foreign issuer. ADRs
may be listed on a national securities exchange or may trade in the
over-the-counter market. The prices of ADRs are denominated in U.S. dollars
while the underlying security may be denominated in a foreign currency. To the
extent the Fund invests in other foreign securities, it will generally limit
such investments to foreign securities traded on foreign securities exchanges.
Fixed Income Securities. The Fund's fixed income investments will include
corporate debt obligations and U.S. Government Securities. The maturity of the
fixed income securities purchased and held by the Fund will depend upon, among
other reasons, the current and expected trend in interest rates, credit quality
of the fixed income securities, relative attractiveness of fixed income
securities versus equity securities, and the overall economic situation, current
and expected. The Advisor will consider a number of factors in determining when
to purchase and sell the investments of the Fund and when to invest for long,
intermediate, or short maturities. Such factors may include money supply growth,
the rate of unemployment, changes in consumer, wholesale and producer prices, as
well as raw materials, commodities, and industrial prices, capital spending, the
Gross National Product ("GNP") and industrial production. The Advisor will also
consider the impact of inflation and the attitudes and concerns of key officials
in the Federal Reserve and U.S. Government.
Corporate debt obligations purchased by the Fund will consist of "investment
grade" securities -- those rated at least Baa by Moody's Investors Service, Inc.
("Moody's"), BBB by Standard & Poor's Ratings Services ("S&P's"), Fitch
Investors Service, Inc. ("Fitch"), or Duff & Phelps ("D&P") or, if not rated, of
equivalent quality in the Advisor's opinion. Debt obligations rated Baa by
Moody's or BBB by S&P's, Fitch, or D&P may be considered speculative.
Descriptions of the quality ratings of Moody's, S&P's, Fitch, and D&P are
contained in this SAI. While the Advisor utilizes the ratings of various credit
rating services as one factor in establishing creditworthiness, it relies
primarily upon its own analysis of factors establishing creditworthiness. For as
long as the Fund holds a fixed income issue, the Advisor monitors the issuer's
credit standing. If following investment, a corporate debt obligation held by
the Fund is no longer considered to be "investment grade," or is considered to
be "investment grade" by one rating agency but not by another, the Advisor will
re-evaluate the issuer's credit standing and may retain the investment if it is
still determined to be creditworthy.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Housing
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Real Estate Securities. The Fund will not invest in real estate (including
mortgage loans and limited partnership interests), but may invest in readily
marketable securities 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 assets
in real estate securities.
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 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 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.
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 ("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 that will
cause more than 10% of its net assets to be invested in repurchase agreements
that 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 that "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured,
interest-bearing debt obligation of a bank. Commercial Paper is an unsecured,
short-term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated one of the top two rating
categories by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps ("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Fund only through the Master Note program of
the Fund's custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Fund.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. 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. The Fund may not purchase restricted
securities, which are securities that cannot be sold to the public without
registration under the federal securities laws.
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 approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose, means the lesser of
(i) 67% of the Fund's outstanding shares represented in person or by proxy at a
meeting at which more than 50% of its outstanding shares are represented, or
(ii) more than 50% of its outstanding shares. Unless otherwise indicated,
percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities
of any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities
are not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry
or group of industries (except that securities of the U.S. Government,
its agencies and instrumentalities are not subject to these
limitations);
(3) Invest in the securities of any issuer if any of the officers or
trustees of the Trust or the Advisor who own beneficially more than 1/2
of 1% of the outstanding securities of such issuer together own more
than 5% of the outstanding securities of such issuer;
(4) Invest for the purpose of exercising control or management of another
issuer;
(5) Invest in interests in real estate, real estate mortgage loans, real
estate limited partnerships, oil, gas or other mineral exploration or
development programs or leases, except that the Fund may invest in the
readily marketable securities of companies which own or deal in such
things;
(6) Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter under the federal securities laws,
in connection with the disposition of portfolio securities;
(7) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(8) Make short sales of securities or maintain a short position, except
short sales "against the box" (A short sale is made by selling a
security the Fund does not own, a short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no added cost securities identical to those sold short.);
(9) Write, purchase or sell puts, calls or combinations thereof, or
purchase or sell commodities, warrants, commodities contracts, futures
contracts or related options;
(10) Participate on a joint or joint and several basis in any trading
account in securities;
(11) Make loans of money or securities, except that the Fund may invest in
repurchase agreements, money market instruments, and other debt
securities;
(12) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not
readily marketable securities;
(13) Invest in restricted securities;
(14) 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 the Fund's total
assets, or (b) in order to meet redemption requests which might
otherwise require untimely disposition of portfolio securities, if,
immediately after such borrowing, the value of the Fund's assets,
including all borrowings then outstanding, less its liabilities
(excluding all borrowings), is equal to at least 300% of the aggregate
amount of borrowings then outstanding, and the Fund may pledge its
assets to secure all such borrowings;
(15) 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; and
(16) Invest more than 10% of the Fund's total assets in foreign securities,
including sponsored American Depository Receipts.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation. However, in the case of the
borrowing limitation (restriction (14) above), the Fund will, to the extent
necessary, reduce its existing borrowings to comply with the limitation.
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 investment
discretion is exercised by the Advisor. 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, an affiliate of the Advisor) 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 March 31, 2000, 1999, and 1998, the total dollar
amounts of brokerage commissions paid by the Fund were $22,932, $34,633, and
$27,164, respectively. For the fiscal year ended March 31, 2000, the Distributor
received $320 of those commissions; and transactions in which the Fund used the
Distributor as broker involved 1% of the aggregate dollar amount of transactions
involving the payment of commissions and 1% of the aggregate broker commissions
paid by the Fund for the fiscal year ended March 31, 2000. For the fiscal years
ended March 31, 1999 and 1998, the Distributor received all of the commissions
that were paid during such respective periods.
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
("NYSE"), currently 4:00 p.m., New York time, Monday through Friday, except on
business holidays when the NYSE is closed. The NYSE 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 NYSE 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 Class
Shares) will be charged against that class of shares. Certain other expenses
attributable to a particular class of shares (such as registration fees,
professional fees, and certain printing and postage expenses) may be charged
against that class of shares if such expenses are actually incurred in a
different amount by that class or if the class receives services of a different
kind or to a different degree than other classes, and the Board of Trustees
approves such allocation. Subject to the provisions of the Amended and Restated
Declaration of Trust, determinations by the Board of Trustees as to the direct
and allocable liabilities, and the allocable portion of any general assets, with
respect to the Fund and the classes of the Fund are conclusive.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of sixty days or less are valued
at amortized costs, which approximates market value. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith under policies approved by the Trustees.
For the fiscal years ended March 31, 2000, 1999, and 1998, the total expenses of
the Fund after fee waivers and expense reimbursements (if applicable) were
$249,238, $218,813, and $190,073, respectively. No T Shares of the Fund were
issued during such fiscal years.
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 for the T Shares class, and net asset value plus a sales
charge for Investor Class Shares of the Fund. Capital Investment Group, Inc.
("Distributor"), an affiliate of the Advisor, receives the sales charge of the
Investor Class Shares 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 is set forth in the
Prospectus for the Investor Class Shares, along with the information on current
purchases, rights of accumulation, and letters of intent, if applicable. See
"Your Investment in the Fund" section in the Prospectuses for more detailed
information.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution ("Plan") for
the Investor Class Shares and T Shares classes of the Fund pursuant to Rule
12b-1 under the 1940 Act (see "The Distributor - Distribution of the Fund's
Shares" in the Prospectuses). Under the Plan, the Fund may expend up to 0.50% of
the Investor Class Shares' average daily net assets and 0.75% of the T Shares'
average daily net assets annually to finance any activity which is primarily
intended to result in the sale of those classes 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
servicing fees to any person who sells Investor Class Shares or T 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 and each class of shares 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 or
T Shares. The Distributor may also use a portion of the 12b-1 fees received to
provide compensation to financial intermediaries and third-party broker-dealers
for their services in connection with the sale of Investor Class Shares and T
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 and T
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 and T Shares classes of the Fund; (b) those
relating to the development, preparation, printing and mailing of
advertisements, sales literature and other promotional materials describing
and/or relating to the Investor Class Shares and T Shares classes of the Fund;
(c) holding seminars and sales meetings designed to promote the distribution of
the Fund's Investor Class Shares and T Shares; (d) obtaining information and
providing explanations to wholesale and retail distributors of the Fund's
investment objectives and policies and other information about the Fund; (e)
training sales personnel regarding the Investor Class Shares and T 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 or T 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
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 Plans.
The Plan and the Distribution Agreement for each class of shares 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 class of shares affected
by such termination. Any amendment materially increasing the maximum percentage
payable under the Plan applicable to a specific class of shares must likewise be
approved by a majority vote of that class of shares, as well as by a majority
vote of those trustees who are not "interested persons." Also, any other
material amendment to the Plan must be approved by a majority vote of the
trustees including a majority of the noninterested 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 March 31, 2000, the Fund incurred $64,085 in costs
connected with the Plan for the Investor Class Shares. Such costs were spent on
compensation to sales personnel for sale of Investor Class Shares and servicing
of shareholder accounts and advertising costs. The T Shares were not offered to
the public during any portion of the fiscal year ended March 31, 2000.
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 Prospectuses 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 Prospectuses from time to time.
DESCRIPTION OF THE TRUST
The Trust is an unincorporated business trust organized under Massachusetts law
on October 25, 1990. The Trust's Amended and Restated Declaration of Trust
authorizes the Board of Trustees to divide shares into series, each series
relating to a separate portfolio of investments, and to classify and reclassify
any unissued shares into one or more classes of shares of each such series. The
Amended and Restated Declaration of Trust currently provides for the shares of
seven series, as follows: Capital Value Fund managed by Capital Investment
Counsel, Inc. of Raleigh, North Carolina; EARNEST Partners Fixed Income Trust
managed by EARNEST Partners Limited, LLC of Atlanta, Georgia; The Brown Capital
Management Equity Fund, The Brown Capital Management Balanced Fund, The Brown
Capital Management Small Company Fund, and The Brown Capital Management
International Equity Fund managed by Brown Capital Management, Inc. of
Baltimore, Maryland; and WST Growth Fund managed by Wilbanks, Smith & Thomas
Asset Management, Inc. of Norfolk, Virginia. The number of shares of each series
shall be unlimited. The Trust does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as the Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Fund, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. The Trust has adopted an Amended and Restated
Rule 18f-3 Multiclass Plan that contains the general characteristics of, and
conditions under which the Trust may offer multiple classes of shares of each
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 series or class is affected by a
matter unless it is clear that the interests of each series or class in the
matter are substantially identical or that the matter does not affect any
interest of the series or class. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, the Rule also provides that
the ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting together, without regard to a
particular series or class.
When used in the Prospectuses or this SAI, a "majority" of shareholders means
the vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class.
When issued for payment as described in the Prospectuses and this SAI, shares of
the Fund will be fully paid and non-assessable.
The Amended and Restated Declaration of Trust provides that the Trustees of the
Trust will not be liable in any event in connection with the affairs of the
Trust, except as such liability may arise from his or her own bad faith, willful
misfeasance, gross negligence, or reckless disregard of duties. It also provides
that all third parties shall look solely to the Trust property for satisfaction
of claims arising in connection with the affairs of the Trust. With the
exceptions stated, the Amended and Restated Declaration of Trust provides that a
Trustee or officer is entitled to be indemnified against all liability in
connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectuses. 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
Prospectuses 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 Internal Revenue 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 Prospectuses, 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 to properly
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Dividends paid by the Fund derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Fund will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
MANAGEMENT AND OTHER SERVICE PROVIDERS
The Board of Trustees of the Trust ("Trustees") is responsible for the
management and supervision of the Fund. The Trustees approve all significant
agreements between the Trust, on behalf of the Fund, and those companies that
furnish services to the Fund. This section of the SAI provides information about
the persons who serve as Trustees and Officers to the Trust and Fund,
respectively, as well as the entities that provide services to the Fund.
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
<TABLE>
<S> <C> <C>
TRUSTEES
----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
----------------------------------------------- -------------------------------- ---------------------------------------------
Jack E. Brinson, 68 Trustee and Chairman President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina
Independent Trustee - New Providence
Investment Trust, Gardner Lewis Investment
Trust, de Leon Funds Trust,
Rocky Mount, North Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
Thomas W. Steed, 42 Trustee Assistant General Counsel
101 Bristol Court Hardee's Food Systems, Inc.
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
J. Buckley Strandberg, 40 Trustee President, Standard Insurance and Realty,
Post Office Box 1375 Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 59 Trustee* President, Brown Capital Management, Inc.,
1201 N. Calvert Street Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 41 Trustee* President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act.
OFFICERS
----------------------------------------------- -------------------------------- ---------------------------------------------
Name, Age and Address Position Principal Occupation(s)
During Past 5 Years
----------------------------------------------- -------------------------------- ---------------------------------------------
Michael T. McRee, 56 President, EARNEST Partners Partner and Manager, EARNEST Partners
317 East Capitol Street Fixed Income Trust Limited, LLC; previously, President,
Jackson, Mississippi 39201 Investek Capital Management, Inc.
Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
Wayne F. Wilbanks, 39 President, The WST Growth Fund President, Wilbanks, Smith & Thomas
One Commercial Place, Suite 1150 Asset Management, Inc., Norfolk, Virginia
Norfolk, Virginia 25510
----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 59 President, The Brown Capital President, Brown Capital Management, Inc.,
1201 N. Calvert Street Management Funds Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 41 President, Capital Value Fund; President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina, Vice President,
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
Elmer O. Edgerton, Jr., 58 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, 39 Vice President, EARNEST Partner and Portfolio Manager, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Investment, Inc.
Jackson, Mississippi, since 1996; Portfolio
Manager, Southern Farm Bureau Life Insurance
Company, Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
R. Mark Fields, 47 Vice President, EARNEST Partner and Director of Marketing, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Management, Inc.
Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
John M. Friedman, 56 Vice President, EARNEST Partner and Portfolio Manager, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Management,
Inc., Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
Keith A. Lee, 40 Vice President, The Brown Vice President, Brown Capital Management,
1201 N. Calvert Street Capital Management Funds Inc., Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
C. Frank Watson, III, 29 Secretary President, The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
----------------------------------------------- -------------------------------- ---------------------------------------------
Julian G. Winters, 31 Treasurer and Assistant Legal and Compliance Director, The
105 North Washington Street Secretary Nottingham Company, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina, since 1996; previously Operations
Manager, Tar Heel Medical, Nashville, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year, plus $250
per series of the Trust per meeting attended in person or $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 $1,250 None None $10,000
Trustee
Eddie C. Brown None None None None
Trustee
Richard K. Bryant None None None None
Trustee
Thomas W. Steed $1,250 None None $10,000
Trustee
J. Buckley Strandberg $1,250 None None $10,000
Trustee
* Figures are as of the Fund's fiscal year ended March 31, 2000.
** Each of the Trustees serves as a Trustee to the seven funds of the Trust,
including the Fund.
</TABLE>
Principal Holders of Voting Securities. As of July 11, 2000, 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 the Fund. On
the same date the following shareholder owned of record more than 5% of the
outstanding shares of beneficial interest of the Investor Class Shares 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 the Fund as of
July 11, 2000. No T Shares had been issued as of July 11, 2000.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
---------------- -------------------- -------
INVESTOR CLASS SHARES
Olcoba Company 418,030.195 shares 51.284%*
P.O. Box 1000
Minneapolis, Minnesota 55480-1000
* Pursuant to applicable SEC regulations, this shareholder is deemed to control
the Fund.
Investment Advisor. Information about Capital Investment Counsel, Inc.
("Advisor") and its duties and compensation as Advisor is contained in the
Prospectuses.
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.
The Advisor will receive a monthly management fee equal to an annual rate of
0.60% of the first $250 million of the average daily net assets of the Fund and
0.50% on assets over $250 million. The method for calculating the fee is based
on the relative net assets of the Investor Class Shares and T Shares of the
Fund. For the fiscal years ended March 31, 2000, 1999, and 1998, the Fund paid
the Advisor its advisory fees of $76,884, $61,110, and $53,764, respectively.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company, Inc. ("Administrator"),
105 North Washington Street, Post Office Box 69, Rocky Mount, North Carolina
27802-0069, pursuant to which the Administrator receives a general
administration fee at the annual rate of 0.175% of the average daily net assets
of the Fund on the first $50 million; 0.150% of the next $50 million; 0.125% on
the next $50 million; and 0.100% of its average daily net assets in excess of
$150 million. In addition, the Administrator receives a base monthly fund
accounting fee of $2,000 for accounting and recordkeeping services for the Fund
and $750 for each class of shares beyond the initial class. The Administrator
receives a minimum fee of $4,000 per month for all of its fees listed above,
taken in the aggregate, analyzed monthly. In addition, the Administrator also
charges the Fund for certain costs involved with the daily valuation of
investment securities and is reimbursed for out-of-pocket expenses.
For services to the Fund for the fiscal years ended March 31, 2000, 1999, and
1998, the Administrator received general administration fees of $22,424,
$21,583, and $25,103, respectively. For the same fiscal years, the Administrator
received fund accounting fees of $24,000, $22,500, and $21,000, respectively.
The Administrator performs the following services for the Fund: (1) coordinates
with the Custodian and monitors the services it provides to the Fund; (2)
coordinates with and monitors any other third parties furnishing services to the
Fund; (3) provides the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervises the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepares or supervises the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepares and, after approval by the Trust, files and
arranges for the distribution of proxy materials and periodic reports to
shareholders of the Fund as required by applicable law; (7) prepares and, after
approval by the Trust, arranges for the filing of such registration statements
and other documents with the SEC and other federal and state regulatory
authorities as may be required by applicable law; (8) reviews and submits to the
officers of the Trust for their approval invoices or other requests for payment
of Fund expenses and instructs the Custodian to issue checks in payment thereof;
and (9) takes 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.
Transfer Agent. The Trust has also entered into a Dividend Disbursing and
Transfer Agent Agreement with NC Shareholder Services, LLC ("Transfer Agent"), a
North Carolina limited liability company, 107 North Washington Street, Post
Office Box 4365, Rocky Mount, North Carolina 27803-0365 to serve as transfer,
dividend paying, and shareholder servicing agent for the Fund. For its services,
the Transfer Agent is compensated $15 per shareholder per year, with a minimum
fee of $750 per month, per class. For the fiscal year ended March 31, 2000 the
Transfer Agent received $9,000 in such fees. Prior to September 15, 1998, the
Transfer Agent was compensated by the Administrator for its services to the
Fund. For the period from September 15, 1998 to March 31, 1999, the Transfer
Agent received $4,697 for its services from the Fund.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622, acts as an underwriter and distributor of the Fund's
shares for the purpose of facilitating the registration of shares of the Fund
under state securities laws and to assist in sales of Fund shares pursuant to a
Distribution Agreement ("Distribution Agreement") approved by the Board of
Trustees of the Trust. The Distributor is an affiliate of the Advisor.
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.
The Distribution Agreement may be terminated by either party upon 60-days' prior
written notice to the other party.
For the fiscal years ended March 31, 2000, 1999, and 1998, the Distributor
received aggregate commissions for the sale of Investor Class Shares in the
amounts of $17,048, $15,525, and $16,129, of which the Distributor retained
$2,457, $2,240, and $2,316, respectively, after reallowances to broker-dealers
and sales representatives.
Custodian. First Union National Bank ("Custodian"), 123 South Broad Street,
Philadelphia, Pennsylvania 19109, serves as custodian for the Fund's assets. The
Custodian acts as the depository for the Fund, safekeeps its portfolio
securities, collects all income and other payments with respect to portfolio
securities, disburses monies at the Fund's request and maintains records in
connection with its duties as Custodian. For its services as Custodian, the
Custodian is entitled to receive from the Fund an annual fee based on the
average net assets of the Fund held by the Custodian.
Independent Auditors. Deloitte & Touche LLP, Princeton Forrestal Village,
116-300 Village Boulevard, Princeton, New Jersey 08540, serves as independent
auditors for the Fund, audits the annual financial statements of the Fund,
prepares the Fund's federal and state tax returns, and consults with the Fund on
matters of accounting and federal and state income taxation. A copy of the most
recent annual report of the Fund will accompany this SAI whenever it is
requested by a shareholder or prospective investor.
Legal Counsel. Dechert serves as legal counsel to the Trust and the Fund.
Code of Ethics. The Trust, the Advisor, and the Distributor each have adopted a
code of ethics, as required by applicable law, which is designed to prevent
affiliated persons of the Trust and the Advisor from engaging in deceptive,
manipulative, or fraudulent activities in connection with securities held or to
be acquired by the Fund (which may also be held by persons subject to a code).
There can be no assurance that the codes will be effective in preventing such
activities.
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 Prospectuses, 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
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.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the 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 each 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 60-days' written notice or by a shareholder upon written notice to the
Fund. Applications and further details may be obtained by calling the Fund at
1-800-525-3863, or by writing to:
Capital Value Fund
[Investor Class Shares] or [T Shares] (please specify)
107 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 that the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "Determining the Fund's Net Asset Value" in the Prospectuses.
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 $50,000, and shares in the Fund at the total public
offering price of $50,000, the sales charge would be that applicable to a
$100,000 purchase as shown in the appropriate table in the Prospectus. This
privilege may be modified or eliminated at any time or from time to time by the
Trust without notice thereof.
Rights of Accumulation. Pursuant to the right of accumulation, investors are
permitted to purchase shares at the public offering price applicable to the
total of (a) the total public offering price of the shares of the Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the purchaser's combined holdings of the shares of all of the series of the
Trust advised by the Advisor and sold with a sales charge. To receive the
applicable public offering price pursuant to the right of accumulation,
investors must, at the time of purchase, provide sufficient information to
permit confirmation of qualification, and confirmation of the purchase is
subject to such verification. This right of accumulation may be modified or
eliminated at any time or from time to time by the Trust without notice.
Letters of Intent. Investors may qualify for a lower sales charge by executing a
letter of intent. A letter of intent allows an investor to purchase shares of
the Fund over a 13-month period at reduced sales charges based on the total
amount intended to be purchased plus an amount equal to the then current net
asset value of the purchaser's combined holdings of the shares of all of the
series of the Trust advised by the Advisor and sold with a sales charge. Thus, a
letter of intent permits an investor to establish a total investment goal to be
achieved by any number of purchases over a 13-month period. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the intended investment.
The letter of intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day backdating period can be used to include earlier purchases at the
investor's cost (without a retroactive downward adjustment of the sales charge);
the 13-month period would then begin on the date of the first purchase during
the 90-day period. No retroactive adjustment will be made if purchases exceed
the amount indicated in the letter of intent. Investors must notify the
Administrator or the Distributor whenever a purchase is being made pursuant to a
letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the
Administrator or the Distributor. This letter of intent option may be modified
or eliminated at any time or from time to time by the Trust without notice.
Reinvestments. Investors may reinvest, without a sales charge, proceeds from a
redemption of shares of the Fund in shares of the Fund or in shares of another
series of the Trust advised by the Advisor and sold with a sales charge, within
90 days after the redemption. If the other series charges a sales charge higher
than the sales charge the investor paid in connection with the shares redeemed,
the investor must pay the difference. In addition, the shares of the series to
be acquired must be registered for sale in the investor's state of residence.
The amount that may be so reinvested may not exceed the amount of the redemption
proceeds, and a written order for the purchase of such shares must be received
by the Fund or the Distributor within 90 days after the effective date of the
redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
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 return quotations for the Investor Class Shares of the
Fund for the fiscal year ended March 31, 2000, the five years ended March 31,
2000, and since inception (December 31, 1991) to March 31, 2000 are 41.55%,
21.79%, and 15.81%, respectively. The cumulative total return quotation for the
Investor Class Shares of the Fund for the period since inception through March
31, 2000, is 235.98%. These performance quotations assume that the maximum 3.5%
sales load for the Fund was deducted from the initial investment. Without the
deduction of the maximum 3.5% sales load, the average annual total return of the
Investor Class Shares of the Fund for the fiscal year ended March 31, 2000, the
five years ended March 31, 2000, and since inception through March 31, 2000, are
46.68%, 22.66%, and 16.31%, respectively. The cumulative total return quotation
for the Investor Class Shares of the Fund for the period since inception through
March 31, 2000, without deducting the maximum 3.5% sales load, is 248.16%. These
performance quotations should not be considered as representative of the Fund's
performance for any specified period in the future. The T Shares of the Fund
were not offered during the periods of such performance quotations.
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 Prospectuses to obtain
a more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P's and Moody's). The Fund may also depict the historical performance
of the securities in which the Fund may invest over periods reflecting a variety
of market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended March 31, 2000,
including the financial highlights appearing in the Annual Report to
shareholders, are incorporated by reference and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment-Grade Debt Securities") (or if
not rated, of equivalent quality as determined by the Advisor). The various
ratings used by the nationally recognized securities rating services are
described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's(R)Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P"), a division of the
McGraw-Hill Companies, Inc., for bonds which are deemed to be Investment-Grade
Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation is
very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-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 short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Debt 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 that 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 that 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 that 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 that are
rated Ca represent obligations that are speculative in a high degree. Such
issues are often in default or have other marked shortcomings. Bonds that are
rated C are the lowest rated class of bonds and issues so rated can be regarded
as having extremely poor prospects of ever attaining any real investment
standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-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.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below-average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff 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. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-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>
________________________________________________________________________________
CAPITAL VALUE FUND
________________________________________________________________________________
a series of The Nottingham Investment Trust II
ANNUAL REPORT 2000
FOR THE YEAR ENDED MARCH 31
INVESTMENT ADVISOR
Capital Investment Counsel, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
919-831-2370
CAPITAL VALUE FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
Capital Value Fund
Y2k has been an interesting year. For the first three months of the year, the
Capital Value Fund maintained its assets weightings from 1999. This breakdown
consisted of 75% in stocks, 15% in fixed income and 10% in cash. I have
maintained the somewhat low percentage in fixed income because of adverse rate
conditions. With bond yields at 3-year highs, I am now exploring the possibility
of committing more funds into the fixed income sector. In early April, I
increased our cash asset allocation from 10% to the current 16% level. With the
benefit of hindsight, it has turned out to be a good move. I am now also
investigating several sectors that underperformed the market. These sectors
include banking/financial services, pharmaceuticals, and the large phone
companies. The Capital Value Fund sold most of its holdings in these areas two
years ago at handsome profits. Being a contrarian at heart, I feel it is time to
revisit these companies. I commented in December 1999 that interest rates would
hold the key to the market, and given the sharp rise in the ten year treasury
note over the last six months, that is proving to be true. It is hard to escape
the comparison from our current market to that of 1994. Between February of 1994
and February of 1995 the Federal Reserve raised interest rates seven times. As
of mid May 2000, Greenspan and company had raised rates six times. The 1994
comparison is more interesting in light of the fact that the market bottomed at
the time of the sixth increase in November 1994, and was in strong rally mode by
the last rate increase in February 1995. I feel a strong case can be made that
we have seen the worst in the market. I raised 6% in cash in early April and
look to reinvest those funds over the coming month. A best case scenario for
this market would involve a final 25 basis point rate hike in June 2000. I
believe this would be the final nail in the inflation coffin. With the Federal
Reserve off our back, we can then go back to analyzing companies and their
earnings.
Hal Eddins
Fund Manager
<PAGE>
Capital Value Fund
Performance Update - $10,000 Investment
For the period from December 31, 1991 to
March 31, 2000
[Line graph here]:
--------------------------------------------------------------------------------
Capital 60% S&P 500 Index /
Value Fund 40% Lehman Brothers Aggregate Bond Index
--------------------------------------------------------------------------------
12/31/91 $ 9,650 $10,000
3/31/92 9,541 9,797
9/30/92 9,929 10,432
3/31/93 10,616 11,213
9/30/93 10,898 11,659
3/31/94 11,099 11,418
9/30/94 11,395 11,763
3/31/95 12,084 12,711
9/30/95 13,474 14,547
3/31/96 14,037 15,767
9/30/96 14,473 16,702
3/31/97 15,031 18,098
9/30/97 18,987 21,780
3/31/98 19,975 24,773
9/30/98 19,436 23,890
3/31/99 22,905 28,597
9/30/99 23,308 28,663
3/31/00 33,598 32,656
This graph depicts the performance of the Capital Value Fund versus a combined
index of 60% S&P 500 Index and 40% Lehman Brothers Aggregate Bond Index. It is
important to note that the Capital Value Fund is a professionally managed mutual
fund while the indexes are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
Average Annual Total Returns
--------------------------------------------------------------------------------
One Year Five Years Since Inception
--------------------------------------------------------------------------------
No Sales Load 46.68% 22.66% 16.31%
--------------------------------------------------------------------------------
Maximum 3.50% Sales Load 41.55% 21.79% 15.81%
--------------------------------------------------------------------------------
The graph assumes an initial $10,000 investment at December 31, 1991 ($9,650
after maximum sales load of 3.50%). All dividends and distributions are
reinvested.
At March 31, 2000, the Capital Value Fund would have grown to $33,598 - total
investment return of 235.98% since December 31, 1991. Without the deduction of
the 3.50% maximum sales load, the Capital Value Fund would have grown to $34,816
- total investment return of 248.16% since December 31, 1991. The sales load may
be reduced or eliminated for larger purchases.
At March 31, 2000, a similar investment in a combined index of 60% S&P 500 Index
and 40% Lehman Brothers Aggregate Bond Index would have grown to $32,656 - total
investment return of 226.56% since December 31, 1991.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 84.90%
Auto & Trucks - 0.75%
General Motors Corporation ................................................ 1,500 $ 124,219
-----------
Brewery - 0.58%
Adolph Coors Company ...................................................... 2,000 96,000
-----------
Broadcast - Radio & Television - 0.98%
(a)MediaOne Group, Inc. ...................................................... 2,000 162,125
-----------
Commercial Services - 1.39%
(a)Gartner Group, Inc. Class A ............................................... 14,000 229,250
-----------
Computers - 9.94%
(a)3Com Corporation .......................................................... 8,500 472,813
Compaq Computer Corporation ............................................... 25,000 665,625
(a)EMC Corporation ........................................................... 4,000 500,000
-----------
1,638,438
-----------
Computer Software & Services - 32.33%
(a)At Home Corporation ....................................................... 5,500 181,156
(a)Brooktrout Inc. ........................................................... 4,300 124,700
(a)Cisco Systems, Inc. ....................................................... 25,000 1,932,812
(a)Compuware Corporation ..................................................... 12,000 252,750
(a)Legato Systems, Inc. ...................................................... 14,000 624,750
(a)New Era of Networks, Inc. ................................................. 13,000 510,250
(a)Novell, Inc. .............................................................. 5,500 157,438
(a)Oracle Corporation ........................................................ 14,000 1,092,875
(a)Parametric Technology Corporation ......................................... 15,000 315,937
(a)Persistence Software, Inc. ................................................ 2,000 39,750
(a)Synopsis, Inc. ............................................................ 2,000 97,500
-----------
5,329,918
-----------
Electronics - 6.67%
Hewlett - Packard Company ................................................. 4,000 530,250
Motorola, Inc. ............................................................ 4,000 569,500
-----------
1,099,750
-----------
Electronics - Semiconductor - 8.22%
(a)Cree Research, Inc. ....................................................... 12,000 1,354,500
-----------
Financial - Banks, Commercial - 2.84%
Bank of America Corporation ............................................... 3,000 157,313
First Union Corporation ................................................... 6,000 223,500
FleetBoston Financial Corporation ......................................... 2,368 87,912
-----------
468,725
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Securities Broker - 1.86%
(a)Knight/Trimark Group, Inc. ................................................ 6,000 $ 306,000
-----------
Financial Services - 2.56%
(a)E*TRADE Group, Inc. ....................................................... 14,000 421,750
-----------
Foreign - American Depository Receipts - 1.69% (b)
Alcatel Alsthom - ADR ..................................................... 4,200 184,012
Norsk Hydro ASA - ADR ..................................................... 2,500 95,156
-----------
279,168
-----------
Industrial Materials - Specialty - 1.19%
The AES Corporation ....................................................... 2,500 196,875
-----------
Office & Business Equipment - 1.14%
(a)Splash Technology Holdings, Inc. .......................................... 15,000 187,500
-----------
Restaurants & Food Service - 0.54%
(a)Starbucks Corporation ..................................................... 2,000 89,625
-----------
Retail - Apparel - 1.08%
NIKE, Inc. ................................................................ 4,500 178,313
-----------
Retail - Department Stores - 1.01%
Wal-Mart Stores, Inc. ..................................................... 3,000 166,500
-----------
Telecommunications - 7.15%
Lucent Technologies Inc. .................................................. 2,000 121,500
(a)PairGain Technologies, Inc. ............................................... 10,000 186,875
(a)Performance Technologies, Incorporated .................................... 3,000 130,312
(a)Qwest Communications International, Inc. .................................. 12,800 614,400
(a)Tellabs, Inc. ............................................................. 2,000 125,969
-----------
1,179,056
-----------
Transportation - Air - 1.35%
(a)US Airways Group, Inc. .................................................... 8,000 222,500
-----------
Utilities - Telecommunications - 1.63%
GTE Corporation ........................................................... 2,000 143,000
Sprint Corporation ........................................................ 2,000 126,000
-----------
269,000
-----------
Total Common Stocks (Cost $6,906,085) ........................................ 13,999,212
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity Value
Principal Rate Date (note 1)
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATIONS - 11.19%
A T & T Corporation ........................... $ 50,000 7.500% 06/01/06 $ 50,438
A T & T Corporation ........................... 50,000 8.125% 01/15/22 50,000
A T & T Corporation ........................... 50,000 8.125% 07/15/24 50,250
A T & T Corporation ........................... 100,000 8.625% 12/01/31 103,375
American Express Company ...................... 50,000 8.625% 05/15/22 51,666
Anheuser-Busch Companies, Inc. ................ 25,000 9.000% 12/01/09 27,720
Archer Daniels Midland Corporation ............ 100,000 6.250% 05/15/03 96,804
Archer Daniels Midland Corporation ............ 25,000 8.875% 04/15/11 27,664
BellSouth Telecommunications .................. 50,000 6.250% 05/15/03 48,625
BellSouth Telecommunications .................. 50,000 7.000% 02/01/05 49,625
BellSouth Telecommunications .................. 25,000 7.875% 08/01/32 24,313
BellSouth Telecommunications .................. 125,000 6.750% 10/15/33 107,500
The Boeing Company ............................ 150,000 8.750% 09/15/31 169,310
The Coca-Cola Company ......................... 70,000 8.500% 02/01/22 76,644
Du Pont (E.I.) De Nemours & Company ........... 50,000 8.125% 03/15/04 51,482
Du Pont (E.I.) De Nemours & Company ........... 50,000 7.950% 01/15/23 49,518
Duke Energy Corp .............................. 20,000 6.375% 03/01/08 18,500
Duke Energy Corp .............................. 100,000 6.750% 08/01/25 85,375
General Electric Capital Corporation .......... 100,000 8.750% 05/21/07 108,710
International Business Machines ............... 50,000 8.375% 11/01/19 54,313
Morgan Stanley Group, Inc. .................... 75,000 7.500% 02/01/24 72,411
Pacific Bell .................................. 100,000 6.250% 03/01/05 95,412
United Parcel Service of America .............. 50,000 8.375% 04/01/20 54,687
U S West Communications Group ................. 50,000 6.875% 09/15/33 42,305
Wachovia Corporation .......................... 75,000 6.375% 04/15/03 72,985
Wal-Mart Stores, Inc. ......................... 25,000 6.500% 06/01/03 24,627
Wal-Mart Stores, Inc. ......................... 150,000 8.875% 06/29/11 154,366
Wal-Mart Stores, Inc. ......................... 25,000 8.500% 09/15/24 25,963
-----------
Total Corporate Obligations (Cost $1,797,498) ..................................... 1,844,588
-----------
------------------------------------------------------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 5.00%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares .................................. 749,412 749,412
Evergreen Money Market Treasury Institutional Treasury Money
Market Fund Institutional Service Shares .................................. 74,497 74,497
-----------
Total Investment Companies (Cost $823,909) ........................................ 823,909
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
CAPITAL VALUE FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
Total Value of Investments (Cost $9,527,492 (c)) ..................................... 101.09 % $16,667,709
Liabilities In Excess Of Other Assets ................................................ (1.09)% (180,462)
------ -----------
Net Assets ...................................................................... 100.00 % $16,487,247
====== ============
(a) Non-income producing investment.
(b) Foreign securities represent securities issued in the United States markets by non-domestic companies.
(c) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation .......................................................................... $ 7,538,742
Unrealized depreciation .......................................................................... (398,525)
-----------
Net unrealized appreciation ....................................................... $ 7,140,217
===========
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $9,527,492) .......................................................... $16,667,709
Cash ............................................................................................. 395
Income receivable ................................................................................ 45,298
Receivable for fund shares sold .................................................................. 8,767
-----------
Total assets ................................................................................ 16,722,169
-----------
LIABILITIES
Accrued expenses ................................................................................. 26,227
Payable for investment purchases ................................................................. 208,695
-----------
Total liabilities ........................................................................... 234,922
-----------
NET ASSETS
(applicable to 785,781 shares outstanding; unlimited
shares of no par value beneficial interest authorized) .......................................... $16,487,247
===========
NET ASSET VALUE AND REDEMPTION PRICE PER INVESTOR CLASS SHARE
($16,487,247 / 785,781) .......................................................................... $20.98
===========
OFFERING PRICE PER INVESTOR CLASS SHARE
(100 / 96.5 of $20.98) ........................................................................... $21.74
===========
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $ 9,060,654
Undistributed net realized gain on investments ................................................... 286,376
Net unrealized appreciation on investments ....................................................... 7,140,217
-----------
$16,487,247
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENT OF OPERATIONS
Year ended March 31, 2000
INVESTMENT INCOME
Income
Interest ........................................................................................ $ 143,717
Dividends ....................................................................................... 112,939
----------
Total income .............................................................................. 256,656
----------
Expenses
Investment advisory fees (note 2) ............................................................... 76,884
Fund administration fees (note 2) ............................................................... 22,424
Distribution and service fees - Investor Class Shares (note 3) .................................. 64,085
Custody fees .................................................................................... 3,804
Registration and filing administration fees (note 2) ............................................ 3,103
Fund accounting fees (note 2) ................................................................... 24,000
Audit fees ...................................................................................... 11,312
Legal fees ...................................................................................... 5,005
Securities pricing fees ......................................................................... 5,984
Shareholder recordkeeping fees .................................................................. 9,000
Other accounting fees (note 2) .................................................................. 2,621
Shareholder servicing expenses .................................................................. 5,656
Registration and filing expenses ................................................................ 3,503
Printing expenses ............................................................................... 3,705
Trustee fees and meeting expenses ............................................................... 3,911
Other operating expenses ........................................................................ 4,241
----------
Total expenses ............................................................................ 249,238
----------
Net investment income ................................................................ 7,418
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ....................................................... 828,190
Increase in unrealized appreciation on investments ................................................... 4,240,386
----------
Net realized and unrealized gain on investments ................................................. 5,068,576
----------
Net increase in net assets resulting from operations ...................................... $5,075,994
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income ............................................................ $ 7,418 $ 40,509
Net realized gain from investment transactions ................................... 828,190 1,210,654
Increase in unrealized appreciation on investments ............................... 4,240,386 169,272
----------- -----------
Net increase in net assets resulting from operations ......................... 5,075,994 1,420,435
----------- -----------
Distributions to shareholders from
Net investment income ............................................................ (7,418) (40,509)
Net realized gain from investment transactions ................................... (939,190) (813,281)
----------- -----------
Decrease in net assets resulting from distributions .......................... (946,608) (853,790)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............. 1,301,587 601,561
----------- -----------
Total increase in net assets ............................................ 5,430,973 1,168,206
NET ASSETS
Beginning of year ..................................................................... 11,056,274 9,888,068
----------- -----------
End of year ........................................................................... $16,487,247 $11,056,274
=========== ===========
(a) A summary of capital share activity follows:
-------------------------------------------------------------------------------------
Year ended Year ended
March 31, 2000 March 31, 1999
Shares Value Shares Value
-------------------------------------------------------------------------------------
Shares sold ............................... 82,969 $ 1,479,836 65,106 $ 969,346
Shares issued for reinvestment
of distributions ..................... 49,947 944,653 57,489 853,665
----------- ----------- ----------- -----------
132,916 2,424,489 122,595 1,823,011
Shares redeemed ........................... (69,039) (1,122,902) (82,277) (1,221,450)
----------- ----------- ----------- -----------
Net increase ......................... 63,877 $ 1,301,587 40,318 $ 601,561
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPITAL VALUE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ......................... $15.32 $14.51 $12.50 $11.92 $10.75
Income from investment operations
Net investment income ........................... 0.01 0.06 0.13 0.15 0.19
Net realized and unrealized gain on investments 6.99 2.02 3.93 0.70 1.53
----------- ----------- ----------- ----------- -----------
Total from investment operations ........... 7.00 2.08 4.06 0.85 1.72
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net investment income ........................... (0.01) (0.06) (0.13) (0.15) (0.20)
Tax return of capital ........................... 0.00 0.00 0.00 (0.01) 0.00
Net realized gain from investment transactions .. (1.33) (1.21) (1.92) (0.11) (0.35)
----------- ----------- ----------- ----------- -----------
Total distributions ........................ (1.34) (1.27) (2.05) (0.27) (0.55)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ............................... $20.98 $15.32 $14.51 $12.50 $11.92
=========== =========== =========== =========== ===========
Total return ............................................... 46.68 % 14.67 % 32.89 % 7.08 % 16.16 %
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year .............................. $16,487,247 $11,056,274 $ 9,888,068 $ 7,738,255 $ 7,551,803
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ... 1.95 % 2.15 % 2.12 % 2.38 % 2.56 %
After expense reimbursements and waived fees .... 1.95 % 2.15 % 2.12 % 2.38 % 2.33 %
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees ... 0.06 % 0.40 % 0.91 % 1.12 % 1.44 %
After expense reimbursements and waived fees .... 0.06 % 0.40 % 0.91 % 1.12 % 1.66 %
Portfolio turnover rate .............................. 34.93 % 70.65 % 33.50 % 7.31 % 12.33 %
See accompanying notes to financial statements
</TABLE>
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Capital Value Fund (the "Fund") is a diversified series of
shares of beneficial interest of The Nottingham Investment Trust
II (the "Trust"). The Trust, an open-ended investment company, was
organized on October 18, 1990 as a Massachusetts Business Trust
and is registered under the Investment Company Act of 1940, as
amended. The investment objective of the Fund is to provide its
shareholders with a maximum total return consisting of any
combination of capital appreciation, both realized and unrealized,
and income under the constantly varying market conditions by
investing in a flexible portfolio of equity securities, fixed
income securities, and money market instruments. The Fund began
operations on November 16, 1990.
Pursuant to a plan approved by the Board of Trustees of the Trust,
the existing single class of shares of the Fund was redesignated
as the Investor Class of shares of the Fund on June 15, 1995 and
an additional class of shares, the Institutional shares, was
authorized. To date, only Investor Class shares have been issued
by the Fund. The Institutional Class shares will be sold without a
sales charge and will bear no distribution and service fees. The
Investor Class shares are subject to a maximum 3.50% sales charge
and bear distribution and service fees which may not exceed 0.50%
of the Investor Class shares' average net assets annually. The
following is a summary of significant accounting policies followed
by the Fund.
A. Security Valuation - The Fund's investments in securities
are carried at value. Securities listed on an exchange or
quoted on a national market system are valued at the last
sales price as of 4:00 p.m. New York time on the day of
valuation. Other securities traded in the over-the-counter
market and listed securities for which no sale was reported
on that date are valued at the most recent bid price.
Securities for which market quotations are not readily
available, if any, are valued by using an independent
pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost
which approximates value.
B. Federal Income Taxes - The Fund is considered a personal
holding company as defined under Section 542 of the Internal
Revenue Code since 50% of the value of the Fund's shares
were owned directly or indirectly by five or fewer
individuals at certain times during the last half of the
year. As a personal holding company, the Fund is subject to
federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No
provision has been made for federal income taxes since
substantially all taxable income has been distributed to
shareholders. It is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all
federal income taxes.
Net investment income and net realized gains may differ for
financial statement and income tax purposes primarily
because of losses incurred subsequent to October 31, which
are deferred for income tax purposes. The character of
distributions made during the year from net investment
income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due
to the timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that
the income or realized gains were recorded by the Fund.
(Continued)
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
C. Investment Transactions - Investment transactions are
recorded on the trade date. Realized gains and losses are
determined using the specific identification cost method.
Interest income is recorded daily on the accrual basis.
Dividend income is recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund generally declares
dividends quarterly, payable in March, June, September and
December, on a date selected by the Trust's Trustees. In
addition, distributions may be made annually in December out
of net realized gains through October 31 of that year.
Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental
distribution subsequent to the end of its fiscal year ending
March 31.
E. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amount of assets, liabilities, expenses and
revenues reported in the financial statements. Actual
results could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Capital Investment
Counsel, Inc. (the "Advisor") provides the Fund with a continuous
program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies
and the purchase and sale of securities. As compensation for its
services, the Advisor receives a fee at the annual rate of 0.60%
of the first $250 million of the average daily net assets of the
Fund and 0.50% of average daily net assets over $250 million.
The Fund's administrator, The Nottingham Company (the
"Administrator"), provides administrative services to and is
generally responsible for the overall management and day-to-day
operations of the Fund pursuant to a fund accounting and
compliance agreement with the Trust. As compensation for its
services, the Administrator receives a fee at the annual rate of
0.175% of the Fund's first $50 million of average daily net
assets, 0.15% of the next $50 million of average daily net assets,
0.125% of the next $50 million of average daily net assets, and
0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting
and recordkeeping services. 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.
NC Shareholder Services, LLC (the "Transfer Agent") serves as the
Funds' transfer, dividend paying, and shareholder servicing agent.
The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts,
processes purchases and redemptions of the Fund shares, acts as
dividend and distribution disbursing agent, and performs other
shareholder servicing functions.
(Continued)
<PAGE>
CAPITAL VALUE FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
Capital Investment Group, Inc. (the "Distributor"), an affiliate
of the Advisor, serves as the Fund's principal underwriter and
distributor. The Distributor receives any sales charges imposed on
purchases of shares and re-allocates a portion of such charges to
dealers through whom the sale was made, if any. For the year ended
March 31, 2000, the Distributor retained sales charges in the
amount of $2,457.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the Distributor or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who
are not "interested persons" of the Trust as defined in the
Investment Company Act of 1940 (the "Act"), as amended, adopted a
distribution plan pursuant to Rule 12b-1 of the Act (the "Plan").
The Act regulates the manner in which a regulated investment
company may assume expenses of distributing and promoting the
sales of its shares and servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain expenses, which
may not exceed 0.50% per annum of the Investor Class shares'
average daily net assets for each year elapsed subsequent to
adoption of the Plan, for payment to the Distributor and others
for items such as advertising expenses, selling expenses,
commissions, travel or other expenses reasonably intended to
result in sales of Investor shares of the Fund or support
servicing of shareholder accounts. Expenditures incurred as
service fees may not exceed 0.25% per annum of the Investor Class
shares' average daily net assets. The Fund incurred $64,085 of
such expenses under the Plan for the year ended March 31, 2000.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $5,092,476 and $3,902,194, respectively,
for the year ended March 31, 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 and short-term capital gain to its
shareholders. Of the total $1.33 per share distribution for the
year ended March 31, 2000, $1.29 represents long-term capital gain
and the remaining $0.04 represents the short-term capital gain.
Shareholders should consult a tax advisor on how to report
distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
Capital Value Fund:
We have audited the accompanying statement of assets and liabilities of Capital
Value Fund, including the portfolio of investments, as of March 31, 2000, and
the related statement of operations for the year then ended, the statements of
changes in net assets for the years ended March 31, 2000 and 1999, and financial
highlights for the years presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Value Fund as of March 31, 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 years, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
Cusip Number 66976M839 NASDAQ Ticker WSTSX
________________________________________________________________________________
WST GROWTH FUND
A series of the
Nottingham Investment Trust II
INSTITUTIONAL CLASS SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
The WST Growth Fund ("Fund") seeks total return from a combination of capital
appreciation and current income. This prospectus relates to the Institutional
Class Shares of the Fund. The Fund also offers two additional classes of shares:
Investor Class Shares and Class C Shares, which are offered by other
prospectuses.
Prior to January 3, 2000, the Fund was known as the "WST Growth & Income Fund."
The Board of Trustees of the Nottingham Investment Trust II ("Trust") determined
that renaming the Fund more accurately reflected the investment objectives and
policies of the Fund.
Investment Advisor
------------------
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other agency and are subject to investment risks including
possible loss of principal amount invested. Neither the Fund nor the Fund's
distributor is a bank. You should read the prospectus carefully before you
invest or send money.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND.......................................................................2
--------
Investment Objective.....................................................2
Principal Investment Strategies..........................................2
Principal Risks Of Investing In The Fund.................................4
Bar Chart And Performance Table..........................................5
Fees And Expenses Of The Fund............................................6
MANAGEMENT OF THE FUND.........................................................7
----------------------
The Investment Advisor...................................................7
The Administrator........................................................8
The Transfer Agent.......................................................8
The Distributor..........................................................8
INVESTING IN THE FUND..........................................................9
---------------------
Minimum Investment.......................................................9
Purchase And Redemption Price............................................9
Purchasing Shares........................................................9
Redeeming Your Shares...................................................11
OTHER IMPORTANT INVESTMENT INFORMATION........................................13
--------------------------------------
Dividends, Distributions, And Taxes.....................................13
Financial Highlights....................................................14
Additional Information..........................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The WST Growth Fund seeks total return from a combination of capital
appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund will seek to achieve its objective by investing primarily in a flexible
portfolio of equity securities. The Fund may also invest in fixed income
securities and money market instruments.
Wilbanks, Smith & Thomas Asset Management, Inc. ("Advisor") will vary the
percentage of Fund assets invested in equities, fixed income securities, and
money market instruments according to the Advisor's judgment of market and
economic conditions, and based on the Advisor's view of which asset class can
best achieve the Fund's objectives.
Equity Securities
Selection of equity securities will be based primarily on the expected capital
appreciation potential, and the percentage invested in equity securities will
generally comprise at least 80% of the portfolio.
The equity portion of the Fund's portfolio will consist generally of common
stocks traded on domestic securities exchanges or on the over-the-counter
markets. Foreign equity securities will be limited to those available on
domestic U.S. exchanges and denominated in U.S. dollars.
The Advisor utilizes a "top down" approach to equity selection.
--------------------------------------------------------------------
Macroeconomic Analysis and Projected Trends
Research consisting of four primary areas
(market interest rates, Federal Reserve policy, inflation, and economic
growth, as typically measured by gross domestic product)
--------------------------------------------------------------------
------------------------------------------
Sector Analysis
Research and analysis of sectors within
the research universe
------------------------------------------
--------------------
Industry Analysis
Industry analysis of companies
within each sector
--------------------
From an initial research universe of approximately 5,400 companies, a "screen"
is performed to identify securities with a projected earnings per share growth
rate of 12% or more, market capitalization of not less than $750 million, price
earnings' ratios within appropriate relative ranges compared to comparable
sector and industry companies, and a projection of increasing earnings
estimates.
At this point, the Advisor utilizes a philosophy known as "GARP," growth at
reasonable price, as its underlying equity investment selection philosophy. The
screens, referred to in the paragraph above, result in a universe of
approximately 400 companies, which then receive active research by the Advisor's
Investment Committee. From this universe of 400 companies, the Advisor reduces
the equity universe to approximately 75 companies which, depending upon the then
current price in the equities markets for that company, are eligible for
purchase by the Fund.
2
<PAGE>
The Advisor will base security selection on the following factors:
o financial history of the company,
o consistency of earnings,
o return on equity,
o cash flow,
o strength of management,
o ratios such as price/earnings, price/book value, price/sales, and price/
cash flow, and
o historical valuations and future prospects of the company.
Under normal market conditions, the Fund will include 25 to 45 companies in its
portfolio.
The Advisor performs rigorous research on individual companies in the final
equity universe through direct contact with senior management of the Fund's
holdings as well as competitors, suppliers, and customers of those companies. In
addition, the Advisor reviews research generated by Wall Street analysts. The
Advisor's research analysts construct financial models based upon the data
gathered from various sources, to assist in each security's qualification under
the Advisor's security selection criteria.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
o the anticipated price appreciation has been achieved or is no longer
probable;
o alternative investments offer superior total return prospects; or
o fundamentals change adversely.
Fixed Income Securities
Selection of fixed income securities will be primarily for income and the
percentage invested in fixed income securities and money market instruments, in
the aggregate, will generally comprise not more than 20% of the portfolio.
The Advisor will allocate approximately 50% of the fixed income portion of the
Fund to duration strategies using U.S. Treasury securities. The remaining 50% of
fixed income securities are selected based upon investment analysis by the
Advisor, attempting to identify securities that are undervalued. Fixed income
securities are identified as undervalued in circumstances, for instance, where
the Advisor believes the credit rating of the company is subject to an increase,
which has the potential to reduce the price spread to a comparable maturity U.S.
Treasury security, and in turn an increase in price. Fixed income securities may
also be identified as undervalued if the spread (difference in yield to an
underlying treasury of comparable maturity) for a particular security is too
large relative to similar fixed income securities within similar maturities and
similar credit quality.
The Fund may invest in fixed income securities that may be rated below "Baa" by
Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's
Ratings Groups ("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch")
or which, if unrated, are of comparable quality as determined by the Advisor
(so-called "junk bonds"). The Fund will not invest more than 50% of the total
fixed income portion of its portfolio (and not more that 10% of the Fund's total
assets) in junk bonds. The Fund will not invest in junk bonds rated lower than
"Caa" by Moody's, "CCC" by Standard & Poor's or Fitch, or equivalent unrated
securities.
Money Market Instruments
Money market instruments will typically represent a portion of the Fund's
portfolio as a method to: (1) temporarily invest monies received by the Fund
prior to investing in equity or fixed income securities; (2) accumulate cash for
anticipated purchases of portfolio securities; and (3) provide for shareholder
redemptions and the payment of operating expenses of the Fund.
3
<PAGE>
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents, investment-grade bonds,
U.S. Government Securities, repurchase agreements, or money market instruments
as a temporary defensive position, when the Advisor determines that market
conditions warrant such investments. When the Fund invests in these investments
as a temporary defensive measure, it is not pursuing its stated investment
objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested. Generally, the Fund will be subject to
the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
Credit risk is particularly significant to the Fund when investing a
portion of its assets in "junk bonds" or lower-rated securities.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates causes the value of fixed income securities to decrease, and
vice versa. There is the possibility that the value of the Fund's
investment in fixed income securities may fall because fixed income
securities generally fall in value when interest rates rise. Changes in
interest rates may have a significant effect on the Fund holding a
significant portion of its assets in fixed income securities with long-term
maturities.
o Maturity Risk: Maturity risk is another factor which can affect the value
of the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated "BBB" by
Standard & Poor's or "Baa" by Moody's are considered investment-grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity
to pay principal and interest, and are considered to lack outstanding
investment characteristics and may be speculative.
o Junk Bonds or Lower rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by Standard & Poor's or Moody's, respectively, are
speculative in nature and may be subject to certain risks with respect to
the issuing entity and to greater market fluctuations than higher rate
fixed income securities. They are usually issued by companies without long
track records of sales and earnings, or by companies with questionable
credit strength. These fixed income securities are considered "below
investment-grade." The retail secondary market for these "junk bonds" may
be less liquid than that of higher rated securities and adverse conditions
could make it difficult at times to sell certain securities or could result
in lower prices than those used in calculating the Fund's net asset value.
4
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Institutional Class Shares of the Fund by showing (on a
calendar year basis) changes in the Institutional Class Shares' annual total
returns during the last two calendar years since the Fund's inception, and by
showing (on a calendar year basis) how the Institutional Class Shares' average
annual returns compare to those of 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.
[BAR CHART HERE]:
Calendar Year Returns
Institutional Class Shares
1998 19.89%
1999 14.12%
o During the 2-year period shown in the bar chart above, the highest return for
a calendar quarter was 23.49% (quarter ended December 31, 1998).
o During the 2-year period shown in the bar chart above, the lowest return for
a calendar quarter was -12.98% (quarter ended September 30, 1998).
o The calendar year-to-date return for the Institutional Class Shares as of the
most recent calendar quarter was -1.29% (quarter ended June 30, 2000).
-------------------------------------------------- -------------- --------------
Average Annual Total Returns Past 1 Since
Period ended December 31, 1999 Year Inception*
-------------------------------------------------- -------------- --------------
WST Growth Fund - Institutional Class Shares 14.12% 15.96%
-------------------------------------------------- -------------- --------------
Russell 2000 Index** 21.36% 6.25%
-------------------------------------------------- -------------- --------------
S&P 500 Total Return Index *** 21.04% 23.24%
-------------------------------------------------- -------------- --------------
* September 30, 1997 (commencement of operations of the Institutional Class
Shares)
** The Russell 2000 Index is a widely-recognized unmanaged index of small
capitalization stocks.
*** The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
5
<PAGE>
FEES AND EXPENSES OF THE FUND
The tables below describe the fees and expenses that you may pay if you buy and
hold Institutional Class Shares of the Fund.
------------------------------------------------------------------ -------------
Shareholder Fees for Institutional Class Shares
------------------------------------------------------------------ -------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
------------------------------------------------------------------ -------------
Maximum deferred sales charge (load) None
------------------------------------------------------------------ -------------
Maximum imposed sales charge (load) on reinvested dividends None
------------------------------------------------------------------ -------------
Redemption fee None
------------------------------------------------------------------ -------------
Exchange fee None
------------------------------------------------------------------ -------------
------------------------------------------------------------------ -------------
Annual Fund Operating Expenses for Institutional Class Shares
(expenses that are deducted from Fund assets)
------------------------------------------------------------------ -------------
Management Fees 0.75 %
------------------------------------------------------------------ -------------
Distribution and/or Service (12b-1) Fees 0.00 %
------------------------------------------------------------------ -------------
Other Expenses 0.93 %
----
------------------------------------------------------------------ -------------
Total Annual Fund Operating Expenses 1.68 %*
====
------------------------------------------------------------------ -------------
* "Total Annual Fund Operating Expenses" are based upon actual expenses
incurred by the Institutional Class Shares of the Fund for the fiscal year
ended March 31, 2000. After waivers of a portion of the investment
advisory fees by the Advisor, Net Fund Operating Expenses were 1.60% of
the average daily net assets of the Institutional Class Shares of the Fund
for the fiscal year ended March 31, 2000. The Advisor has entered into a
contractual agreement with the Trust under which it has agreed to waive or
reduce its fees and to assume other expenses of the Fund, if necessary, in
an amount that limits Total Annual Fund Operating Expenses (exclusive of
interest, taxes, brokerage fees and commissions, extraordinary expenses,
and payments, if any, under a Rule 12b-1 Plan) to not more than 1.75% of
the average daily net assets of the Institutional Class Shares of the Fund
for the fiscal year ending March 31, 2001. It is expected that the
contractual agreement will continue from year-to-year provided such
continuance is approved by the Board of Trustees. See the "Expense
Limitation Agreement" section below for more detailed information.
Example: This Example shows you the expenses you may pay over time by investing
in the Institutional Class Shares of the Fund. Since all funds use the same
hypothetical conditions, it should help you compare the costs of investing in
the Fund versus other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above as well as those upon
redemption.
------------------------ ------------- ------------- ------------- -------------
Period Invested 1 Year 3 Years 5 Years 10 Years
------------------------ ------------- ------------- ------------- -------------
Your Costs $171 $530 $913 $1,987
------------------------ ------------- ------------- ------------- -------------
6
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
Subject to the authority of the Board of Trustees, Wilbanks, Smith & Thomas
Asset Management, Inc., One Commercial Place, Suite 1450, Norfolk, Virginia
23510, provides the Fund with a continuous program of supervision of the Fund's
assets, including the composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities pursuant to an Amended and Restated Investment
Advisory Agreement with the Trust ("Advisory Agreement").
The Advisor is registered under the Investment Advisors Act of 1940, as amended
("1940 Act"). Registration of the Advisor does not involve any supervision of
management or investment practices or policies by the Securities and Exchange
Commission ("SEC"). The Advisor was established as a Virginia corporation in
1990 and is controlled by Wayne F. Wilbanks, CFA, L. Norfleet Smith, Jr., and
Norwood A. Thomas, Jr.
The Advisor currently serves as investment advisor to over $1 billion in assets.
The Advisor has been rendering investment counsel, utilizing investment
strategies substantially similar to that of the Fund, to individuals, banks and
thrift institutions, pension and profit sharing plans, trusts, estates,
charitable organizations and corporations since its formation.
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Fund may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see "Other
Investment Policies " in the Statement of Additional Information ("SAI").
The Investment Committee of the Advisor, composed of Wayne F. Wilbanks, CFA, L.
Norfleet Smith, Jr., and Norwood A. Thomas, Jr. (all control persons of the
Advisor) is responsible for day-to-day management of the Fund's portfolio. Mr.
Wilbanks has been with the Advisor since its formation in 1990. Messrs. Smith
and Thomas have been with the Advisor since 1992. Messrs. Wilbanks and Thomas
serve as executive officers of the Trust and will represent the Advisor at Board
of Trustees meetings.
The Advisor's Compensation. Compensation of the Advisor with regard to the Fund,
based upon the Fund's daily average net assets, is at the annual rate of 0.75%
of the first $250 million of net assets and 0.65% of all assets over $250
million. For the fiscal year ending March 31, 2000, the Advisor voluntarily
waived $13,785 of its advisory fee. As a result, the amount of compensation
received by the Advisor as a percentage of assets of the Fund during the last
fiscal year was 0.67%.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
on March 20, 2000 the Advisor renewed its 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, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
amounts, if any, payable pursuant to a Rule 12b-1 Plan) are limited to 1.75% of
the average net assets of each class of shares for the fiscal year to end March
31, 2001. The Expense Limitation Agreement shall continue from year-to-year
provided such continuance is specifically approved by a majority of the Trustees
of the Trust who (i) are not "interested persons" of the Trust or any other
party to this Agreement, as defined in the 1940 Act, and (ii) have no direct or
indirect financial interest in the operation of this Expense Limitation
Agreement.
7
<PAGE>
The Fund may at a later date reimburse the Advisor the fees waived or limited
and other expenses assumed and paid by the Advisor pursuant to the Expense
Limitation Agreement, provided the Fund has reached a sufficient asset size to
permit such reimbursement to be made without causing the total annual expense
ratio of the Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
THE ADMINISTRATOR
The Nottingham Company, Inc. ("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 ("Transfer Agent") serves as the Fund's transfer,
dividend paying, and shareholder servicing agent. As indicated later in the
"Investing in the Fund" section of this Prospectus, the Transfer Agent will
handle your orders to purchase and redeem shares of the Fund, and will disburse
dividends paid by the Fund. The Transfer Agent is compensated for its services
by the Trust pursuant to a Dividend Disbursing and Transfer Agent Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") serves as the distributor of the
Fund's Institutional Class Shares. The Distributor may sell such shares to or
through qualified securities dealers or others.
Other Expenses. In addition to the advisory fees (and 12b-1 fees for the
Investor Class Shares and Class C Shares of the Fund), the Fund pays all
expenses not assumed by the Fund's Advisor, including, without limitation: the
fees and expenses of its administrator, custodian, transfer and dividend
disbursing agent independent accountants and legal counsel; the costs of
printing and mailing to shareholders annual and semi-annual reports, proxy
statements, prospectuses, statements of additional information and supplements
thereto; the costs of printing registration statements; bank transaction charges
and custodian's fees; any proxy solicitors' fees and expenses; filing fees; any
federal, state or local income or other taxes; any interest; any membership fees
of the Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Fund, on a basis that the Trustees
deem fair and equitable, which may be on the basis of the relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
8
<PAGE>
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Institutional Class Shares are sold and redeemed at net asset value. Shares may
be purchased by any account managed by the Advisor and any other broker-dealer
authorized to sell shares in the Fund. The minimum initial investment is $25,000
($2,000 for Individual Retirement Accounts ("IRAs"), Keogh Plans, 401(k) Plans,
or purchases under the Uniform Gifts to Minors Act). The minimum additional
investment is $500 ($100 for those participating in the Automatic Investment
Plan). The Fund may, in the Advisor's sole discretion, accept certain accounts
with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
Eastern time, Monday through Friday, except on business holidays when the NYSE
is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund. All redemption requests
will be processed and payment with respect thereto will normally be made within
7 days after the redemption order is received. The Fund may suspend redemptions,
if permitted by the 1940 Act, for any period during which the NYSE is closed or
during which trading is restricted by the SEC or if the SEC declares that an
emergency exists. Redemptions may also be suspended during other periods
permitted by the SEC for the protection of the Fund's shareholders.
Additionally, during drastic economic and market changes, telephone redemption
privileges may be difficult to implement. Also, if the Trustees determine that
it would be detrimental to the best interest of the Fund's remaining
shareholders to make payment in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "WST Growth
Fund," to:
WST Growth Fund
Institutional Class Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
9
<PAGE>
The application must contain your Social Security Number ("SSN") or Taxpayer
Identification Number ("TIN"). If you have applied for a SSN 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 SSN
and TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the WST Growth Fund - Institutional Class Shares
Acct. # 2000001068081
For further credit to (shareholder's name and SSN or TIN)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the net asset
value on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund. Investors who establish an Automatic Investment Plan may open an account
with a minimum balance of $1,000. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series or class of shares of the Trust advised by the Advisor and offered for
sale in the state in which you reside. Any such exchange will be made at the
applicable net asset value plus the percentage difference between the sales
charge applicable to those shares and any sales charge previously paid by you in
connection with the shares being exchanged. Prior to making an investment
decision or giving the Fund 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.
10
<PAGE>
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption requests should be addressed
to:
WST Growth Fund
Institutional Class Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption requests should include:
(1) Your letter of instruction specifying the account number and number of
shares or the dollar amount to be redeemed (this request must be signed
by all registered shareholders in the exact names in which they are
registered);
(2) Any required signature guarantees (see "Signature Guarantees" below);
and
(3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. However, the Fund may delay forwarding
a redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
(1) The name of the Fund and the designation of class of shares
(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.
11
<PAGE>
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named on 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
Trust's Amended and Restated Declaration of Trust and By-Laws. The Board of
Trustees reserves the right to redeem involuntarily any account having a net
asset value of less than $25,000 ($2,000 for IRAs, Keogh Plans, 401(k) Plans or
purchases under the Uniform Gifts to Minors Act) due to redemptions, exchanges,
or transfers, and not due to market action, upon 60-days' written notice. If the
shareholder brings his account net asset value up to at least $25,000 ($2,000
for IRAs, Keogh Plans, 401(k) Plans or purchases under the Uniform Gifts to
Minors Act) during the notice period, the account will not be redeemed.
Redemptions from retirement plans may be subject to federal income tax
withholding.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
cases, 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
$25,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Shares Application form.
12
<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 on 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 taxes 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 between
series 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.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the WST Growth Fund's Institutional Class Shares for the
fiscal years ended March 31, 2000, 1999, and the fiscal period ended March 31,
1998. The financial data have been audited by Deloitte & Touche LLP, independent
auditors, whose report covering such years and period is incorporated by
reference into the SAI. This information should be read in conjunction with the
Fund's latest audited annual financial statements and notes thereto, which are
also incorporated by reference into the SAI, 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 at 1-800-773-3863.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL CLASS SHARES
(For a Share Outstanding Throughout each Period)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Period ended
March 31, March 31, March 31,
2000 1999 1998 (a)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.77 $ 11.29 $ 10.02
Income from investment operations
Net investment loss ................................ (0.04) 0.00 0.00
Net realized and unrealized gain on investments .... 1.47 1.48 1.27
----------- ----------- -----------
Total from investment operations ............. 1.43 1.48 1.27
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.20 $ 12.77 $ 11.29
=========== =========== ===========
Total return ................................................. 11.20 % 13.11 % 12.72 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $16,737,026 $11,419,391 $ 6,376,193
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 1.68 %(b) 2.08 % 3.15 %(b)
After expense reimbursements and waived fees ....... 1.60 %(b) 1.75 % 1.75 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.45)%(b) (0.35)% (1.31)%(b)
After expense reimbursements and waived fees ....... (0.37)%(b) (0.01)% 0.09 %(b)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) For the period from September 30, 1997 (commencement of operations) to March 31, 1998.
(b) Annualized.
</TABLE>
14
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
WST GROWTH FUND
INSTITUTIONAL CLASS SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's SAI. Additional
information about the Fund's investments is also available in the Fund's Annual
and Semi-annual Reports to shareholders. The Fund's Annual Report includes a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
The SAI and the Annual and Semi-annual Reports are available free of charge upon
request (you may also request other information about the Fund or make
shareholder inquiries) by contacting us:
By telephone: 1-800-525-3863
By mail: WST Growth Fund
Institutional Class Shares
c/o NC Shareholder Services
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 1-202-942-8090. 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 electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act file number 811-06199
<PAGE>
________________________________________________________________________________
WST GROWTH FUND
INSTITUTIONAL CLASS SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
<PAGE>
Cusip Number 66976M821 NASDAQ Ticker WSTVX
________________________________________________________________________________
WST GROWTH FUND
A series of the
Nottingham Investment Trust II
INVESTOR CLASS SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
The WST Growth Fund ("Fund") seeks total return from a combination of capital
appreciation and current income. This prospectus relates to the Investor Class
Shares of the Fund. The Fund also offers two additional classes of shares:
Institutional Class Shares and Class C Shares, which are offered by other
prospectuses.
Prior to January 3, 2000, the Fund was known as the "WST Growth & Income Fund."
The Board of Trustees of the Nottingham Investment Trust II ("Trust") determined
that renaming the Fund more accurately reflected the investment objectives and
policies of the Fund.
Investment Advisor
------------------
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other agency and are subject to investment risks including
possible loss of principal amount invested. Neither the Fund nor the Fund's
distributor is a bank. You should read the prospectus carefully before you
invest or send money.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND.......................................................................2
--------
Investment Objective.....................................................2
Principal Investment Strategies..........................................2
Principal Risks Of Investing In The Fund.................................4
Bar Chart And Performance Table..........................................5
Fees And Expenses Of The Fund............................................6
MANAGEMENT OF THE FUND.........................................................7
----------------------
The Investment Advisor...................................................7
The Administrator........................................................8
The Transfer Agent.......................................................8
The Distributor..........................................................8
INVESTING IN THE FUND..........................................................9
---------------------
Minimum Investment.......................................................9
Purchase And Redemption Price............................................9
Purchasing Shares.......................................................10
Redeeming Your Shares...................................................12
OTHER IMPORTANT INVESTMENT INFORMATION........................................14
--------------------------------------
Dividends, Distributions, And Taxes.....................................14
Financial Highlights....................................................15
Additional Information..........................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The WST Growth Fund seeks total return from a combination of capital
appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund will seek to achieve its objective by investing primarily in a flexible
portfolio of equity securities. The Fund may also invest in fixed income
securities and money market instruments.
Wilbanks, Smith & Thomas Asset Management, Inc. ("Advisor") will vary the
percentage of Fund assets invested in equities, fixed income securities, and
money market instruments according to the Advisor's judgment of market and
economic conditions, and based on the Advisor's view of which asset class can
best achieve the Fund's objectives.
Equity Securities
Selection of equity securities will be based primarily on the expected capital
appreciation potential, and the percentage invested in equity securities will
generally comprise at least 80% of the portfolio.
The equity portion of the Fund's portfolio will consist generally of common
stocks traded on domestic securities exchanges or on the over-the-counter
markets. Foreign equity securities will be limited to those available on
domestic U.S. exchanges and denominated in U.S. dollars.
The Advisor utilizes a "top down" approach to equity selection.
--------------------------------------------------------------------
Macroeconomic Analysis and Projected Trends
Research consisting of four primary areas
(market interest rates, Federal Reserve policy, inflation, and economic
growth, as typically measured by gross domestic product)
--------------------------------------------------------------------
------------------------------------------
Sector Analysis
Research and analysis of sectors within
the research universe
------------------------------------------
--------------------
Industry Analysis
Industry analysis of companies
within each sector
--------------------
From an initial research universe of approximately 5,400 companies, a "screen"
is performed to identify securities with a projected earnings per share growth
rate of 12% or more, market capitalization of not less than $750 million, price
earnings' ratios within appropriate relative ranges compared to comparable
sector and industry companies, and a projection of increasing earnings
estimates.
At this point, the Advisor utilizes a philosophy known as "GARP," growth at
reasonable price, as its underlying equity investment selection philosophy. The
screens, referred to in the paragraph above, result in a universe of
approximately 400 companies, which then receive active research by the Advisor's
Investment Committee. From this universe of 400 companies, the Advisor reduces
the equity universe to approximately 75 companies which, depending upon the then
current price in the equities markets for that company, are eligible for
purchase by the Fund.
2
<PAGE>
The Advisor will base security selection on the following factors:
o financial history of the company,
o consistency of earnings,
o return on equity,
o cash flow,
o strength of management,
o ratios such as price/earnings, price/book value, price/sales, and price/
cash flow, and
o historical valuations and future prospects of the company.
Under normal market conditions, the Fund will include 25 to 45 companies in its
portfolio.
The Advisor performs rigorous research on individual companies in the final
equity universe through direct contact with senior management of the Fund's
holdings as well as competitors, suppliers, and customers of those companies. In
addition, the Advisor reviews research generated by Wall Street analysts. The
Advisor's research analysts construct financial models based upon the data
gathered from various sources, to assist in each security's qualification under
the Advisor's security selection criteria.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
o the anticipated price appreciation has been achieved or is no longer
probable;
o alternative investments offer superior total return prospects; or
o fundamentals change adversely.
Fixed Income Securities
Selection of fixed income securities will be primarily for income and the
percentage invested in fixed income securities and money market instruments, in
the aggregate, will generally comprise not more than 20% of the portfolio.
The Advisor will allocate approximately 50% of the fixed income portion of the
Fund to duration strategies using U.S. Treasury securities. The remaining 50% of
fixed income securities are selected based upon investment analysis by the
Advisor, attempting to identify securities that are undervalued. Fixed income
securities are identified as undervalued in circumstances, for instance, where
the Advisor believes the credit rating of the company is subject to an increase,
which has the potential to reduce the price spread to a comparable maturity U.S.
Treasury security, and in turn an increase in price. Fixed income securities may
also be identified as undervalued if the spread (difference in yield to an
underlying treasury of comparable maturity) for a particular security is too
large relative to similar fixed income securities within similar maturities and
similar credit quality.
The Fund may invest in fixed income securities that may be rated below "Baa" by
Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's
Ratings Groups ("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch")
or which, if unrated, are of comparable quality as determined by the Advisor
(so-called "junk bonds"). The Fund will not invest more than 50% of the total
fixed income portion of its portfolio (and not more that 10% of the Fund's total
assets) in junk bonds. The Fund will not invest in junk bonds rated lower than
"Caa" by Moody's, "CCC" by Standard & Poor's or Fitch, or equivalent unrated
securities.
Money Market Instruments
Money market instruments will typically represent a portion of the Fund's
portfolio as a method to: (1) temporarily invest monies received by the Fund
prior to investing in equity or fixed income securities; (2) accumulate cash for
anticipated purchases of portfolio securities; and (3) provide for shareholder
redemptions and the payment of operating expenses of the Fund.
3
<PAGE>
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents, investment-grade bonds,
U.S. Government Securities, repurchase agreements, or money market instruments
as a temporary defensive position, when the Advisor determines that market
conditions warrant such investments. When the Fund invests in these investments
as a temporary defensive measure, it is not pursuing its stated investment
objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested. Generally, the Fund will be subject to
the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
Credit risk is particularly significant to the Fund when investing a
portion of its assets in "junk bonds" or lower-rated securities.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates causes the value of fixed income securities to decrease, and
vice versa. There is the possibility that the value of the Fund's
investment in fixed income securities may fall because fixed income
securities generally fall in value when interest rates rise. Changes in
interest rates may have a significant effect on the Fund holding a
significant portion of its assets in fixed income securities with long-term
maturities.
o Maturity Risk: Maturity risk is another factor which can affect the value
of the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated "BBB" by
Standard & Poor's or "Baa" by Moody's are considered investment-grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity
to pay principal and interest, and are considered to lack outstanding
investment characteristics and may be speculative.
o Junk Bonds or Lower rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by Standard &Poor's or Moody's, respectively, are
speculative in nature and may be subject to certain risks with respect to
the issuing entity and to greater market fluctuations than higher rate
fixed income securities. They are usually issued by companies without long
track records of sales and earnings, or by companies with questionable
credit strength. These fixed income securities are considered "below
investment-grade." The retail secondary market for these "junk bonds" may
be less liquid than that of higher rated securities and adverse conditions
could make it difficult at times to sell certain securities or could result
in lower prices than those used in calculating the Fund's net asset value.
4
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and table shown below provide an indication of the risks of
investing in the Investor Class Shares of the Fund by showing (on a calendar
year basis) changes in the Investor Class Shares' annual total returns during
the last two calendar years since the Investor Class's inception, and by showing
(on a calendar year basis) how the Investor Class Shares' average annual returns
compare to those of 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.
[BAR CHART HERE]:
Calendar Year Returns
Investor Class Shares
1998 19.31%
1999 13.56%
o During the 2-year period shown in the bar chart above, the highest return for
a calendar quarter was 23.30% (quarter ended December 31, 1998).
o During the 2-year period shown in the bar chart above, the lowest return for
a calendar quarter was -13.12% (quarter ended September 30, 1998).
o The calendar year-to-date return for the Investor Class Shares as of the most
recent calendar quarter was -1.52% (quarter ended June 30, 2000).
o Sales loads are not reflected in the chart above. If these amounts were
reflected, returns would be less than those shown.
-------------------------------------------------- -------------- --------------
Average Annual Total Returns Past 1 Since
Period ended December 31, 1999* Year Inception**
-------------------------------------------------- -------------- --------------
WST Growth Fund - Investor Class Shares 9.30% 12.47%
-------------------------------------------------- -------------- --------------
Russell 2000 Index*** 21.36% 5.68%
-------------------------------------------------- -------------- --------------
S&P 500 Total Return Index **** 21.04% 22.31%
-------------------------------------------------- -------------- --------------
* The maximum sales load is reflected in the table above.
** October 3, 1997 (commencement of operations of the Investor Class Shares)
*** The Russell 2000 Index is a widely-recognized unmanaged index of small
capitalization stocks.
**** The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
5
<PAGE>
FEES AND EXPENSES OF THE FUND
The tables below describe the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Fund.
------------------------------------------------------------------ -------------
Shareholder Fees for Investor Class Shares
------------------------------------------------------------------ -------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 3.75%
------------------------------------------------------------------ -------------
Maximum deferred sales charge (load) None
------------------------------------------------------------------ -------------
Maximum imposed sales charge (load) on reinvested dividends None
------------------------------------------------------------------ -------------
Redemption fee None
------------------------------------------------------------------ -------------
Exchange fee None
------------------------------------------------------------------ -------------
------------------------------------------------------------------ -------------
Annual Fund Operating Expenses for Investor Class Shares
(expenses that are deducted from Fund assets)
------------------------------------------------------------------ -------------
Management Fees 0.75 %
------------------------------------------------------------------ -------------
Distribution and/or Service (12b-1) Fees 0.50 %
------------------------------------------------------------------ -------------
Other Expenses 0.90 %
----
------------------------------------------------------------------ -------------
Total Annual Fund Operating Expenses 2.15 %*
====
------------------------------------------------------------------ -------------
* "Total Annual Fund Operating Expenses" are based upon actual
expenses incurred by the Investor Class Shares of the Fund for
the fiscal year ended March 31, 2000. After waivers of a portion
of the investment advisory fees by the Advisor, Net Fund
Operating Expenses were 2.10% of the average daily net assets of
the Investor Class Shares of the Fund for the fiscal year ended
March 31, 2000. The Advisor has entered into a contractual
agreement with the Trust under which it has agreed to waive or
reduce its fees and to assume other expenses of the Fund, if
necessary, in an amount that limits Total Annual Fund Operating
Expenses (exclusive of interest, taxes, brokerage fees and
commissions, extraordinary expenses, and payments, if any, under
a Rule 12b-1 Plan) to not more than 1.75% of the average daily
net assets of the Investor Class Shares of the Fund for the
fiscal year ending March 31, 2001. It is expected that the
contractual agreement will continue from year-to-year provided
such continuance is approved by the Board of Trustees. See the
"Expense Limitation Agreement" section below for more detailed
information.
Example: This Example shows you the expenses you may pay over time by investing
in the Investor Class Shares of the Fund. Since all funds use the same
hypothetical conditions, it should help you compare the costs of investing in
the Fund versus other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above as well as those upon
redemption.
------------------------ ------------- ------------- ------------- -------------
Period Invested 1 Year 3 Years 5 Years 10 Years
------------------------ ------------- ------------- ------------- -------------
Your Costs $585 $1,023 $1,486 $2,765
------------------------ ------------- ------------- ------------- -------------
6
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
Subject to the authority of the Board of Trustees, Wilbanks, Smith & Thomas
Asset Management, Inc., One Commercial Place, Suite 1450, Norfolk, Virginia
23510, provides the Fund with a continuous program of supervision of the Fund's
assets, including the composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities pursuant to an Amended and Restated Investment
Advisory Agreement with the Trust ("Advisory Agreement").
The Advisor is registered under the Investment Advisors Act of 1940, as amended
("1940 Act"). Registration of the Advisor does not involve any supervision of
management or investment practices or policies by the Securities and Exchange
Commission ("SEC"). The Advisor was established as a Virginia corporation in
1990, and is controlled by Wayne F. Wilbanks, CFA, L. Norfleet Smith, Jr., and
Norwood A. Thomas, Jr.
The Advisor currently serves as investment advisor to over $1 billion in assets.
The Advisor has been rendering investment counsel, utilizing investment
strategies substantially similar to that of the Fund, to individuals, banks and
thrift institutions, pension and profit sharing plans, trusts, estates,
charitable organizations and corporations since its formation.
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Fund may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see "Other
Investment Policies" in the Statement of Additional Information ("SAI").
The Investment Committee of the Advisor, composed of Wayne F. Wilbanks, CFA, L.
Norfleet Smith, Jr., and Norwood A. Thomas, Jr. (all control persons of the
Advisor) is responsible for day-to-day management of the Fund's portfolio. Mr.
Wilbanks has been with the Advisor since its formation in 1990. Messrs. Smith
and Thomas have been with the Advisor since 1992. Messrs. Wilbanks and Thomas
serve as executive officers of the Trust and will represent the Advisor at Board
of Trustees meetings.
The Advisor's Compensation. Compensation of the Advisor with regard to the Fund,
based upon the Fund's daily average net assets, is at the annual rate of 0.75%
of the first $250 million of net assets and 0.65% of all assets over $250
million. For the fiscal year ending March 31, 2000, the Advisor voluntarily
waived $13,785 of its advisory fee. As a result, the amount of compensation
received by the Advisor as a percentage of assets of the Fund during the last
fiscal year was 0.67%.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
on March 20, 2000 the Advisor renewed its 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, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
amounts, if any, payable pursuant to a Rule 12b-1 Plan) are limited to 1.75% of
the average net assets of each class of shares for the fiscal year to end March
31, 2001. The Expense Limitation Agreement shall continue from year-to-year
provided such continuance is specifically approved by a majority of the Trustees
of the Trust who (i) are not "interested persons" of the Trust or any other
party to this Agreement, as defined in the 1940 Act, and (ii) have no direct or
indirect financial interest in the operation of this Expense Limitation
Agreement.
7
<PAGE>
The Fund may at a later date reimburse the Advisor the fees waived or limited
and other expenses assumed and paid by the Advisor pursuant to the Expense
Limitation Agreement, provided the Fund has reached a sufficient asset size to
permit such reimbursement to be made without causing the total annual expense
ratio of the Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
THE ADMINISTRATOR
The Nottingham Company, Inc. ("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 ("Transfer Agent") serves as the Fund's transfer,
dividend paying, and shareholder servicing agent. As indicated later in the
"Investing in the Fund" section of this Prospectus, the Transfer Agent will
handle your orders to purchase and redeem shares of the Fund, and will disburse
dividends paid by the Fund. The Transfer Agent is compensated for its services
by the Trust pursuant to a Dividend Disbursing and Transfer Agent Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") serves as the distributor of the
Fund's Investor Class Shares. The Distributor may sell such shares to or through
qualified securities dealers or others.
Distribution Plan. For the Investor Class Shares of the Fund, the Fund has
adopted a Distribution Plan in accordance with Rule 12b-1 ("Distribution Plan")
under the 1940 Act. The Distribution Plan provides that the Fund will annually
pay the Distributor up to 0.50% of the average daily net assets of the Fund's
Investor Class Shares for activities primarily intended to result in the sale of
those Investor Class Shares or the servicing of those shares, including to
compensate entities for providing distribution and shareholder servicing with
respect to the Fund's Investor Class Shares (this compensation is commonly
referred to as "12b-1 fees"). Because the 12b-1 fees are paid out of the Fund's
assets on an on-going basis, these fees, over time, will increase the cost of
your investment and may cost you more than paying other types of sales loads.
Other Expenses. In addition to the advisory fees (and 12b-1 fees for the
Investor Class Shares and Class C Shares of the Fund), the Fund pays all
expenses not assumed by the Fund's Advisor, including, without limitation: the
fees and expenses of its administrator, custodian, transfer and dividend
disbursing agent independent accountants and legal counsel; the costs of
printing and mailing to shareholders annual and semi-annual reports, proxy
statements, prospectuses, statements of additional information and supplements
thereto; the costs of printing registration statements; bank transaction charges
and custodian's fees; any proxy solicitors' fees and expenses; filing fees; any
federal, state or local income or other taxes; any interest; any membership fees
of the Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Fund, on a basis that the Trustees
deem fair and equitable, which may be on the basis of the relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
8
<PAGE>
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Investor Class Shares are sold subject to a maximum sales charge of 3.75%, so
that the term "offering price" includes the front-end sales load. Shares are
redeemed at net asset value. Shares may be purchased by any account managed by
the Advisor and any other broker-dealer authorized to sell shares in the Fund.
The minimum initial investment is $5,000 ($2,000 for Individual Retirement
Accounts ("IRAs"), Keogh Plans, 401(k) Plans, or purchases under the Uniform
Gifts to Minors Act). The minimum additional investment is $500 ($100 for those
participating in the Automatic Investment Plan). The Fund may, in the Advisor's
sole discretion, accept certain accounts with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Sales Charges. The public offering price of Investor Class Shares of the Fund
equals net asset value plus a sales charge. The Distributor receives this sales
charge and may reallow it in the form of dealer discounts and brokerage
commissions as follows:
<TABLE>
<S> <C> <C> <C>
------------------------------------- ---------------------- ------------------- -------------------------------
Sales Charge Sales Dealers Discounts and
Amount of Transactions At Charge As % of Net As % of Public Brokerage Commissions as
Public Offering Price Amount Invested Offering Price % of Public Offering Price
------------------------------------- ---------------------- ------------------- -------------------------------
Less than $250,000 3.93% 3.75% 3.65%
------------------------------------- ---------------------- ------------------- -------------------------------
$250,000 but less than $500,000 2.04% 2.00% 1.90%
------------------------------------- ---------------------- ------------------- -------------------------------
$500,000 or more 1.01% 1.00% 0.90%
------------------------------------- ---------------------- ------------------- -------------------------------
</TABLE>
From time to time dealers who receive dealer discounts and brokerage commissions
from the Distributor may reallow all or a portion of such dealer discounts and
brokerage commissions to other dealers or brokers. Pursuant to the terms of the
Distribution Agreement, the sales charge payable to the Distributor and the
dealer discounts may be suspended, terminated or amended. The Distributor, at
its expense, may, from time to time, provide additional promotional incentives
to dealers who sell Fund shares.
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
Eastern time, Monday through Friday, except on business holidays when the NYSE
is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund. All redemption requests
will be processed and payment with respect thereto will normally be made within
7 days after the redemption order is received. The Fund may suspend redemptions,
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.
9
<PAGE>
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "WST Growth
Fund," to:
WST Growth Fund
Investor Class Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
The application must contain your Social Security Number ("SSN") or Taxpayer
Identification Number ("TIN"). If you have applied for a SSN 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 SSN
and TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the WST Growth Fund - Investor Class Shares
Acct. # 2000001068081
For further credit to (shareholder's name and SSN or TIN)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
10
<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 net asset
value on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund. Investors who establish an Automatic Investment Plan may open an account
with a minimum balance of $1,000. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series or class of shares of the Trust (other than Institutional Class Shares)
advised by the Advisor and offered for sale in the state in which you reside.
Any such exchange will be made at the applicable net asset value plus the
percentage difference between the sales charge applicable to those shares and
any sales charge previously paid by you in connection with the shares being
exchanged. Institutional Class Shares may only be exchanged for Institutional
Class Shares of another series of the Trust advised by the Advisor. Prior to
making an investment decision or giving the Fund your instructions to exchange
shares, please read the prospectus for the series in which you wish to invest.
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Fund. Such a
pattern may, at the discretion of the Advisor, be limited by the Fund's refusal
to accept further purchase and/or exchange orders from an investor, after
providing the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
Reduced Sales Charges
Rights of Accumulation. The sales charge applicable to a current purchase of
shares of the Fund by an investor is determined by adding the purchase price of
shares to be purchased to the aggregate value (at current offering price) of
shares of the Fund previously purchased and then owned, provided the Distributor
is notified by such person or his or her broker-dealer each time a purchase is
made which would so qualify. For example, a person who is purchasing Fund shares
with an aggregate value of $50,000 and who currently owns shares of the Funds
with a value of $200,000 would pay a sales charge of 2.00% of the offering price
on the new investment.
Letter of Intent. Sales charges may also be reduced through an agreement to
purchase a specified quantity of shares over a designated thirteen-month period
by completing the "Letter of Intent" section of the Account Application.
Information about the "Letter of Intent" procedure, including its terms, is
contained on the back of the Account Application.
Reinvestments. Investors may reinvest, without a sales charge, proceeds from a
redemption of Investor Class Shares of the Fund in Investor Class Shares of the
Fund or in shares of another series of the Trust affiliated with the Advisor and
sold with a sales charge, within 90 days after the redemption. If the other
class charges a sales charge higher than the sales charge the investor paid in
connection with the shares redeemed, the investor must pay the difference. In
addition, the shares of the class to be acquired must be registered for sale in
the investor's state of residence. The amount that may be so reinvested may not
exceed the amount of the redemption proceeds, and the Fund or the Distributor
must receive a written order for the purchase of such shares within 90 days
after the effective date of the redemption.
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.
11
<PAGE>
Group Plans. Shares of the Fund may be sold at a reduced or eliminated sales
charge to certain Group Plans under which a sponsoring organization makes
recommendations to, permits group solicitation of, or otherwise facilitates
purchases by, its employees, members or participants. Information about such
arrangements is available from the Distributor.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption requests should be addressed
to:
WST Growth Fund
Investor Class Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption requests should include:
(1) Your letter of instruction specifying the account number and number of
shares or the dollar amount to be redeemed (this request must be signed
by all registered shareholders in the exact names in which they are
registered);
(2) Any required signature guarantees (see "Signature Guarantees" below); and
(3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. However, the Fund may delay forwarding
a redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
(1) The name of the Fund and the designation of class of shares (Investor),
(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.
12
<PAGE>
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named on 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
Trust's Amended and Restated Declaration of Trust and By-Laws. The Board of
Trustees reserves the right to redeem involuntarily any account having a net
asset value of less than $5,000 ($2,000 for IRAs, Keogh Plans, 401(k) Plans or
purchases under the Uniform Gifts to Minors Act) due to redemptions, exchanges,
or transfers, and not due to market action, upon 60-days' written notice. If the
shareholder brings his account net asset value up to at least $5,000 ($2,000 for
IRAs, Keogh Plans, 401(k) Plans or purchases under the Uniform Gifts to Minors
Act) during the notice period, the account will not be redeemed. Redemptions
from retirement plans may be subject to federal income tax withholding.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
cases, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$5,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Shares Application form.
13
<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 on 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 taxes 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 between
series 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.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the WST Growth Fund's Investor Class Shares for the
fiscal years ended March 31, 2000, 1999, and the fiscal period ended March 31,
1998. The financial data have been audited by Deloitte & Touche LLP, independent
auditors, whose report covering such years and period is incorporated by
reference into the SAI. This information should be read in conjunction with the
Fund's latest audited annual financial statements and notes thereto, which are
also incorporated by reference into the SAI, 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 at 1-800-773-3863.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
INVESTOR CLASS SHARES
(For a Share Outstanding Throughout Each Period)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Period ended
March 31, March 31, March 31,
2000 1999 1998 (a)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.67 $ 11.26 $ 10.22
Income from investment operations
Net investment loss ................................ (0.10) (0.04) (0.01)
Net realized and unrealized gain on investments .... 1.45 1.45 1.05
----------- ----------- -----------
Total from investment operations ............. 1.35 1.41 1.04
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.02 $ 12.67 $ 11.26
=========== =========== ===========
Total return (b) .............................................. 10.66 % 12.52 % 10.52 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $ 4,642,922 $ 2,539,131 $ 763,186
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 2.15 % 2.56 % 3.63 %(c)
After expense reimbursements and waived fees ....... 2.10 % 2.25 % 2.10 %(c)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.93)% (0.84)% (1.70)%(c)
After expense reimbursements and waived fees ....... (0.88)% (0.53)% (0.31)%(c)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) For the period from October 3, 1997 (commencement of operations) to March 31, 1998.
(b) Total return does not reflect payment of a sales charge..
(c) Annualized.
</TABLE>
15
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
WST GROWTH FUND
INVESTOR CLASS SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's SAI. Additional
information about the Fund's investments is also available in the Fund's Annual
and Semi-annual Reports to shareholders. The Fund's Annual Report includes a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
The SAI and the Annual and Semi-annual Reports are available free of charge upon
request (you may also request other information about the Fund or make
shareholder inquiries) by contacting us:
By telephone: 1-800-525-3863
By mail: WST Growth Fund
Investor Class Shares
c/o NC Shareholder Services
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 1-202-942-8090. 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 electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act file number 811-06199
<PAGE>
________________________________________________________________________________
WST GROWTH FUND
INVESTOR CLASS SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
<PAGE>
Cusip Number Class C Shares 66976M797
________________________________________________________________________________
WST GROWTH FUND
A series of the
Nottingham Investment Trust II
CLASS C SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
The WST Growth Fund ("Fund") seeks total return from a combination of capital
appreciation and current income. This prospectus relates to the Class C Shares
of the Fund. The Fund also offers two additional classes of shares:
Institutional Class Shares and Investor Class Shares, which are offered by other
prospectuses.
Prior to January 3, 2000, the Fund was known as the "WST Growth & Income Fund."
The Board of Trustees of the Nottingham Investment Trust II ("Trust") determined
that renaming the Fund more accurately reflected the investment objectives and
policies of the Fund.
Investment Advisor
------------------
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
1-800-525-3863
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other agency and are subject to investment risks including
possible loss of principal amount invested. Neither the Fund nor the Fund's
distributor is a bank. You should read the prospectus carefully before you
invest or send money.
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUND.......................................................................2
--------
Investment Objective.....................................................2
Principal Investment Strategies..........................................2
Principal Risks Of Investing In The Fund.................................4
Bar Chart And Performance Table..........................................5
Fees And Expenses Of The Fund............................................6
MANAGEMENT OF THE FUND.........................................................7
----------------------
The Investment Advisor...................................................7
The Administrator........................................................8
The Transfer Agent.......................................................8
The Distributor..........................................................8
INVESTING IN THE FUND..........................................................9
---------------------
Minimum Investment.......................................................9
Purchase And Redemption Price............................................9
Purchasing Shares........................................................9
Redeeming Your Shares...................................................11
OTHER IMPORTANT INVESTMENT INFORMATION........................................13
--------------------------------------
Dividends, Distributions, And Taxes.....................................13
Financial Highlights....................................................14
Additional Information..........................................Back Cover
<PAGE>
THE FUND
--------
INVESTMENT OBJECTIVE
The WST Growth Fund seeks total return from a combination of capital
appreciation and current income.
PRINCIPAL INVESTMENT STRATEGIES
The Fund will seek to achieve its objective by investing primarily in a flexible
portfolio of equity securities. The Fund may also invest in fixed income
securities and money market instruments.
Wilbanks, Smith & Thomas Asset Management, Inc. ("Advisor") will vary the
percentage of Fund assets invested in equities, fixed income securities, and
money market instruments according to the Advisor's judgment of market and
economic conditions, and based on the Advisor's view of which asset class can
best achieve the Fund's objectives.
Equity Securities
Selection of equity securities will be based primarily on the expected capital
appreciation potential, and the percentage invested in equity securities will
generally comprise at least 80% of the portfolio.
The equity portion of the Fund's portfolio will consist generally of common
stocks traded on domestic securities exchanges or on the over-the-counter
markets. Foreign equity securities will be limited to those available on
domestic U.S. exchanges and denominated in U.S. dollars.
The Advisor utilizes a "top down" approach to equity selection.
--------------------------------------------------------------------
Macroeconomic Analysis and Projected Trends
Research consisting of four primary areas
(market interest rates, Federal Reserve policy, inflation, and economic
growth, as typically measured by gross domestic product)
--------------------------------------------------------------------
------------------------------------------
Sector Analysis
Research and analysis of sectors within
the research universe
------------------------------------------
--------------------
Industry Analysis
Industry analysis of companies
within each sector
--------------------
From an initial research universe of approximately 5,400 companies, a "screen"
is performed to identify securities with a projected earnings per share growth
rate of 12% or more, market capitalization of not less than $750 million, price
earnings' ratios within appropriate relative ranges compared to comparable
sector and industry companies, and a projection of increasing earnings
estimates.
At this point, the Advisor utilizes a philosophy known as "GARP," growth at
reasonable price, as its underlying equity investment selection philosophy. The
screens, referred to in the paragraph above, result in a universe of
approximately 400 companies, which then receive active research by the Advisor's
Investment Committee. From this universe of 400 companies, the Advisor reduces
the equity universe to approximately 75 companies which, depending upon the then
current price in the equities markets for that company, are eligible for
purchase by the Fund.
2
<PAGE>
The Advisor will base security selection on the following factors:
o financial history of the company,
o consistency of earnings,
o return on equity,
o cash flow,
o strength of management,
o ratios such as price/earnings, price/book value, price/sales, and price/
cash flow, and
o historical valuations and future prospects of the company.
Under normal market conditions, the Fund will include 25 to 45 companies in its
portfolio.
The Advisor performs rigorous research on individual companies in the final
equity universe through direct contact with senior management of the Fund's
holdings as well as competitors, suppliers, and customers of those companies. In
addition, the Advisor reviews research generated by Wall Street analysts. The
Advisor's research analysts construct financial models based upon the data
gathered from various sources, to assist in each security's qualification under
the Advisor's security selection criteria.
While portfolio securities are generally acquired for the long term, they may be
sold under some of the following circumstances when the Advisor believes that:
o the anticipated price appreciation has been achieved or is no longer
probable;
o alternative investments offer superior total return prospects; or
o fundamentals change adversely.
Fixed Income Securities
Selection of fixed income securities will be primarily for income and the
percentage invested in fixed income securities and money market instruments, in
the aggregate, will generally comprise not more than 20% of the portfolio.
The Advisor will allocate approximately 50% of the fixed income portion of the
Fund to duration strategies using U.S. Treasury securities. The remaining 50% of
fixed income securities are selected based upon investment analysis by the
Advisor, attempting to identify securities that are undervalued. Fixed income
securities are identified as undervalued in circumstances, for instance, where
the Advisor believes the credit rating of the company is subject to an increase,
which has the potential to reduce the price spread to a comparable maturity U.S.
Treasury security, and in turn an increase in price. Fixed income securities may
also be identified as undervalued if the spread (difference in yield to an
underlying treasury of comparable maturity) for a particular security is too
large relative to similar fixed income securities within similar maturities and
similar credit quality.
The Fund may invest in fixed income securities that may be rated below "Baa" by
Moody's Investors Service, Inc. ("Moody's") or "BBB" by Standard & Poor's
Ratings Groups ("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch")
or which, if unrated, are of comparable quality as determined by the Advisor
(so-called "junk bonds"). The Fund will not invest more than 50% of the total
fixed income portion of its portfolio (and not more that 10% of the Fund's total
assets) in junk bonds. The Fund will not invest in junk bonds rated lower than
"Caa" by Moody's, "CCC" by Standard & Poor's or Fitch, or equivalent unrated
securities.
Money Market Instruments
Money market instruments will typically represent a portion of the Fund's
portfolio as a method to: (1) temporarily invest monies received by the Fund
prior to investing in equity or fixed income securities; (2) accumulate cash for
anticipated purchases of portfolio securities; and (3) provide for shareholder
redemptions and the payment of operating expenses of the Fund.
3
<PAGE>
Under certain conditions, the Advisor may choose to temporarily invest up to
100% of the Fund's assets in cash and cash equivalents, investment-grade bonds,
U.S. Government Securities, repurchase agreements, or money market instruments
as a temporary defensive position, when the Advisor determines that market
conditions warrant such investments. When the Fund invests in these investments
as a temporary defensive measure, it is not pursuing its stated investment
objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund is subject to investment risks, including the possible
loss of the principal amount invested. Generally, the Fund will be subject to
the following risks:
o Market Risk: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performances per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Fund's transactions will be unable or
unwilling to make timely principal and/or interest payments, or otherwise
will be unable or unwilling to honor its financial obligations. The Fund
may be subject to credit risk to the extent that it invests in debt
securities or engages in transactions, such as securities loans, which
involve a promise by a third party to honor an obligation to the Fund.
Credit risk is particularly significant to the Fund when investing a
portion of its assets in "junk bonds" or lower-rated securities.
o Interest Rate Risk: The price of a fixed income security is dependent upon
interest rates. Therefore, the share price and total return of the Fund,
when investing a significant portion of its assets in fixed income
securities, will vary in response to changes in interest rates. A rise in
interest rates causes the value of fixed income securities to decrease, and
vice versa. There is the possibility that the value of the Fund's
investment in fixed income securities may fall because fixed income
securities generally fall in value when interest rates rise. Changes in
interest rates may have a significant effect on the Fund holding a
significant portion of its assets in fixed income securities with long-term
maturities.
o Maturity Risk: Maturity risk is another factor which can effect the value
of the Fund's debt holdings. In general, the longer the maturity of a fixed
income instrument, the higher its yield and the greater its sensitivity to
changes in interest rates. Conversely, the shorter the maturity, the lower
the yield but the greater the price stability.
o Investment-Grade Securities Risk: Fixed income securities are rated by
national bond ratings agencies. Fixed income securities rated "BBB" by
Standard & Poor's or "Baa" by Moody's are considered investment-grade
securities, but are somewhat riskier than higher rated investment-grade
obligations because they are regarded as having only an adequate capacity
to pay principal and interest, and are considered to lack outstanding
investment characteristics and may be speculative.
o Junk Bonds or Lower rated Securities Risk: Fixed income securities rated
below "BBB" and "Baa" by Standard &Poor's or Moody's, respectively, are
speculative in nature and may be subject to certain risks with respect to
the issuing entity and to greater market fluctuations than higher rate
fixed income securities. They are usually issued by companies without long
track records of sales and earnings, or by companies with questionable
credit strength. These fixed income securities are considered "below
investment-grade." The retail secondary market for these "junk bonds" may
be less liquid than that of higher rated securities and adverse conditions
could make it difficult at times to sell certain securities or could result
in lower prices than those used in calculating the Fund's net asset value.
4
<PAGE>
BAR CHART AND PERFORMANCE TABLE*
The bar chart and table shown below provide an indication of the risks of
investing in the Fund by showing (on a calendar year basis) changes in the
Fund's annual total returns during the last two calendar years since the Fund's
inception and by showing (on a calendar year basis) how the Fund's average
annual returns 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. Because the Class C Shares have not been in
operation for an entire calendar year, the bar chart below is based on the
performance of the Institutional Class Shares of the Fund whose fees and
expenses are the same as the Class C Shares except that the Class C Shares pay a
12b-1 fee of 0.75%.
[BAR CHART HERE]:
Calendar Year Returns
Institutional Class Shares
1998 19.89%
1999 14.12%
o During the 2-year period shown in the bar chart above, the highest return for
a calendar quarter was 23.49% (quarter ended December 31, 1998).
o During the 2-year period shown in the bar chart above, the lowest return for
a calendar quarter was -12.98% (quarter ended September 30, 1998).
o The calendar year-to-date return for the Institutional Class Shares as of the
most recent calendar quarter was -1.29% (quarter ended June 30, 2000).
-------------------------------------------------- -------------- --------------
Average Annual Total Returns Past 1 Since
Period ended December 31, 1999* Year Inception**
-------------------------------------------------- -------------- --------------
WST Growth Fund - Institutional Class Shares 14.12% 15.96%
-------------------------------------------------- -------------- --------------
Russell 2000 Index*** 21.36% 6.25%
-------------------------------------------------- -------------- --------------
S&P 500 Total Return Index **** 21.04% 23.24%
-------------------------------------------------- -------------- --------------
* Because the Class C Shares of the Fund did not commence operations until
May 20, 1999, the returns shown in the bar chart and the table above are
for the Institutional Class Shares that are not offered by this prospectus.
Class C Shares may have annual returns that are substantially similar to
the Institutional Class Shares because each class of shares is invested in
the same portfolio of securities. However, the annual returns of the Class
C Shares would have been lower than those of the Institutional Class Shares
because the Class C Shares are subject to a 12b-1 fee of 0.75% of the
average daily net assets of the Class C Shares, while the Institutional
Class Shares are not subject to a 12b-1 fee.
** September 30, 1997 (commencement of operations of the Institutional Class
Shares)
*** The Russell 2000 Index is a widely-recognized unmanaged index of small
capitalization stocks.
**** The S&P 500 Total Return Index is the Standard & Poor's Composite Stock
Price Index of 500 stocks and is a widely recognized, unmanaged index of
common stock prices.
5
<PAGE>
FEES AND EXPENSES OF THE FUND
The tables below describe the fees and expenses that you may pay if you buy and
hold Class C Shares of the Fund.
------------------------------------------------------------------ -------------
Shareholder Fees for Class C Shares
------------------------------------------------------------------ -------------
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) None
------------------------------------------------------------------ -------------
Maximum deferred sales charge (load) None
------------------------------------------------------------------ -------------
Maximum imposed sales charge (load) on reinvested dividends None
------------------------------------------------------------------ -------------
Redemption fee None
------------------------------------------------------------------ -------------
Exchange fee None
------------------------------------------------------------------ -------------
------------------------------------------------------------------ -------------
Annual Fund Operating Expenses for Class C Shares
(expenses that are deducted from Fund assets)
------------------------------------------------------------------ -------------
Management Fees 0.75 %
------------------------------------------------------------------ -------------
Distribution and/or Service (12b-1) Fees 0.75 %
------------------------------------------------------------------ -------------
Other Expenses 0.93 %
----
------------------------------------------------------------------ -------------
Total Annual Fund Operating Expenses 2.45 %*
====
------------------------------------------------------------------ -------------
* "Total Annual Fund Operating Expenses" are based upon actual
expenses incurred by the Class C Shares of the Fund for the
fiscal period May 20, 1999 (commencement of operations) to
March 31, 2000. After waivers of a portion of the investment
advisory fees by the Advisor, Net Fund Operating Expenses were
2.34% of the average daily net assets of the Class C Shares of
the Fund for the fiscal period ended March 31, 2000. The
Advisor has entered into a contractual agreement with the
Trust under which it has agreed to waive or reduce its fees
and to assume other expenses of the Fund, if necessary, in an
amount that limits Total Annual Fund Operating Expenses
(exclusive of interest, taxes, brokerage fees and commissions,
extraordinary expenses, and payments, if any, under a Rule
12b-1 Plan) to not more than 1.75% of the average daily net
assets of the Class C Shares of the Fund for the fiscal year
ending March 31, 2001. It is expected that the contractual
agreement will continue from year-to-year provided such
continuance is approved by the Board of Trustees. See the
"Expense Limitation Agreement" section below for more detailed
information.
Example: This Example shows you the expenses that you may pay over time by
investing in the Class C Shares of the Fund. Since all funds use the same
hypothetical conditions, it should help you compare the costs of investing in
the Fund versus other funds. The Example assumes the following conditions:
(1) You invest $10,000 in the Fund for the periods shown;
(2) You reinvest all dividends and distributions;
(3) You redeem all of your shares at the end of those periods;
(4) You earn a 5% total return; and
(5) The Fund's expenses remain the same.
Although your actual costs may be higher or lower, the following table shows you
what your costs may be under the conditions listed above as well as those upon
redemption.
------------------------ ------------- ------------- ------------- -------------
Period Invested 1 Year 3 Years 5 Years 10 Years
------------------------ ------------- ------------- ------------- -------------
Your Costs $248 $764 $1,306 $2,786
------------------------ ------------- ------------- ------------- -------------
6
<PAGE>
MANAGEMENT OF THE FUND
----------------------
THE INVESTMENT ADVISOR
Subject to the authority of the Board of Trustees, Wilbanks, Smith & Thomas
Asset Management, Inc., One Commercial Place, Suite 1450, Norfolk, Virginia
23510, provides the Fund with a continuous program of supervision of the Fund's
assets, including the composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities pursuant to an Amended and Restated Investment
Advisory Agreement with the Trust ("Advisory Agreement").
The Advisor is registered under the Investment Advisors Act of 1940, as amended
("1940 Act"). Registration of the Advisor does not involve any supervision of
management or investment practices or policies by the Securities and Exchange
Commission ("SEC"). The Advisor was established as a Virginia corporation in
1990, and is controlled by Wayne F. Wilbanks, CFA, L. Norfleet Smith, Jr., and
Norwood A. Thomas, Jr.
The Advisor currently serves as investment advisor to over $1 billion in assets.
The Advisor has been rendering investment counsel, utilizing investment
strategies substantially similar to that of the Fund, to individuals, banks and
thrift institutions, pension and profit sharing plans, trusts, estates,
charitable organizations and corporations since its formation.
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Fund may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see "Other
Investment Policies" in the Statement of Additional Information ("SAI").
The Investment Committee of the Advisor, composed of Wayne F. Wilbanks, CFA, L.
Norfleet Smith, Jr., and Norwood A. Thomas, Jr. (all control persons of the
Advisor) is responsible for day-to-day management of the Fund's portfolio. Mr.
Wilbanks has been with the Advisor since its formation in 1990. Messrs. Smith
and Thomas have been with the Advisor since 1992. Messrs. Wilbanks and Thomas
serve as executive officers of the Trust and will represent the Advisor at Board
of Trustees meetings.
The Advisor's Compensation. Compensation of the Advisor with regard to the Fund,
based upon the Fund's daily average net assets, is at the annual rate of 0.75%
of the first $250 million of net assets and 0.65% of all assets over $250
million. For the fiscal year ending March 31, 2000, the Advisor voluntarily
waived $13,785 of its advisory fee. As a result, the amount of compensation
received by the Advisor as a percentage of assets of the Fund during the last
fiscal year was 0.67%.
Expense Limitation Agreement. In the interest of limiting expenses of the Fund,
on March 20, 2000 the Advisor renewed its 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, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
amounts, if any, payable pursuant to a Rule 12b-1 Plan) are limited to 1.75% of
the average net assets of each class of shares for the fiscal year to end March
31, 2001. The Expense Limitation Agreement shall continue from year-to-year
provided such continuance is specifically approved by a majority of the Trustees
of the Trust who (i) are not "interested persons" of the Trust or any other
party to this Agreement, as defined in the 1940 Act, and (ii) have no direct or
indirect financial interest in the operation of this Expense Limitation
Agreement.
7
<PAGE>
The Fund may at a later date reimburse the Advisor the fees waived or limited
and other expenses assumed and paid by the Advisor pursuant to the Expense
Limitation Agreement, provided the Fund has reached a sufficient asset size to
permit such reimbursement to be made without causing the total annual expense
ratio of the Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trust's Board of Trustees on a quarterly basis.
THE ADMINISTRATOR
The Nottingham Company, Inc. ("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 ("Transfer Agent") serves as the Fund's transfer,
dividend paying, and shareholder servicing agent. As indicated later in the
"Investing in the Fund" section of this Prospectus, the Transfer Agent will
handle your orders to purchase and redeem shares of the Fund, and will disburse
dividends paid by the Fund. The Transfer Agent is compensated for its services
by the Trust pursuant to a Dividend Disbursing and Transfer Agent Agreement.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") serves as the distributor of the
Fund's Class C Shares. The Distributor may sell such shares to or through
qualified securities dealers or others.
Distribution Plan. For the Class C Shares of the Fund, the Fund has adopted a
Distribution Plan in accordance with Rule 12b-1 ("Distribution Plan") under the
1940 Act. The Distribution Plan provides that the Fund will annually pay the
Distributor up to 0.75% of the average daily net assets of the Fund's Class C
Shares for activities primarily intended to result in the sale of those Class C
Shares or the servicing of those shares, including to compensate entities for
providing distribution and shareholder servicing with respect to the Fund's
Class C Shares (this compensation is commonly referred to as "12b-1 fees").
Because the 12b-1 fees are paid out of the Fund's assets on an on-going basis,
these fees, over time, will increase the cost of your investment and may cost
you more than paying other types of sales loads.
Other Expenses. In addition to the advisory fees (and 12b-1 fees for the
Investor Class Shares and Class C Shares of the Fund), the Fund pays all
expenses not assumed by the Fund's Advisor, including, without limitation: the
fees and expenses of its administrator, custodian, transfer and dividend
disbursing agent independent accountants and legal counsel; the costs of
printing and mailing to shareholders annual and semi-annual reports, proxy
statements, prospectuses, statements of additional information and supplements
thereto; the costs of printing registration statements; bank transaction charges
and custodian's fees; any proxy solicitors' fees and expenses; filing fees; any
federal, state or local income or other taxes; any interest; any membership fees
of the Investment Company Institute and similar organizations; fidelity bond and
Trustees' liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Fund, on a basis that the Trustees
deem fair and equitable, which may be on the basis of the relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
8
<PAGE>
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Class C Shares are sold and redeemed at net asset value. Shares may be purchased
by any account managed by the Advisor and any other broker-dealer authorized to
sell shares in the Fund. The minimum initial investment is $5,000 ($2,000 for
Individual Retirement Accounts ("IRAs"), Keogh Plans, 401(k) Plans, or purchases
under the Uniform Gifts to Minors Act). The Fund may, in the Advisor's sole
discretion, accept certain accounts with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
Determining the Fund's Net Asset Value. The price at which you purchase or
redeem shares is based on the next calculation of net asset value after an order
is accepted in good form. An order is considered to be in good form if it
includes a complete and accurate application and payment in full of the purchase
amount. The Fund's net asset value per share is calculated by dividing the value
of the Fund's total assets, less liabilities (including Fund expenses, which are
accrued daily), by the total number of outstanding shares of that Fund. The net
asset value per share of the Fund is normally determined at the time regular
trading closes on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
Eastern time, Monday through Friday, except on business holidays when the NYSE
is closed.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of 60 days or less are valued at
amortized cost, which approximates market value. Securities for which
representative market quotations are not readily available are valued at fair
value as determined in good faith under policies approved by the Board of
Trustees of the Trust.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund. All redemption requests
will be processed and payment with respect thereto will normally be made within
7 days after the redemption order is received. The Fund may suspend redemptions,
if permitted by the 1940 Act, for any period during which the NYSE is closed or
during which trading is restricted by the SEC or if the SEC declares that an
emergency exists. Redemptions may also be suspended during other periods
permitted by the SEC for the protection of the Fund's shareholders.
Additionally, during drastic economic and market changes, telephone redemption
privileges may be difficult to implement. Also, if the Trustees determine that
it would be detrimental to the best interest of the Fund's remaining
shareholders to make payment in cash, the Fund may pay redemption proceeds in
whole or in part by a distribution-in-kind of readily marketable securities.
PURCHASING SHARES
Regular Mail Orders. Payment for shares must be made by check or money order
from a U.S. bank and payable in U.S. dollars. If checks are returned due to
insufficient funds or other reasons, the Fund will charge a $20 fee or may
redeem shares of the Fund already owned by the purchaser to recover any such
loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the "WST Growth
Fund," to:
WST Growth Fund
Class C Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
9
<PAGE>
The application must contain your Social Security Number ("SSN") or Taxpayer
Identification Number ("TIN"). If you have applied for a SSN 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 SSN
and TIN are met.
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-800-773-3863, before wiring funds, to advise the Fund of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For the WST Growth Fund - Class C Shares
Acct. # 2000001068081
For further credit to (shareholder's name and SSN or TIN)
Additional Investments. You may also add to your account by mail or wire at any
time by purchasing shares at the then current net asset value. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Fund at 1-800-773-3863 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub which is attached
to your Fund confirmation statement. Otherwise, please identify your account in
a letter accompanying your purchase payment.
Additional Purchases By Phone (Telephone Purchase Authorization). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Fund will automatically charge the checking account for the amount specified
($100 minimum), which will be automatically invested in shares at the net asset
value on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund. Investors who establish an Automatic Investment Plan may open an account
with a minimum balance of $1,000. This Automatic Investment Plan must be
established on your account at least fifteen (15) days prior to the intended
date of your first automatic investment.
Exchange Feature. You may exchange shares of the Fund for shares of any other
series or class of shares of the Trust (other than Institutional Class Shares)
advised by the Advisor and offered for sale in the state in which you reside.
Any such exchange will be made at the applicable net asset value plus the
percentage difference between the sales charge applicable to those shares and
any sales charge previously paid by you in connection with the shares being
exchanged. Prior to making an investment decision or giving the Fund 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.
10
<PAGE>
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption requests should be addressed
to:
WST Growth Fund
Class C Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption requests should include:
(1) Your letter of instruction specifying the account number and number of
shares or the dollar amount to be redeemed (the requests must be signed
by all registered shareholders in the exact names in which they are
registered);
(2) Any required signature guarantees (see "Signature Guarantees" below);
and
(3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. However, the Fund may delay forwarding
a redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. The Fund will redeem shares in this
manner when so requested by the shareholder only if the shareholder confirms
redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 252-972-1908). The confirmation instructions must include:
(1) The name of the Fund and the designation of class of shares (Class C),
(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.
11
<PAGE>
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $10 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the bank
account or person named on 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
Trust's Amended and Restated Declaration of Trust and By-Laws. The Board of
Trustees reserves the right to redeem involuntarily any account having a net
asset value of less than $5,000 ($2,000 for IRAs, Keogh Plans, 401(k) Plans or
purchases under the Uniform Gifts to Minors Act) due to redemptions, exchanges,
or transfers, and not due to market action upon 60-days' written notice. If the
shareholder brings his account net asset value up to at least $5,000 ($2,000 for
IRAs, Keogh Plans, 401(k) Plans or purchases under the Uniform Gifts to Minors
Act) during the notice period, the account will not be redeemed. Redemptions
from retirement plans may be subject to federal income tax withholding.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
cases, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any 90-day period, the lesser of (a) $250,000 or (b) one
percent (1%) of the Fund's net asset value at the beginning of such period.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration or standing instructions for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or to change exchange privileges or telephone and bank wire redemption
service other than through your initial account application, and (3) redemption
requests in excess of $50,000. Signature guarantees are acceptable from a member
bank of the Federal Reserve System, a savings and loan institution, credit union
(if authorized under state law), registered broker-dealer, securities exchange,
or association clearing agency and must appear on the written request for change
of registration, establishment or change in exchange privileges, or redemption
request.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$5,000 or more at the current offering price may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for a Fund Shares Application form.
12
<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 on 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 taxes 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 between
series 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.
13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the table below have been derived from audited
financial statements of the WST Growth Fund's Class C Shares for the fiscal
period ended March 31, 2000. The financial data have been audited by Deloitte &
Touche LLP, independent auditors, whose report covering such period is
incorporated by reference into the SAI. This information should be read in
conjunction with the Fund's latest audited annual financial statements and notes
thereto, which are also incorporated by reference into the SAI, 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 at 1-800-773-3863.
CLASS C SHARES
(For a Share Outstanding Throughout the Period)
-------------------------------------------------------- -----------------------
Period from May 20,
1999 (commencement of
operations) to
March 31, 2000
-------------------------------------------------------- -----------------------
Net asset value, beginning of period $13.05
-------------------------------------------------------- -----------------------
Income from investment operations
Net investment loss (0.06)
Net realized and unrealized gain on investments 1.00
----
Total from investment operations 0.94
----
-------------------------------------------------------- -----------------------
Net asset value, end of period $13.99
======
-------------------------------------------------------- -----------------------
Total return 7.20%
====
-------------------------------------------------------- -----------------------
Ratios/supplemental data
-------------------------------------------------------- -----------------------
Net assets, end of period $453,984
========
-------------------------------------------------------- -----------------------
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 2.45 % (a)
After expense reimbursements and waived fees 2.34 % (a)
-------------------------------------------------------- -----------------------
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (1.30)% (a)
After expense reimbursements and waived fees (1.19)% (a)
-------------------------------------------------------- -----------------------
Portfolio turnover rate 50.40 %
-------------------------------------------------------- -----------------------
(a) Annualized.
14
<PAGE>
ADDITIONAL INFORMATION
________________________________________________________________________________
WST GROWTH FUND
CLASS C SHARES
________________________________________________________________________________
Additional information about the Fund is available in the Fund's SAI. Additional
information about the Fund's investments is also available in the Fund's Annual
and Semi-annual Reports to shareholders. The Fund's Annual Report includes a
discussion of market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
The SAI and the Annual and Semi-annual Reports are available free of charge upon
request (you may also request other information about the Fund or make
shareholder inquiries) by contacting us:
By telephone: 1-800-525-3863
By mail: WST Growth Fund
Class C Shares
c/o NC Shareholder Services
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 1-202-942-8090. 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 electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act file number 811-06199
<PAGE>
________________________________________________________________________________
WST GROWTH FUND
CLASS C SHARES
________________________________________________________________________________
PROSPECTUS
August 1, 2000
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WST GROWTH FUND
August 1, 2000
A Series of the
NOTTINGHAM INVESTMENT TRUST II
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-525-3863
TABLE OF CONTENTS
Page
----
OTHER INVESTMENT POLICIES......................................................2
INVESTMENT LIMITATIONS.........................................................5
PORTFOLIO TRANSACTONS..........................................................6
NET ASSET VALUE................................................................7
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................8
DESCRIPTION OF THE TRUST......................................................10
ADDITIONAL INFORMATION CONCERNING TAXES.......................................10
MANAGEMENT AND OTHER SERVICE PROVIDERS........................................12
SPECIAL SHAREHOLDER SERVICES..................................................17
ADDITIONAL INFORMATION ON PERFORMANCE.........................................20
FINANCIAL STATEMENTS..........................................................21
APPENDIX A....................................................................22
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the Prospectuses, dated the same date as this SAI, for the WST
Growth Fund ("Fund") relating to the Fund's Institutional Class Shares, Investor
Class Shares, and Class C Shares, as each Prospectus may be amended or
supplemented from time to time; and is incorporated by reference in its entirety
into each Prospectus. Because this SAI is not itself a prospectus, no investment
in shares of the Fund should be made solely upon the information contained
herein. Copies of the Fund's Prospectuses may be obtained at no charge by
writing or calling the Fund at the address and phone number shown above.
Capitalized terms used but not defined herein have the same meanings as in the
Prospectus.
Prior to January 3, 2000, the Fund was known as the "WST Growth & Income Fund."
The Board of Trustees of the Nottingham Investment Trust II ("Trust") determined
that renaming the Fund more accurately reflected the investment objectives and
policies of the Fund.
<PAGE>
OTHER INVESTMENT POLICIES
The following policies supplement the Fund's investment objective and investment
strategies as set forth in the Prospectuses for each class of shares of the
Fund. Attached to this SAI is Appendix A, which contains descriptions of the
rating symbols used by Rating Agencies for securities in which the Fund may
invest. The Fund commenced operations in 1997 as a separate diversified
investment portfolio of the Nottingham Investment Trust II.
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 five days of the purchase.
Repurchase agreements are considered "loans" under the 1940 Act, collateralized
by the underlying security. The Trust will implement procedures to monitor on a
continuous basis the value of the collateral serving as security for repurchase
obligations. Additionally, the Advisor to the Fund will consider the
creditworthiness of the vendor. If the vendor fails to pay the agreed upon
resale price on the delivery date, the Fund will retain or attempt to dispose of
the collateral. The Fund's risk is that such default may include any decline in
value of the collateral to an amount which is less than 100% of the repurchase
price, any costs of disposing of such collateral, and any loss resulting from
any delay in foreclosing on the collateral. The Fund will not enter into any
repurchase agreement which will cause more than 10% of its net assets to be
invested in repurchase agreements which extend beyond seven days.
Description of Money Market Instruments. Money market instruments may include
U.S. Government Securities or corporate debt securities (including those subject
to repurchase agreements), provided that they mature in thirteen months or less
from the date of acquisition and are otherwise eligible for purchase by the
Fund. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When the Fund acquires a Banker's
Acceptance, the bank which "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest-bearing debt obligation of a bank. Commercial Paper is an unsecured,
short-term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated one of the top two rating
categories by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps ("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Fund only through the Master Note program of
the Fund's custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Fund.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. As a result, disposing of illiquid securities before
maturity may be time consuming and expensive and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. Under the supervision of the Board of Trustees, the Advisor determines
the liquidity of the Fund's investments and, through reports from the Advisor,
the Board monitors investments in illiquid instruments. In determining the
liquidity of the Fund's investments, the Advisor may consider various factors
including (1) the frequency of trades and quotations, (2) the number of dealers
and prospective purchasers in the marketplace, (3) dealer undertakings to make a
market, (4) the nature of the security (including any demand or tender features)
and (5) the nature of the marketplace for trades (including the ability to
assign or offset the Fund's rights and obligations relating to the investment).
Investments currently considered by the Fund to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days. If through a change in values, net assets or other circumstances,
the Fund were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.
Restricted Securities. Within its limitation on investment in illiquid
securities, the Fund may purchase restricted securities that generally can be
sold in privately negotiated transactions, pursuant to an exemption from
registration under the federal securities laws, or in a registered public
offering. Where registration is required, the Fund may be obligated to pay all
or part of the registration expense and a considerable period may elapse between
the time it decides to seek registration and the time the Fund may be permitted
to sell a security under an effective registration statement. If during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
Options Trading. The Fund may also purchase or sell certain put and call options
for hedging purposes. This is a highly specialized activity that entails greater
than ordinary investment risks. Regardless of how much the market price of the
underlying security increases or decreases, the option buyer's risk is limited
to the amount of the original investment for the purchase of the option.
However, options may be more volatile than the underlying securities, and
therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities. A listed
call option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated exercise price at any time
prior to the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for undertaking the
obligations under the option contract. A listed put option gives the purchaser
the right to sell to a clearing corporation the underlying security at the
stated exercise price at any time prior to the expiration date of the option,
regardless of the market price of the security. Put and call options purchased
by the Fund will be valued at the last sale price or, in the absence of such a
price, at the mean between bid and asked prices.
The obligation of the Fund to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the Fund
executing a closing purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying security, exercise
price and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange that
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. The Fund will
write an option on a particular security only if the Advisor believes that a
liquid secondary market will exist on an exchange for options of the same series
which will permit the Fund to make a closing purchase transaction in order to
close out its position.
When the Fund writes a covered call option, an amount equal to the net premium
(the premium less the commission) received by the Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will be
increased by the net premium originally received, and the Fund will realize a
gain or loss. If a secured put option is exercised, the amount paid by the Fund
for the underlying security will be partially offset by the amount of the
premium previously paid to the Fund. Premiums from expired options written by
the Fund and net gains from closing purchase transactions are treated as
short-term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
Stock Index Options. The Fund may purchase or sell put and call stock index
options for hedging purposes. Stock index options are put options and call
options on various stock indexes. In most respects, they are identical to listed
options on common stocks. The primary difference between stock options and index
options occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the exercise
of an index option, settlement does not occur by delivery of the securities
comprising the index. The option holder who exercises the index option receives
an amount of cash if the closing level of the stock index upon which the option
is based is greater than, in the case of a call, or less than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the stock index and the exercise price
of the option expressed in dollars times a specified multiple. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The Fund may purchase put and call stock index options in an attempt to either
hedge against the risk of unfavorable price movements adversely affecting the
value of the Fund's securities, or securities the Fund intends to buy, or
otherwise in furtherance of the Fund's investment objectives. The Fund will sell
(write) stock index options for hedging purposes or in order to close out
positions in stock index options which the Fund has purchased.
The Fund's use of stock index options is subject to certain risks. Successful
use by the Fund of options on stock indexes will be subject to the ability of
the Advisor to correctly predict movements in the directions of the stock
market. This requires different skills and techniques than predicting changes in
the prices of individual securities. In addition, the Fund's ability to
effectively hedge all or a portion of the securities in its portfolio, in
anticipation of or during a market decline through transactions in put options
on stock indexes, depends on the degree to which price movements in the
underlying index correlate with the price movements in the Fund's portfolio
securities. Inasmuch as the Fund's portfolio securities will not duplicate the
components of an index, the correlation will not be perfect. Consequently, the
Fund will bear the risk that the prices of its portfolio securities being hedged
will not move in the same amount as the prices of the Fund's put options on the
stock indexes. It is also possible that there may be a negative correlation
between the index and the Fund's portfolio securities that would result in a
loss on both such portfolio securities and the options on stock indexes acquired
by the Fund.
Lower Rated Debt Securities. The Fund may invest in debt securities which are
rated Caa or higher by Moody's or CCC or higher by S&P or Fitch or equivalent
unrated securities. However, the Fund may not invest more than 15% of its assets
in debt securities rated lower than Baa by Moody's or BBB by S&P or Fitch or
securities not rated by Moody's, S&P or Fitch which the Advisor deems to be of
equivalent quality. Bonds rated BB or Ba or below (or comparable unrated
securities) are commonly referred to as "junk bonds" and are considered
speculative and may be questionable as to principal and interest payments. In
some cases, such bonds may be highly speculative, have poor prospects for
reaching investment standing, and be in default. As a result, investment in such
bonds will entail greater risks than those associated with investment in
investment-grade bonds (i.e., bonds rated BBB or better by S&P or Fitch or Baa
or better by Moody's).
An economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. Factors having an adverse impact on the market value of lower rated
securities will have an adverse effect on the Fund's net asset value to the
extent it invests in such securities. In addition, the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in payment
of principal or interest on its portfolio holdings.
The secondary market for junk bond securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities, a factor which may have an adverse effect on the
Fund's ability to dispose of a particular security when necessary to meet its
liquidity needs. Under adverse market or economic conditions, the secondary
market for junk bond securities could contract further, independent of any
specific adverse changes in the condition of a particular issuer. As a result,
the Advisor could find it more difficult to sell these securities or may be able
to sell the securities only at prices lower than if such securities were widely
traded. Prices realized upon the sale of such lower rated or unrated securities,
under these circumstances, may be less than the prices used in calculating the
Fund's net asset value.
Since investors generally perceive that there are greater risks associated with
the medium to lower rated securities of the type in which the Fund may invest,
the yields and prices of such securities may tend to fluctuate more than those
for higher rated securities. In the lower quality segments of the fixed income
securities market, changes in perceptions of issuers' creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in higher
quality segments of the fixed income securities market resulting in greater
yield and price volatility.
Another factor which causes fluctuations in the prices of fixed income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a Fund's net asset value.
Medium to lower rated and comparable non-rated securities tend to offer higher
yields than higher rated securities with the same maturities because the
historical financial condition of the issuers of such securities may not have
been as strong as that of other issuers. In addition to the risk of default,
there are the related costs of recovery on defaulted issues. The Advisor will
attempt to reduce these risks through diversification of the Fund's portfolio
and by analysis of each issuer and its ability to make timely payments of income
and principal, as well as broad economic trends in corporate developments.
Borrowing. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary or emergency purposes and 15% of its total assets to meet
redemption requests, which might otherwise require untimely disposition of
portfolio holdings. To the extent the Fund borrows for these purposes, the
effects of market price fluctuations on the portfolio's net asset value will be
exaggerated. If, while such borrowing is in effect, the value of the Fund's
assets declines, the Fund could be forced to liquidate portfolio securities when
it is disadvantageous to do so. The Fund would incur interest and other
transaction costs in connection with borrowing. The Fund will borrow only from a
bank. The Fund will not make any further investments if the borrowing exceeds 5%
of its total assets until such time as repayment has been made to bring the
total borrowing below 5% of its total assets.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, appropriate
securities in an amount sufficient to meet the purchase price. Purchasing
securities on a forward commitment or when-issued basis involves a risk of loss
if the value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in value of the Fund's
other assets. In addition, no income accrues to the purchaser of when-issued
securities during the period prior to issuance. Although a fund would generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring securities for its portfolio, the Fund may dispose of a
when-issued security or forward commitment prior to settlement if the Advisor
deems it appropriate to do so. The Fund may realize short-term gains or losses
upon such sales.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose means the lesser of (i)
67% of the Fund's outstanding shares represented in person or by proxy at a
meeting at which more than 50% of its outstanding shares are represented, or
(ii) more than 50% of its outstanding shares. Unless otherwise indicated,
percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities, borrow money, or pledge its assets, except
that it may borrow from banks as a temporary measure (a) for
extraordinary or emergency purposes, in amounts not exceeding 5% of its
total assets or (b) to meet redemption requests, in amounts not
exceeding 15% of its total assets. The Fund will not make any
investments if borrowing exceeds 5% of its total assets until such time
as total borrowing represents less than 5% of Fund assets;
2. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities of any
class of securities of any one issuer (except that securities of the
U.S. government, its agencies, and instrumentalities are not subject to
this limitation);
3. Invest 25% or more of the value of its total assets in any one industry
(except that securities of the U.S. Government, its agencies, and
instrumentalities are not subject to this limitation);
4. Invest for the purpose of exercising control or management of another
issuer;
5. Purchase or sell commodities or commodities contracts; real estate
(including limited partnership interests, but excluding readily
marketable interests in real estate investment trusts or other
securities secured by real estate or interests therein or readily
marketable securities issued by companies that invest in real estate or
interests therein); or interests in oil, gas, or other mineral
exploration or development programs or leases (although it may invest
in readily marketable securities of issuers that invest in or sponsor
such programs or leases);
6. Underwrite securities issued by others except to the extent that the
disposition of portfolio securities, either directly from an issuer or
from an underwriter for an issuer, may be deemed to be an underwriting
under the federal securities laws;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Invest its assets in the securities of one or more investment companies
except to the extent permitted by the 1940 Act; and
9. Make loans of money or securities, except that the Fund may invest in
repurchase agreements, money market instruments, and other debt
securities.
The following investment limitations are not fundamental and may be changed
without shareholder approval. As a matter of non-fundamental policy, the Fund
may not:
1. Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors) if more than 5% of its total assets would be
invested in such securities;
2. Invest more than 10% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) securities for
which no readily available market exists or which have legal or
contractual restrictions on resale, (b) fixed-time deposits that are
subject to withdrawal penalties and have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days;
3. Invest in the securities of any issuer if those officers or Trustees of
the Trust and those officers and directors of the Advisor who
individually own more than 1/2 of 1% of the outstanding securities of
such issuer together own more than 5% of such issuer's securities;
4. Write, purchase, or sell puts, calls, straddles, spreads, or
combinations thereof or futures contracts or related options (except
that the Fund may engage in options transactions to the extent
described in the Prospectus);
5. Make short sales of securities or maintain a short position, except
short sales "against the box." (A short sale is made by selling a
security the Fund does not own. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no additional cost securities identical to those sold short.)
While the Fund has reserved the right to make short sales "against the
box," the Advisor has no present intention of engaging in such
transactions at this time or during the coming year; and
6. Purchase foreign securities other than those traded on domestic U.S.
exchanges and other foreign debt securities as described in the
Prospectus.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Fund.
The annualized portfolio turnover rate for the Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of the Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and the Fund may engage in short term trading to achieve its
investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The Fund's fixed income portfolio transactions will normally be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer markup. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the spread or commission, if
any, both for the specific transaction and on a continuing basis. The sale of
Fund shares may be considered when determining the firms that are to execute
brokerage transactions for the Fund. In addition, the Advisor is authorized to
cause the Fund to pay a broker-dealer which furnishes brokerage and research
services a higher spread or commission than that which might be charged by
another broker-dealer for effecting the same transaction, provided that the
Advisor determines in good faith that such spread or commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Advisor to the Fund. Such brokerage and research
services might consist of reports and statistics relating to specific companies
or industries, general summaries of groups of stocks or bonds and their
comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy. Supplementary research
information so received is in addition to, and not in lieu of, services required
to be performed by the Advisor and does not reduce the advisory fees payable by
the Fund. The Trustees will periodically review any spread or commissions paid
by the Fund to consider whether the spread or commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which the Advisor exercises
investment discretion. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of securities transactions
affected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor, if it believes it can obtain the best execution of transactions from
such broker; however, at this time the Advisor has not utilized the affiliated
brokerage firm's services. The Fund will not execute portfolio transactions
through, acquire securities issued by, make savings deposits in or enter into
repurchase agreements with the Advisor or an affiliated person of the Advisor
(as such term is defined in the Investment Company Act of 1940, as amended
("1940 Act") acting as principal, except to the extent permitted by the
Securities and Exchange Commission ("SEC"). In addition, the Fund will not
purchase securities during the existence of any underwriting or selling group
relating thereto of which the Advisor, or an affiliated person of the Advisor,
is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations in
comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Fund will be made independently from those for any
other series of the Trust, and for any other investment companies and accounts
advised or managed by the Advisor. Such other investment companies and accounts
may also invest in the same securities as the Fund. To the extent permitted by
law, the Advisor may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other investment companies or
accounts in executing transactions. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Fund and another
investment company or account, the transaction will be averaged as to price and
available investments allocated as to amount, in a manner which the Advisor
believes to be equitable to the Fund and such other investment company or
account. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or sold
by the Fund.
For the fiscal years ended March 31, 2000, 1999, and the fiscal period ended
March 31, 1998, the Fund paid brokerage commissions of $36,398, $24,500 and
$15,215, respectively.
NET ASSET VALUE
The net asset value per share of each class of shares of the Fund is normally
determined at the time regular trading closes on the New York Stock Exchange
(currently 4:00 p.m., New York time, Monday through Friday), except on business
holidays when the New York Stock Exchange is closed. The New York Stock Exchange
recognizes the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Fourth of July, Labor Day,
Thanksgiving Day, and Christmas Day. Any other holiday recognized by the New
York Stock Exchange will be considered a business holiday on which the net asset
value of each class of shares of the Fund will not be calculated.
The net asset value per share of each class of shares 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 (such as the distribution and service fees
attributable to Investor Class Shares) will be charged against that class of
shares. Certain other expenses attributable to a particular class of shares
(such as registration fees, professional fees, and certain printing and postage
expenses) may be charged against that class of shares if such expenses are
actually incurred in a different amount by that class or if the class receives
services of a different kind or to a different degree than other classes, and
the Board of Trustees approves such allocation. Subject to the provisions of the
Amended and Restated Declaration of Trust, determinations by the Board of
Trustees as to the direct and allocable liabilities, and the allocable portion
of any general assets, with respect to the Fund and the classes of the Fund are
conclusive.
In valuing the Fund's total assets, portfolio securities are generally valued at
their market value. Instruments with maturities of sixty days or less are valued
at amortized costs, which approximates market value. Securities and assets for
which representative market quotations are not readily available are valued at
fair value as determined in good faith under policies approved by the Trustees.
For the fiscal years ended March 31, 2000, and 1999, the total expenses of the
Fund, after fee waivers of $13,785 and $31,699, respectively, were $300,342 and
$174,045, respectively. For the period since commencement of operations
(September 30, 1997) through March 31, 1998, the total expenses of the Fund,
after fee waivers of $30,497 and expense reimbursements of $5,047, were $45,193.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of the Fund are offered and sold on a continuous basis and may
be purchased through authorized investment dealers or directly by contacting the
Distributor or the Fund. Selling dealers have the responsibility of transmitting
orders promptly to the Fund. The public offering price of shares of the Fund
equals net asset value, plus any applicable sales charge for that Class of
shares.
Plan Under Rule 12b-1. The Trust has adopted Plans of Distribution (each a
"Plan" and collectively, "Plans") for the Investor Class Shares and Class C
Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act (see "Distribution
Plan" in the respective prospectuses). Under the Plans, the Fund will pay 0.50%
of the Investor Class Shares' average net assets annually and 0.75% of the Class
C Shares' average net assets annually to finance any activity which is primarily
intended to result in the sale of Investor Class Shares and Class C Shares,
respectively, of the Fund and the servicing of shareholder accounts, provided
the Trust's Board of Trustees has approved the category of expenses for which
payment is being made. Potential benefits of the Plans to the Fund include
improved shareholder servicing, savings to the Fund in transfer agency costs,
benefits to the investment process from growth and stability of assets and
maintenance of a financially healthy management organization.
It is anticipated that a portion of the 12b-1 fees received by the Distributor
will be used to defray various costs incurred or paid by the Distributor in
connection with the printing and mailing to potential investors of Fund
prospectuses, statements of additional information, any supplements thereto, and
shareholder reports, and holding seminars and sales meetings with wholesale and
retail sales personnel designed to promote the sale of Investor Class Shares and
Class C Shares. The Distributor may also use a portion of the 12b-1 fees
received to provide compensation to financial intermediaries and third-party
broker-dealers for their services in connection with the sale of Investor Class
Shares and Class C Shares.
Each Plan is known as a "compensation" plan because payments are made for
services rendered to the Fund with respect to the Investor Class Shares or the
Class C Shares regardless of the level of expenditures made by the Distributor.
The Board of Trustees of the Trust will, however, take into account such
expenditures for purposes of reviewing operations under each Plan and concerning
their annual consideration of each Plan's renewal. The Distributor has indicated
that it expects its expenditures to include, without limitation: (a) the
printing and mailing to prospective investors of Fund prospectuses, statements
of additional information, any supplements thereto and shareholder reports with
respect to the Investor Class Shares and Class C Shares of the Fund; (b) those
relating to the development, preparation, printing and mailing of
advertisements, sales literature and other promotional materials describing
and/or relating to the Investor Class Shares and Class C Shares of the Fund; (c)
holding seminars and sales meetings designed to promote the distribution of the
Fund's Investor Class Shares and Class C Shares; (d) obtaining information and
providing explanations to wholesale and retail distributors of the Fund's
investment objectives and policies and other information about the Fund; (e)
training sales personnel regarding the Investor Class Shares and Class C Shares
of the Fund; and (f) financing any other activity that the Distributor
determines is primarily intended to result in the sale of Investor Class Shares
and Class C Shares.
All of the distribution expenses incurred by the Distributor and others, such as
broker-dealers, in excess of the amount paid by the Fund will be borne by such
persons without any reimbursement from the Fund. Subject to seeking best price
and execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms, which receive payments under the Plans.
From time to time the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
Each Plan and the Amended and Restated Distribution Agreement with the
Distributor have been approved by the Board of Trustees of the Trust, including
a majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust and who have no direct or indirect financial interest in
the Plans or any related agreements ("Rule 12b-1 Trustees"), by vote cast in
person or at a meeting duly called for the purpose of voting on each of the
Plans and the Amended and Restated Distribution Agreement. Continuation of each
Plan and the Amended and Restated Distribution Agreement must be approved
annually by the Board of Trustees in the same manner as specified above.
Each year the Trustees must determine whether continuation of each of the Plans
is in the best interest of shareholders of the Fund and that there is a
reasonable likelihood of its providing a benefit to the Fund, and the Board of
Trustees has made such a determination for the current year of operations under
the Plans. Each Plan and the Amended and Restated Distribution Agreement may be
terminated at any time without penalty by a majority of the Rule 12b-1 Trustees
or by a majority vote of the shareholders of a particular class of the Fund. Any
material amendment, including an increase in the maximum percentage payable
under a Plan, must likewise be approved by a majority vote of the outstanding
voting shares of the affected class, as well as by a majority vote of the Rule
12b-1 Trustees. Also, any other material amendment to a Plan must be approved by
a majority vote of the Trustees including a majority of the Rule 12b-1 Trustees.
In addition, in order for each of the Plans to remain effective, the selection
and nomination of the Rule 12b-1 Trustees must be effected by the Trustees who
themselves are Rule 12b-1 Trustees. Persons authorized to make payments under
each of the Plans must provide written reports at least quarterly to the Board
of Trustees for their review.
For the fiscal years ended March 31, 2000 and 1999, the Fund expended $18,962
and $7,113 under the Plan for the Investor Class Shares. For the period since
the Fund commenced operations (September 30, 1997) through the period ended
March 31, 1998, the Fund expended $847 under the Plan for the Investor Class
Shares. For the period since the Class C Shares commenced operations (May 20,
1999) through the period ended March 31, 2000, the Fund expended $1,325 under
the Plan for the Class C Shares. Such costs were spent primarily on compensation
to sales personnel for the sale of Investor Class Shares and Class C Shares,
respectively.
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 reasons other than customary weekend and
holiday closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. The Fund may also suspend or postpone
the recordation of the transfer of shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectus under "Redeeming Your
Shares," the Fund may redeem shares involuntarily to reimburse the Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust, which is an open-end management investment company, is an
unincorporated business trust organized under Massachusetts's law on October 25,
1990. The Trust's Amended and Restated Declaration of Trust authorizes the Board
of Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Trust currently
consists of the following seven series: WST Growth 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; EARNEST
Partners Fixed Income Trust managed by EARNEST Partners Limited, LLC of Atlanta,
Georgia; 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, Inc. of Baltimore, Maryland. The number of shares of each series
shall be unlimited. The Trust does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as the Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Fund, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. The Trust has adopted an Amended and Restated
Rule 18f-3 Multi-Class Plan which contains the general characteristics of, and
conditions under which the Trust may offer, multiple Classes of Shares of each
of its series. Rule 18f-2 under the 1940 Act provides that any matter required
to be submitted to the holders of the outstanding voting securities of an
investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding shares of each series or class affected by the matter. A matter
affects a series or class unless it is clear that the interests of each series
or class in the matter are substantially identical or that the matter does not
affect any interest of the series or class. Under Rule 18f-2, the approval of an
investment advisory agreement or any change in a fundamental investment policy
would be effectively acted upon with respect to a series only if approved by a
majority of the outstanding shares of such series. However, the Rule also
provides that the ratification of the appointment of independent accountants,
the approval of principal underwriting contracts and the election of Trustees
may be effectively acted upon by shareholders of the Trust voting together,
without regard to a particular series or class.
When used in the Prospectus or this SAI, a "majority" of shareholders means the
vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class.
When issued for payment as described in the Prospectuses and this SAI, shares of
the Fund will be fully paid and non-assessable.
The Amended and Restated Declaration of Trust provides that the Trustees of the
Trust will not be liable in any event in connection with the affairs of the
Trust, except as such liability may arise from his or her own bad faith, willful
misfeasance, gross negligence, or reckless disregard of duties. It also provides
that all third parties shall look solely to the Trust property for satisfaction
of claims arising in connection with the affairs of the Trust. With the
exceptions stated, the Amended and Restated Declaration of Trust provides that a
Trustee or Officer is entitled to be indemnified against all liability in
connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own federal, state, local, and foreign tax situations.
Each series of the Trust, including the Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. The
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including the Fund, will designate any distribution of
long-term capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long-term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including the Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including the Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure to properly
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Dividends paid by the Fund derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Fund will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
MANAGEMENT AND OTHER SERVICE PROVIDERS
The Board of Trustees of the Trust ("Trustees") is responsible for the
management and supervision of the Fund. The Trustees approve all significant
agreements between the Trust, on behalf of the Fund, and those companies that
furnish services to the Fund. This section of the SAI provides information about
the persons who serve as Trustees and Officers to the Trust and Fund,
respectively, as well as the entities that provide services to the Fund.
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
<TABLE>
<S> <C> <C>
TRUSTEES
----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
----------------------------------------------- -------------------------------- ---------------------------------------------
Jack E. Brinson, 68 Trustee and Chairman President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina
Independent Trustee - New Providence
Investment Trust, Gardner Lewis Investment
Trust, de Leon Funds Trust,
Rocky Mount, North Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
Thomas W. Steed, 42 Trustee Assistant General Counsel
101 Bristol Court Hardee's Food Systems, Inc.
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
J. Buckley Strandberg, 40 Trustee President, Standard Insurance and Realty,
Post Office Box 1375 Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 59 Trustee* President, Brown Capital Management, Inc.,
1201 N. Calvert Street Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 41 Trustee* President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act.
OFFICERS
----------------------------------------------- -------------------------------- ---------------------------------------------
Name, Age and Address Position Principal Occupation(s)
During Past 5 Years
----------------------------------------------- -------------------------------- ---------------------------------------------
Michael T. McRee, 56 President, EARNEST Partners Partner and Manager, EARNEST Partners
317 East Capitol Street Fixed Income Trust Limited, LLC; previously, President,
Jackson, Mississippi 39201 Investek Capital Management, Inc.
Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
Wayne F. Wilbanks, 39 President, The WST Growth Fund President, Wilbanks, Smith & Thomas
One Commercial Place, Suite 1150 Asset Management, Inc., Norfolk, Virginia
Norfolk, Virginia 25510
----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 59 President, The Brown Capital President, Brown Capital Management, Inc.,
1201 N. Calvert Street Management Funds Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 41 President, Capital Value Fund; President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina, Vice President,
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
Elmer O. Edgerton, Jr., 58 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, 39 Vice President, EARNEST Partner and Portfolio Manager, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Investment, Inc.
Jackson, Mississippi, since 1996; Portfolio
Manager, Southern Farm Bureau Life Insurance
Company, Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
R. Mark Fields, 47 Vice President, EARNEST Partner and Director of Marketing, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Management, Inc.
Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
John M. Friedman, 56 Vice President, EARNEST Partner and Portfolio Manager, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Management,
Inc., Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
Keith A. Lee, 40 Vice President, The Brown Vice President, Brown Capital Management,
1201 N. Calvert Street Capital Management Funds Inc., Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
C. Frank Watson, III, 29 Secretary President, The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
----------------------------------------------- -------------------------------- ---------------------------------------------
Julian G. Winters, 31 Treasurer and Assistant Legal and Compliance Director, The
105 North Washington Street Secretary Nottingham Company, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina, since 1996; previously Operations
Manager, Tar Heel Medical, Nashville, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year, plus $250
per series of the Trust per meeting attended in person or $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 $1,250 None None $10,000
Trustee
Eddie C. Brown None None None None
Trustee
Richard K. Bryant None None None None
Trustee
Thomas W. Steed $1,250 None None $10,000
Trustee
J. Buckley Strandberg $1,250 None None $10,000
Trustee
* Figures are as of the Fund's fiscal year ended March 31, 2000.
** Each of the Trustees serves as a Trustee to the seven funds of the Trust, including the Fund.
</TABLE>
Principal Holders of Voting Securities. As of July 11, 2000, 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
July 11, 2000.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
INSTITUTIONAL CLASS SHARES
Charles Schwab & Co., Inc. 382,008.560 shares 30.453%*
fbo Our Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, California 94104
Koochekzadeh Partnership 155,664.385 shares 12.409%
5600 Wisconsin Ave., Apt. 19C
Chevy Chase, Maryland 20815
George D. Wilbanks, Jr. 64,108.699 shares 5.111%
5210 Interbay Boulevard #1
Tampa, Florida 33611
INVESTOR CLASS SHARES
First Clearing Corp 112,211.882 shares 34.260%*
Fbo Harrington Baldwin, Jr. IRA
109 Bell Road
Fredericksburg, Virginia 22405
DFH Properties LLC 19,799.910 shares 6.045%
2726 Croasdaile Drive
Suite 101
Durham, NC 27705
CLASS C SHARES
First Clearing Corp 11,041.723 shares 32.574%*
fbo Edwin S. Hineman, Jr.
Post Office Box 130
Chadds Ford, Pennsylvania 19317
Wachovia Securities, Inc. 8,669.843 shares 25.577%*
fbo WMW Realty, Inc.
Post Office Box 1220
Charlotte, North Carolina 28201
First Clearing Corp 4,212.951 shares 12.428%
fbo Barbara Jean Berry IRA
1110 Hartwood Road
Fredericksburg, Virginia 22406
Wachovia Securities, Inc. 2,528.736 shares 7.460%
fbo 549-00625-19
Post Office Box 1220
Charlotte, North Carolina 28201
*Pursuant to applicable SEC regulations, this shareholder is deemed to control
the class of the Fund.
Investment Advisor. Information about Wilbanks, Smith & Thomas Asset Management,
Inc. ("Advisor") and its duties and compensation as Advisor is contained in the
Prospectuses for each class of shares of the Fund.
The Advisor will receive a monthly management fee equal to an anual rate of
0.75% of the first $250 million of the average daily net assets of the Fund and
0.65% on assets over $250 million. For the fiscal years ended March 31, 2000 and
1999, the Advisor received $117,782 and $40,044 of its fees, respectively, after
waivers of $13,785 and $31,699, respectively. For the period since the Fund
commenced operations (September 30, 1997) through March 31, 1998, the Advisor
received $463 of its fee, after waivers of $18,741 and also reimbursed $5,047 of
the Fund's operating expenses for the period.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment, 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 Advisory Agreement.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company ("Administrator"), a North
Carolina corporation, whose address is 105 North Washington Street, Post Office
Box 69, Rocky Mount, North Carolina 27802-0069.
The Administrator performs the following services for the Fund: (1) coordinates
with the Custodian and monitor the services it provides to the Fund; (2)
coordinates with and monitors any other third parties furnishing services to the
Fund; (3) provides the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervises the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepares or supervises the preparation by third parties of all
federal, state, and local tax returns and reports of the Fund required by
applicable law; (6) prepares and, after approval by the Trust, files and
arranges for the distribution of proxy materials and periodic reports to
shareholders of the Fund as required by applicable law; (7) prepares and, after
approval by the Trust, arranges for the filing of such registration statements
and other documents with the SEC and other federal and state regulatory
authorities as may be required by applicable law; (8) reviews and submits 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) takes 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 years
ended March 31, 2000 and 1999, the Fund paid the Administrator $71,199 and
$49,740, respectively, for its services.
Transfer Agent. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC ("Transfer Agent"), a North
Carolina limited liability company, to serve as transfer, dividend paying, and
shareholder servicing agent for the Fund. The address of the Transfer Agent is
107 North Washington Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. The Transfer Agent is compensated for its services based upon a $15
fee per shareholder per year, subject to a minimum fee of $750 per month. For
the fiscal years ended March 31, 2000 and 1999, the Fund paid the Transfer Agent
$9,000 and $7,500, respectively, for its services.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622, acts as an underwriter and distributor of the Fund's
shares for the purpose of facilitating the registration of shares of the Fund
under state securities laws and to assist in sales of Fund shares pursuant to an
Amended and Restated Distribution Agreement approved by the Board of Trustees of
the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Fund shall, from time to time, identify to the Distributor as states in
which it wishes to offer its shares for sale, in order that state registrations
may be maintained for the Fund.
The Distributor is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
Either party upon 60-days' prior written notice to the other party may terminate
the Amended and Restated Distribution Agreement.
For the fiscal years ended March 31, 2000 and 1999, the aggregate dollar amount
of sales charges on the sales of Investor Class Shares of the Fund was $51,203
and $43,189, respectively, of which the Distributor retained sales charges of
$3,251 and $1,070, respectively. For the period since the Fund commenced
operations (September 30, 1997) through March 31, 1998, the aggregate dollar
amount of sales charges on the sale of Investor Class Shares of the Fund was
$16,467, of which the Distributor retained sales charges of $434.
Custodian. First Union National Bank ("Custodian") serves as custodian for the
Fund's assets. The Custodian's mailing address is 123 South Broad Street,
Philadelphia, Pennsylvania 19109. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties as Custodian. For its services
as Custodian, the Custodian is entitled to receive from the Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
Independent Auditors. Deloitte & Touche, LLP, Princeton Forrestal Village,
116-300 Village Boulevard, Princeton, New Jersey 08540, serves as independent
auditors for the Fund, audits the annual financial statements, prepares federal
and state tax returns for the Fund, and consults with the Fund on matters of
accounting and federal and state income taxation. A copy of the most recent
annual report of the Fund will accompany this SAI whenever it is requested by a
shareholder or prospective investor.
Legal Counsel. Dechert serves as legal counsel to the Trust and the Fund.
Code of Ethics. The Trust, the Advisor, and the Distributor each have adopted a
code of ethics, as required by applicable law, which is designed to prevent
affiliated persons of the Trust and the Advisor from engaging in deceptive,
manipulative, or fraudulent activities in connection with securities held or to
be acquired by the Fund (which may also be held by persons subject to a code).
There can be no assurance that the codes will be effective in preventing such
activities.
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:
WST Growth Fund
[Investor Class], [Class C], or [Institutional Shares], please specify
107 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 Prospectuses.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the Fund at the address shown herein. Your request should include the
following: (1) the Fund name and existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the Fund.
Reduced Sales Charges for Investor Class Shares
Concurrent Purchases. For purposes of qualifying for a lower sales charge,
investors have the privilege of combining concurrent purchases of the Fund and
another series of the Trust advised by the Advisor and sold with a sales charge.
For example, if a shareholder concurrently purchases shares in another series of
the Trust affiliated with the Advisor and sold with a sales charge at the total
public offering price of $125,000, and shares in the Fund at the total public
offering price of $125,000, the sales charge would be that applicable to a
$250,000 purchase as shown in the appropriate table above. This privilege may be
modified or eliminated at any time or from time to time by the Trust without
notice.
Rights of Accumulation. Pursuant to the right of accumulation, investors are
permitted to purchase shares at the public offering price applicable to the
total of (a) the total public offering price of the shares of the Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the purchaser's combined holdings of the shares of all of the series of the
Trust advised by the Advisor and sold with a sales charge. To receive the
applicable public offering price pursuant to the right of accumulation,
investors must, at the time of purchase, provide sufficient information to
permit confirmation of qualification, and confirmation of the purchase is
subject to such verification. This right of accumulation may be modified or
eliminated at any time or from time to time by the Trust without notice.
Letters of Intent. Investors may qualify for a lower sales charge by executing a
letter of intent. A letter of intent allows an investor to purchase shares of
the Fund over a 13-month period at reduced sales charges based on the total
amount intended to be purchased plus an amount equal to the then current net
asset value of the purchaser's combined holdings of the shares of all of the
series of the Trust advised by the Advisor and sold with a sales charge. Thus, a
letter of intent permits an investor to establish a total investment goal to be
achieved by any number of purchases over a 13-month period. Each investment made
during the period receives the reduced sales charge applicable to the total
amount of the intended investment.
The letter of intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day backdating period can be used to include earlier purchases at the
investor's cost (without a retroactive downward adjustment of the sales charge);
the 13-month period would then begin on the date of the first purchase during
the 90-day period. No retroactive adjustment will be made if purchases exceed
the amount indicated in the letter of intent. Investors must notify the
Administrator or the Distributor whenever a purchase is being made pursuant to a
letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the
Administrator or the Distributor. This letter of intent option may be modified
or eliminated at any time or from time to time by the Trust without notice.
Reinvestments. Investors may reinvest, without a sales charge, proceeds from a
redemption of shares of the Fund in shares of the Fund or in shares of another
series of the Trust advised by the Advisor and sold with a sales charge, within
90 days after the redemption. If the other series charges a sales charge higher
than the sales charge the investor paid in connection with the shares redeemed,
the investor must pay the difference. In addition, the shares of the series to
be acquired must be registered for sale in the investor's state of residence.
The amount that may be so reinvested may not exceed the amount of the redemption
proceeds, and a written order for the purchase of such shares must be received
by the Fund or the Distributor within 90 days after the effective date of the
redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
Purchases by Related Parties and Groups. Reductions in sales charges apply to
purchases by a single "person," including an individual, members of a family
unit, consisting of a husband, wife and children under the age of 21 purchasing
securities for their own account, or a trustee or other fiduciary purchasing for
a single fiduciary account or single trust estate.
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar value of
shares purchased by all members of the qualified group and still owned by the
group plus the shares currently being purchased. For purposes of this paragraph,
a qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Fund at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls, or has the power to vote five percent or more of the outstanding
voting securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls, or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
Sales at Net Asset Value. The Fund may sell shares at a purchase price equal to
the net asset value of such shares, without a sales charge, to Trustees,
officers, and employees of the Trust, the Fund, and the Advisor, and to
employees and principals of related organizations and their families and certain
parties related thereto, including clients and related accounts of the Advisor.
In addition, the Fund may sell shares at a purchase price equal to the net asset
value of such shares, without a sales charge, to investment advisors, financial
planners and their clients who are charged a management, consulting or other fee
for their services; and clients of such investment advisors or financial
planners who place trades for their own accounts if the accounts are linked to
the master account of such investment advisor or financial planner on the books
and records of the broker or agent. The public offering price of shares of the
Fund may also be reduced to net asset value per share in connection with the
acquisition of the assets of or merger or consolidation with a personal holding
company or a public or private investment company.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each class of shares 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 shares of
the Fund, which is calculated in a similar manner, except that the results are
not annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund may also quote other total
return information that does not reflect the effects of the sales load.
The average annual total returns for the Institutional Class Shares of the Fund
for the fiscal year ended March 31, 2000 and for the period since the date of
initial public investment (September 30, 1997) through March 31, 2000 were
11.20% and 14.97%, respectively. The cumulative total return of the
Institutional Class Shares of the Fund since date of initial public investment
through March 31, 2000, was 41.77%.
The average annual total returns for the Investor Class Shares of the Fund for
the fiscal year ended March 31, 2000, and for the period since the date of
initial public investment of the Investor Class Shares (October 3, 1997) through
March 31, 2000 were 6.51% and 11.80%, respectively. Without reflecting the
effects of the maximum sales load, the average annual total returns for the
previous periods were 10.66% and 13.53%, respectively. The cumulative total
return of the Investor Class Shares of the Fund since the date of initial public
investment through March 31, 2000, was 32.06%. Without reflecting the effects of
the maximum sales load, the cumulative total return of the Investor Class Shares
of the Fund since the date of initial public investment through March 31, 2000,
was 37.20%.
The cumulative total return of the Class C Shares of the Fund since the date of
initial public investment (May 20, 1999) through March 31, 2000, was 7.20%.
The Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Total Return Index, the Lehman Aggregate Bond Index, the Russell
2000 Index, or a combination of such indices. Comparative performance may also
be expressed by reference to a ranking prepared by a mutual fund monitoring
service or by one or more newspapers, newsletters or financial periodicals. The
Fund may also occasionally cite statistics to reflect its volatility and risk.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, the Fund may advertise its performance compared
to similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time.
o Morningstar, Inc., an independent rating service, publishes the bi-weekly
Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time, the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose, from time to
time, information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). The Fund may also depict the historical performance of
the securities in which the Fund may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended March 31, 2000,
including the financial highlights appearing in the Annual Report to
shareholders, are incorporated by reference and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund may acquire, from time to time, fixed income securities that meet the
following minimum rating criteria ("Investment-Grade Debt Securities") (or if
not rated, of equivalent quality as determined by the Advisor). Not more than
50% of the total fixed income portion of the portfolio (not more than 15% of
total assets of the entire Fund) will be invested in fixed income securities
that are not Investment-Grade Debt Securities. The various ratings used by the
nationally recognized securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's(R)Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P"), a division of the
McGraw-Hill Companies, Inc., for bonds that are deemed to be Investment-Grade
Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay
principal.
AA - Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for debt in
higher rated categories.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and principal
in accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While such bonds may
have some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to municipal notes and
indicates very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given a
plus (+) designation.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds that are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Debt that is rated A possesses many favorable investment attributes
and is to be considered as an upper medium- grade obligation. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Debt, which is rated Baa, is considered as a medium-grade
obligation, i.e., it is neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such debt
lacks outstanding investment characteristics and in fact has speculative
characteristics as well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category.
Bonds, which are rated Ba, B, Caa, Ca or C by Moody's, are not considered
Investment-Grade Debt Securities by the Advisor. Bonds rated Ba are judged to
have speculative elements because their future cannot be considered as well
assured. Uncertainty of position characterizes bonds in this class, because the
protection of interest and principal payments often may be very moderate and not
well safeguarded.
Bonds, which are rated B generally, lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds,
which are rated Caa, are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds, which are rated Ca, represent obligations, which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) are considered to
have a strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics of issuers rated
Prime-1 but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriated may be more affected by external conditions. Ample alternate
liquidity is maintained.
The following summarizes the highest rating used by Moody's for short-term notes
and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds, which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
Investment-Grade Debt Securities by the Advisor:
AAA - Bonds are considered to be investment-grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment-grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment-grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB - Bonds rated BBB are considered to be investment-grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below
investment-grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
<PAGE>
________________________________________________________________________________
[LOGO]
WST GROWTH FUND
________________________________________________________________________________
a series of The Nottingham Investment Trust II
INSTITUTIONAL SHARES
ANNUAL REPORT 2000
FOR THE YEAR ENDED MARCH 31, 2000
INVESTMENT ADVISOR
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
WST GROWTH FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
[LETTERHEAD]
WST Growth Fund
Annual Report
Institutional Shares
It is our pleasure to enclose the annual report for the WST Growth Fund. This
letter highlights the progress of the Fund during the last twelve months and
outlines our expectations for the coming year. Stocks are experiencing one of
their most volatile weeks on record as we write this note so please view these
comments in the light of a highly dynamic market. We appreciate the confidence
you have placed us to manage your assets and we are working diligently to
maximize the performance of those assets.
The management team at Wilbanks, Smith & Thomas made several important decisions
regarding the Fund last year. Most importantly we shifted the investment focus
of the Fund to a pure growth orientation from the original growth and income
policy. The shift allows us to better match the strategy of the Fund with goals
of our investors. The elimination of the income objective also allows us to
align the Fund's holdings with the firm's standard equity model. We made these
changes after discussions with many shareholders and believe that by
repositioning the Fund as a pure growth portfolio we will enhance the
performance of your holdings.
Performance Analysis: Technology and Telecommunications Rule!
A review of the last year's performance data reveals that there were truly two
stock markets. Owners of technology and telecommunication stocks enjoyed another
year of watching the NASDAQ skyrocket while entire sectors including finance,
consumer cyclicals, and health care stocks traded lower throughout the year.
A number of well-publicized statistics highlight the discrepancy between tech
and all the rest in 1999. The average technology stock in the S&P 500 rose 74.5%
while the average non-technology stock was up 4.5%. 61% of the stocks on the New
York Stock Exchange declined during 1999, and approximately 25 stocks made up
100% of the return in the S&P 500. The majority of these issues were in the
technology and telecommunications sectors. When you consider that 475 of the 500
stocks in the index combined to generate a 0% return last year, it is easy to
understand our excitement at the opportunities this group of stocks presents us
now.
Your Fund enjoyed positive returns over the twelve months ending March 31st of
11.20%. This return compared favorably with the 5.42% return of the Lipper
Multi-Cap Value Index to which we are normally compared. The Fund posted strong
results during the fiscal third quarter and matched the return of the S&P 500
during the final quarter. The Fund has delivered a 14.97% annualized rate of
return since inception, outpacing the Multi-cap Value Index. Our shift in focus
to an all equity strategy will result in performance more in line with the large
cap indices with which most of our shareholders are familiar.
<PAGE>
The Fund's turnover rate was 50% last year, a figure well below the 90% turnover
rate of the average growth equity fund. More importantly the Fund generated zero
capital gains during the calendar year, a result that underlines its tax
efficiency. Our goal will continue to be minimizing realized gains wherever
possible.
The expense ratio in the Fund continued to decline as assets exceeded $21
million. The bottom line will be impacted positively as the ratio drops with
asset growth.
Fiscal 2000 In Review:
The Trend Remains the Same
When reviewing the 1999 Annual Report for the WST Growth Fund we noticed several
similarities between that year and Fiscal 2000. The interest rate driven
sell-off in growth stocks in the third quarter of 1999 was reminiscent of the
buying opportunity created in October 1998 by the collapse of the Russian
economy and the failure of Long Term Capital Management and other hedge funds.
The narrow breadth of the market discussed above was also a topic last year. By
narrow breadth we mean that a very small number of large capitalization growth
companies have generated all of the market's performance over the past two
years. This trend continued into the first calendar quarter of 2000 but began to
reverse in late March and early April. Later in this report we will discuss in
detail the difference between old and new economy stocks but it is clear that
investors have favored new economy stocks and have been willing to set
fundamentals and valuation aside in their quest for performance.
The chaotic market activity we are experiencing now is the beginning of the
unwinding of some of the performance and valuation disparities between
technology and telecommunication stocks and the rest of the market. While we
expect the market to broaden this year it will continue to be dominated by the
mid and large capitalization growth companies.
Volatility and the "New Economy"
As outlined above both the stock and bond markets endured the most violent
intra-quarter volatility in recent memory during the first quarter of 2000.
Morgan Stanley strategist Barton Biggs, a veteran market watcher, described it
as the most volatile market he has seen in his career.
The essence of the maelstrom is the war raging between Old and New economy
stocks. Old economy stocks include financial companies, capital goods producers,
"bricks and mortar" retailers and any other companies not included in the
Internet driven "TMT" sectors (Telecommunications, Media and Technology) that
make up the new economy. After the first ten weeks of the first calendar quarter
of 2000 the new economy companies appeared indomitable as they raced to a
performance edge that had many wondering if 2000 will be a replay of 1999.
Despite a 10% decline at the end of March, the NASDAQ market, which is heavily
weighted in these new economy companies, remains the driver of year to date
performance. In fact, the market narrowed further around these companies during
2000, and at one point the NASDAQ Index was up 20% year to date while the Dow
Jones Industrial Average was down 5%. Small and mid capitalization companies
continued their surge relative to large cap stocks during the quarter, finishing
with gains far outpacing their larger brethren.
<PAGE>
The volatility statistics for the past three months are amazing. The S&P 500
declined over 10% during the first two months, then posted a rally of 15% during
the subsequent three weeks. The last week of the quarter degenerated to absolute
market havoc with the end result being a gain of 2% for the S&P for the quarter.
The Dow Jones declined 4.7% while the NASDAQ increased 12.9% over the same
period.
"Hot" Money Flows to Technology
Mutual fund money flows account for much of the market's action. The massive
amounts of dollars flowing into growth and aggressive growth funds over the past
several quarters have required the managers of those funds continually to put
money to work by buying more of their stocks regardless of valuation.
Conversely, money flows out of value funds and away from value managers have
driven the forced liquidation of stocks held by these funds and resulted in the
ever-widening gap between classic growth and value.
The damage was so bad and the sentiment so negative for value investors that two
of the industry's most successful value investors retired during the first
quarter. First, Bob Sanborn stepped down as manager of the Oakmark Fund. His
retirement was driven by his frustration at the valuations of the new economy
stocks and the lack of respect paid by the market to his old economy holdings.
Next Julian Robertson, the famed manager of the $6 billion Tiger Fund, announced
that he would retire and liquidate his portfolio. In his exit interview he cited
his inability to understand the current market. Any investor with even a hint of
contrarian nature would cite these two retirements as evidence that valuations
will matter again one day, and we agree. Ironically, sanity seemed to return to
the markets shortly after these announcements as the unreasonably priced biotech
and Internet stocks imploded and old economy sectors began their rebound.
What lessons are we to learn from these events? First, our earnings growth based
stock selection process continues to work. We have avoided the pitfalls
associated with owning concept stocks with unproven business models or
inexperienced management teams, but we have participated fully in the growth of
the TMT economy by owning its "best in class" participants. Second, when the
flow of funds begins to shift out of the richly valued names and into the more
reasonably priced stocks, the price impact on the recipients of those fund flows
will be significant. For example, Fidelity's Magellan Fund holds $100 billion in
assets. A normal position in the fund is $3-4 billion. The door seems very small
when large players like Fidelity begin to establish positions in any but the
largest stocks.
The underlying fundamentals of the companies in the Fund continue to be
excellent. Although the technology stocks have posted impressive earnings gains
over the past twelve months, the reported profits of other holdings have proven
as strong as ever.
Dollar Tree Stores - A Bargain Price Every Day
A perfect example of the liquidity phenomenon addressed above is the price
action of Dollar Tree Stores over the past four months. As we have discussed at
great length, Wilbanks Smith and Thomas's goal is to buy, at reasonable prices,
great growth businesses run by highly intelligent and motivated management
teams. Dollar Tree Stores is a mid-size retailing company that fits this model.
We have researched the company extensively and spent significant time with
senior management including Macon Brock, the company's C.E.O. His team has the
experience and discipline to build their business over the next 5 - 10 years at
a pace which will rival the early growth of Wal-Mart.
Despite the company's fundamentals the stock exhibited dramatic volatility over
the past six months with relatively little trading volume. The company has
traded in a range between $32 and $54 with no change in fundamentals and an
outlook that continues to brighten. Wilbanks, Smith & Thomas has taken advantage
of the volatility to build the Fund's positions, especially as the company drops
into the $30 range. We recommended the stock on CNBC at $33 and $38 per share.
We believe that the large growth mutual funds will return to the stock
eventually and will drive it higher as they attempt to reestablish positions
liquidated during 1999.
Research: In Search of the Next Oracle
In our last update we discussed in great detail the process that led to our
investment in Oracle Corporation. The basis of that decision was our belief that
Wall Street did not recognize the magnitude of the opportunity that Larry
Ellison and his management team were trying to exploit through the design of a
complete mission critical database software system for the Internet. Surely
Oracle benefited from the massive move in technology stocks, but the stock's
performance was driven mainly by the growing recognition on Wall Street that the
company is perfectly positioned with a set of products that will lead the market
in enabling Internet commerce.
Using the Oracle investment as a model, our research team has spent countless
days on the road visiting our current holdings and potential new ones and
increasing our focus on the technology and telecommunication sectors. Our
mission is to repeat the Oracle success by uncovering other companies with the
potential to be revalued based on their association with the Internet.
A recent purchase that fits this model is Computer Associates. As in the case of
Oracle in 1998, most analysts' valuation of Computer Associates is based upon
their legacy mainframe software business, which is a relatively slow growth
business. However, the company has built large, fast growing businesses in both
data storage software and Internet security. In the past several months we met
with the senior management of the company in both New York and at their "CA
World" trade show New Orleans. The picture that has emerged is that of a company
with a truly exceptional business model that can be purchased at an
exceptionally reasonable price (21 times earnings).
CEO Sanjay Kumar is communicating to Wall Street the opportunity presented by
the several billions of dollars of revenues the company can generate from its
Internet businesses. His goal is to convince Wall Street to reclassify the
company as an Internet investment. The result will be a substantially higher
price/earnings ratio and stock price. It is difficult to predict when the
discovery will occur but we are comfortable waiting patiently for the value to
be recognized.
<PAGE>
The price of Computer Associates' stock price could double in the next six
months with no change in fundamentals. Contrast that scenario, purchasing a
solid growth company at 21 times earnings, with an investment in Cisco Systems
at a price earnings ratio of 143 times earnings. Without a doubt Cisco is the
leader in the Internet infrastructure gold rush, but perhaps Wall Streets' great
expectations for the company are already reflected in the stock price.
Historically it has been very difficult to make money in stocks purchased at 150
times earnings irrespective of even the most perfect fundamentals.
Second Quarter Technology Turmoil??
Forecasting the direction of the financial markets is a dangerous pastime and is
fraught with pitfalls. In our last quarterly update we predicted a 10% - 15%
correction in the equity markets during the first quarter with Internet stocks
leading the decline. In retrospect our market call was half correct as the Dow
Jones Industrial average declined approximately 15% by the end of February.
However, the old economy stocks led the retreat rather than Internet and tech
related issues. Our other prediction was that interest rates would peak below
7%. Ironically, and much to Alan Greenspan's dismay, long-term interest rates
declined from 6.75% to 5.9% at quarter-end. This decline flies in the face of
his restrictive monetary policy that has led to five rate hikes in the past six
months.
The most critical variable in the market now is clear: how will the NASDAQ Index
unravel its extremely overvalued condition? The answer to this question will
drive financial markets over the next six months. The NASDAQ Index is currently
almost 40% above its 200-day moving average, a condition not seen since 1991.
Although this is a sign of a powerful trend it also presents a precarious
technical condition for the strongest segment of the economy and market. The
average stock in the NASDAQ 100 Index currently trades for over 90 times
earnings, a level considered excessive under any valuation model.
The market will either digest this condition with a sharp correction as it did
in October 1998, or it will unravel slowly as it did in the first half of 1998.
Either way, investors can expect continued volatility. We expect market action
like we saw during the last three weeks of the first quarter. While certain
sectors such as biotechs collapsed, dropping 25% over a period of days, the
overall index endured a more moderate 10%- 12% correction, albeit through a
series of very violent sell-offs of 3% - 4% daily. Importantly, the money
flowing out of the NASDAQ flowed into the old economy stocks as we discussed
above, benefiting the financials and capital goods makers like Honeywell and
Tyco.
As we often point out, the Fund is full of quality companies trading at prices
comparable to those several years ago. Bank of America, Fannie Mae, New York
Times, CVS, and MCI Worldcom have all made great fundamental progress yet Wall
Street values them at the same levels it did in 1998. Like shoppers at K-Mart's
Blue Light Special, we are happy to take advantage of these discounts! In these
cases the powerful combination of a positive economic and political backdrop
coupled with good business fundamentals and strong free cash flow clearly
indicate higher stock prices down the road.
<PAGE>
New Economy or Bust!
The research team at Wilbanks, Smith & Thomas has never been more excited about
the opportunities we see the economy and market presenting us. Putting aside for
a minute the old economy/new economy debate, we recognize the importance of the
fundamental changes the Internet is causing in all areas of commerce and daily
life. Investors must make adjustments to their portfolios to take advantage of
this secular change. Our challenge is to find the future winners and buy them
while they are priced reasonably, and we see many opportunities in both the
technology and telecommunication sectors. Clearly an investment in these sectors
requires more flexibility and tolerance for short term volatility than some
investors are accustomed to. Still, we believe that managers who ignore these
trends will be left behind as the new economy streaks ahead.
Having said that, it is also a very risky time for investors who ignore
valuations. Stock charts of former favorites like eToys, Excite-at-Home or Red
Hat remind us that regardless of a company's potential there are times when its
stock is simply too expensive. To us it makes no sense to invest in companies
that have not and most likely never will earn a dollar. As we remind our
clients, only our 35 to 45 best ideas make it into the Fund. The stocks that do
make it need to be the best possible combination of growth business models,
skillful management, and attractive valuations.
Our equity research team is in the process of developing a white paper on the
technology and telecommunications sectors. This document will be posted to our
website during the next several months and should be helpful in outlining our
focus. We are spending an increasing amount of time in both Silicon Valley and
New York meeting with industry leaders and visionaries and honing our investment
process. We look forward to sharing our thoughts with you.
Thank you for your continued confidence in the WST Growth Fund. Patience and a
strong investment discipline are keys to victory in the equity markets. We are
excited about the coming year and the opportunities that will present
themselves. Please know that our interests are always aligned with yours as our
principals and employees remain among the largest shareholders in the Fund.
Wayne F. Wilbanks
L. Norfleet Smith, Jr.
Norwood A. Thomas, Jr.
T. Carl Turnage
Lawrence A. Bernert, III
<PAGE>
WST GROWTH FUND
Institutional Class Shares
Performance Update - $25,000 Investment
For the period from September 30, 1997 (Date of Initial Public Investment)
to March 31, 2000
[Line graph here]:
--------------------------------------------------------------------------------
WST Growth Fund 60% S&P 500 Index/
Institutional 20% Lehman Inter. Gov't/Corp Bond Index
Class Shares 20% Russell 2000 Index
--------------------------------------------------------------------------------
9/30/97 $25,000 $25,000
12/31/97 25,502 25,383
3/31/98 28,179 28,124
6/30/98 28,453 28,572
9/30/98 24,759 26,005
12/31/98 30,575 30,165
3/31/99 31,873 30,894
6/30/99 33,670 33,030
9/30/99 30,675 31,369
12/31/99 34,893 35,381
3/31/00 35,442 36,259
This graph depicts the performance of the WST Growth Fund Institutional Class
Shares versus the combined index of 60% S&P 500 Index, 20% Lehman Intermediate
Government/Corporate Bond Index, and 20% Russell 2000 Index. It is important to
note that the WST Growth Fund is a professionally managed mutual fund while the
indexes are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only.
Average Annual Total Returns
-----------------------------------------
One Year Since Inception
-----------------------------------------
11.20% 14.97%
-----------------------------------------
The graph assumes an initial $25,000 investment at September 30, 1997 (inception
date). All dividends and distributions are reinvested.
At March 31, 2000, the WST Growth Fund Institutional Class Shares would have
grown to $35,442 - a cumulative total investment return of 41.77% since
September 30, 1997.
At March 31, 2000, a similar investment in the combined index of 60% S&P 500
Index, 20% Lehman Intermediate Government/Corporate Bond Index, and 20% Russell
2000 Index would have grown to $36,259 - a cumulative total investment return of
45.03% since September 30, 1997. The Lipper Growth and Income Fund Index that
was used in previous years' graphs for illustrative purposes is not used in this
year's graph because of modifications made to Lipper's fund classification
structure.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 97.51%
Beverages - 2.49%
PepsiCo, Inc. .......................................................... 15,700 $ 542,631
-----------
Broadcast - Radio & Television - 2.13%
(a)Cox Communications, Inc. ............................................... 9,600 465,600
-----------
Computers - 3.60%
(a)Dell Computer Corporation .............................................. 5,000 269,687
(a)Sun Microsystems, Inc. ................................................. 5,500 515,367
-----------
785,054
-----------
Computer Software & Services - 19.06%
Computer Associates International, Inc. ................................ 12,000 710,250
First Data Corporation ................................................. 12,000 530,250
Microsoft Corporation .................................................. 4,000 425,000
(a)Novell, Inc. ........................................................... 5,000 143,125
(a)Oracle Corporation ..................................................... 28,000 2,185,750
(a)Parametric Technology Corporation ...................................... 8,000 168,500
-----------
4,162,875
-----------
Cosmetics & Personal Care - 2.20%
Colgate-Palmolive Company .............................................. 3,000 169,125
(a)Playtex Products, Inc. ................................................. 24,000 312,000
-----------
481,125
-----------
Diversified Manufacturing - 4.67%
General Electric Company ............................................... 2,500 387,969
Honeywell, Inc. ........................................................ 12,000 632,250
-----------
1,020,219
-----------
Electronics - Semiconductor - 3.63%
Intel Corporation ...................................................... 6,000 791,625
-----------
Financial - Banks, Commercial - 2.88%
Bank of America Corporation ............................................ 5,000 262,188
Citigroup Inc. ......................................................... 5,000 296,563
Resource Bankshares Corporation ........................................ 7,700 69,300
-----------
628,051
-----------
Financial Services - 3.17%
American Express Company ............................................... 2,000 297,875
Fannie Mae ............................................................. 7,000 395,063
-----------
692,938
-----------
Insurance - Life & Health - 1.67%
AFLAC INCORPORATED .................................................... 8,000 365,000
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Insurance - Multiline - 2.51%
American International Group, Inc. ..................................... 5,000 $ 547,500
-----------
Medical Supplies - 1.77%
Johnson & Johnson ...................................................... 5,500 385,687
-----------
Miscellaneous - Manufacturing - 4.40%
Tyco International Ltd. ................................................ 19,000 960,687
-----------
Oil & Gas - Equipment & Services - 2.85%
Schlumberger, Limited .................................................. 8,000 622,000
-----------
Oil & Gas - Exploration - 2.50%
Exxon Mobil Corporation ................................................ 6,996 545,688
-----------
Pharmaceuticals - 4.12%
Bristol-Myers Squibb Company ........................................... 5,000 288,750
Merck & Co., Inc. ...................................................... 6,000 374,250
Pharmacia & Upjohn, Inc. ............................................... 4,000 237,000
-----------
900,000
-----------
Publishing - Newspaper - 2.17%
The New York Times Company ............................................. 11,000 473,000
-----------
Retail - General Merchandise - 3.82%
(a)Dollar Tree Stores, Inc. ............................................... 16,000 834,000
-----------
Retail - Specialty Line - 4.20%
CVS Corporation ........................................................ 12,000 450,750
Lowe's Companies, Inc. ................................................. 8,000 467,000
-----------
917,750
-----------
Telecommunications - 19.79%
ALLTEL Corporation ..................................................... 9,000 567,562
AT&T Corporation ....................................................... 8,143 459,571
Bell Atlantic Corporation .............................................. 5,000 305,625
Lucent Technologies Inc. ............................................... 9,000 546,750
(a)MCI WorldCom, Inc. ..................................................... 20,000 906,250
(a)Qwest Communications International, Inc. ............................... 4,000 192,000
(a)Tellabs, Inc. .......................................................... 8,000 503,875
Time Warner, Inc. ...................................................... 8,500 840,969
-----------
4,322,602
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Telecommunications Equipment - 3.88%
Nokia Oyj - ADR ........................................................ 1,000 $ 217,250
Nortel Networks Corporation ............................................ 5,000 630,000
-----------
847,250
-----------
Total Common Stocks (Cost $15,811,012) ................................................... 21,291,282
-----------
------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATION - 1.48%
Macsaver Financial Services ......................... $500,000 7.875% 08/01/03 322,500
(Cost $447,292) -----------
------------------------------------------------------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 6.85%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ............................... 949,829 949,829
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ......................... 545,541 545,541
-----------
Total Investment Companies (Cost $1,495,370) ............................................. 1,495,370
-----------
Total Value of Investments (Cost $17,753,674%(b)) .................................. 105.84 % $23,109,152
Liabilities In Excess of Other Assets .............................................. (5.84)% (1,275,220)
------ -----------
Net Assets .................................................................. 100.00 % $21,833,932
====== ===========
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is $17,818,382. Unrealized appreciation (depreciation) of investments for
federal income tax purposes is as follows:
Unrealized appreciation .................................................................. $ 6,095,086
Unrealized depreciation .................................................................. (804,316)
-----------
Net unrealized appreciation .............................................. $ 5,290,770
===========
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $17,753,674) .......................................................... $23,109,152
Cash .............................................................................................. 3,726
Income receivable ................................................................................. 18,643
Receivable for fund shares sold ................................................................... 2,117
Deferred organization expenses, net (note 4) ...................................................... 20,525
-----------
Total assets ................................................................................. 23,154,163
-----------
LIABILITIES
Accrued expenses .................................................................................. 22,784
Payable for investment purchases .................................................................. 1,294,820
Payable for fund shares redeemed .................................................................. 1,950
Other liabilities ................................................................................. 677
-----------
Total liabilities ............................................................................ 1,320,231
-----------
NET ASSETS ............................................................................................... $21,833,932
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................... $17,655,490
Accumulated net realized loss on investments ...................................................... (1,177,036)
Net unrealized appreciation on investments ........................................................ 5,355,478
-----------
$21,833,932
===========
CLASS C
Net asset value, redemption and maximum offering price per share
($453,984 / 32,451 shares) ................................................................... $13.99
===========
INSTITUTIONAL CLASS
Net asset value, redemption and maximum offering price per share
($16,737,026 / 1,178,752 shares) ............................................................. $14.20
===========
INVESTOR CLASS
Net asset value, redemption and offering price per share .......................................... $14.02
($4,642,922 / 331,189 shares) ===========
Maximum offering price per share (100 / 96.25 of $14.02) .......................................... $14.57
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH FUND
STATEMENT OF OPERATIONS
Year ended March 31, 2000
INVESTMENT LOSS
Income
Interest ...................................................................................... $ 55,224
Dividends ..................................................................................... 159,931
-----------
Total income ............................................................................ 215,155
-----------
Expenses
Investment advisory fees (note 2) ............................................................. 131,567
Fund administration fees (note 2) ............................................................. 30,699
Distribution and service fees - Investor Class shares (note 3) ................................ 18,962
Distribution and service fees - Class C shares (note 3) ....................................... 1,325
Custody fees .................................................................................. 3,905
Registration and filing administration fees (note 2) .......................................... 5,655
Fund accounting fees (note 2) ................................................................. 40,500
Audit fees .................................................................................... 11,317
Legal fees .................................................................................... 7,214
Securities pricing fees ....................................................................... 3,339
Shareholder recordkeeping fees ................................................................ 9,000
Shareholder servicing expenses ................................................................ 7,605
Registration and filing expenses .............................................................. 4,516
Printing expenses ............................................................................. 21,547
Amortization of deferred organization expenses (note 4) ....................................... 8,250
Trustee fees and meeting expenses ............................................................. 3,916
Other operating expenses ...................................................................... 4,810
-----------
Total expenses .......................................................................... 314,127
-----------
Less investment advisory fees waived (note 2) ........................................... (13,785)
-----------
Net expenses ............................................................................ 300,342
-----------
Net investment loss ................................................................ (85,187)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investment transactions ..................................................... (555,913)
Increase in unrealized appreciation on investments ................................................. 2,771,724
-----------
Net realized and unrealized gain on investments ............................................... 2,215,811
-----------
Net increase in net assets resulting from operations .................................... $ 2,130,624
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ...................................................... $ (85,187) $ (8,424)
Net realized loss from investment transactions ........................... (555,913) (578,937)
Increase in unrealized appreciation on investments ....................... 2,771,724 1,853,775
----------- -----------
Net increase in net assets resulting from operations ................. 2,130,624 1,266,414
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .... 5,744,786 5,552,729
----------- -----------
Total increase in net assets .................................... 7,875,410 6,819,143
NET ASSETS
Beginning of year ............................................................. 13,958,522 7,139,379
----------- -----------
End of year ................................................................... $21,833,932 $13,958,522
=========== ===========
(a) A summary of capital share activity follows:
-------------------------------------------------------------------------------------
Year ended Year ended
March 31, 2000 March 31, 1999
Shares Value Shares Value
-------------------------------------------------------------------------------------
----------------------------------------------
CLASS C (a)
----------------------------------------------
Shares sold .................................. 32,451 $ 426,228 0 $ 0
Shares redeemed .............................. 0 0 0 0
----------- ----------- ----------- -----------
Net increase ............................ 32,451 $ 426,228 0 $ 0
=========== =========== =========== ===========
----------------------------------------------
INSTITUTIONAL CLASS
----------------------------------------------
Shares sold .................................. 331,219 $ 4,408,827 361,611 $ 4,344,114
Shares redeemed .............................. (46,784) (604,849) (32,095) (380,601)
----------- ----------- ----------- -----------
Net increase ............................ 284,435 $ 3,803,978 329,516 $ 3,963,513
=========== =========== =========== ===========
----------------------------------------------
INVESTOR CLASS
----------------------------------------------
Shares sold .................................. 221,528 $ 2,686,217 143,763 $ 1,721,117
Shares redeemed .............................. (90,704) (1,171,637) (11,169) (131,901)
----------- ----------- ----------- -----------
Net increase ............................ 130,824 $ 1,514,580 132,594 $ 1,589,216
=========== =========== =========== ===========
----------------------------------------------
FUND SUMMARY
----------------------------------------------
Shares sold .................................. 585,198 $ 7,521,272 505,374 $ 6,065,231
Shares redeemed .............................. (137,488) (1,776,486) (43,264) (512,502)
----------- ----------- ----------- -----------
Net increase ............................ 447,710 $ 5,744,786 462,110 $ 5,552,729
=========== =========== =========== ===========
(a) For the period beginning May 20, 1999 (date of initial public investment) through March 31, 2000.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
CLASS C
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
May 20, 1999
(date of initial public
investment) to
March 31,
2000
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................................................... $ 13.05
Income from investment operations
Net investment loss ............................................................... (0.06)
Net realized and unrealized gain on investments ................................... 1.00
---------
Total from investment operations ............................................ 0.94
---------
Net asset value, end of period ............................................................... $ 13.99
=========
Total return (a) ............................................................................. 7.20 %
=========
Ratios/supplemental data
Net assets, end of period .............................................................. $ 453,984
=========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ..................................... 2.45 % (b)
After expense reimbursements and waived fees ...................................... 2.34 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ..................................... (1.30)% (b)
After expense reimbursements and waived fees ...................................... (1.19)% (b)
Portfolio turnover rate ................................................................ 50.40 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements (Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INSTITUTIONAL CLASS
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
September 30, 1997
(date of initial public
Year ended Year ended investment) to
March 31, March 31, March 31,
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.77 $ 11.29 $ 10.02
Income from investment operations
Net investment loss ................................ (0.04) 0.00 0.00
Net realized and unrealized gain on investments .... 1.47 1.48 1.27
----------- ----------- -----------
Total from investment operations ............. 1.43 1.48 1.27
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.20 $ 12.77 $ 11.29
=========== =========== ===========
Total return (a) .............................................. 11.20 % 13.11 % 12.72 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $16,737,026 $11,419,391 $ 6,376,193
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 1.68 %(b) 2.08 % 3.15 %(b)
After expense reimbursements and waived fees ....... 1.60 %(b) 1.75 % 1.75 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.45)%(b) (0.35)% (1.31)%(b)
After expense reimbursements and waived fees ....... (0.37)%(b) (0.01)% 0.09 %(b)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements (Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INVESTOR CLASS
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
October 3, 1997
(date of initial public
Year ended Year ended investment) to
March 31, March 31, March 31,
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.67 $ 11.26 $ 10.22
Income from investment operations
Net investment loss ................................ (0.10) (0.04) (0.01)
Net realized and unrealized gain on investments .... 1.45 1.45 1.05
----------- ----------- -----------
Total from investment operations ............. 1.35 1.41 1.04
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.02 $ 12.67 $ 11.26
=========== =========== ===========
Total return (a) .............................................. 10.66 % 12.52 % 10.52 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $ 4,642,922 $ 2,539,131 $ 763,186
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 2.15 %(b) 2.56 % 3.63 %(b)
After expense reimbursements and waived fees ....... 2.10 %(b) 2.25 % 2.10 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.93)%(b) (0.84)% (1.70)%(b)
After expense reimbursements and waived fees ....... (0.88)%(b) (0.53)% (0.31)%(b)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The WST Growth Fund (the "Fund"), formerly known as the WST Growth &
Income Fund prior to January 3, 2000, is a diversified series of shares
of beneficial interest of The Nottingham Investment Trust II (the
"Trust"). The Trust, an open-end investment company, was organized on
October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The Fund began
operations on September 9, 1997. The investment objective of the fund
is to provide its shareholders with a maximum total return consisting
of any combination of capital appreciation, both realized and
unrealized, and income. The Board of Trustees of the Trust approved on
March 15, 1999 a plan to authorize a new class of shares designated as
Class C Shares. On May 20, 1999, the Class C Shares became effective.
The Fund has an unlimited number of authorized shares, which are
divided into three classes - Institutional Shares, Investor Shares, and
Class C.
Each class of shares has equal rights as to assets of the Fund, and the
classes are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Class C and Investor Class), and realized and unrealized gains
or losses on investments are allocated to each class of shares based
upon its relative net assets. Investor Shares purchased are subject to
a maximum sales charge of 3.75%. All three classes have equal voting
privileges, except where otherwise required by law or when the Board of
Trustees determines that the matter to be voted on affects only the
interests of the shareholders of a particular class. The following is a
summary of significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at 4:00 p.m., New York
time. Other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that
date are valued at the most recent bid price. Securities for
which market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The Fund has capital loss carryforwards for federal income tax
purposes of $919,853, of which $42,186 expires in the year
2006, $342,266 expires in the year 2007 and $535,401 expires
in the year 2008. It is the intention of the Board of Trustees
of the Trust not to distribute any realized gains until the
carryforwards have been offset or expire.
As a result of the Fund's operating net investment loss, a
reclassification adjustment of $85,187 has been made on the
statement of assets and liabilities to decrease accumulated
net investment loss, bringing it to zero, and decrease paid in
capital.
(Continued)
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October 31,
which are deferred for income tax purposes. The character of
distributions to shareholders made during the year from net
investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
Also, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year
that the income or realized gains were recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded
on trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September, and December on
a date selected by the Trust's Trustees. In addition,
distributions may be made annually in December out of net
realized gains through October 31 of that year. The Fund may
make a supplemental distribution subsequent to the end of its
fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results
could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Wilbanks, Smith & Thomas
Asset Management, Inc. (the "Advisor"), provides the fund with a
continuous program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and recommendations
with respect to investments, investment policies, and the purchase and
sale of securities. As compensation for its services, the Advisor
receives a fee at the annual rate of 0.75% of the first $250 million of
the Fund's average daily net assets and 0.65% of all assets over $250
million.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class, a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class, and a maximum of
2.50% of the average daily net assets of the Fund's Class C. 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 $13,785 for the year ended March 31,
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 an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, 0.125% of the next $50
(Continued)
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
million, and 0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting and
record-keeping services for the initial class of shares and $750 per
month for each additional class of shares. The contract with the
Administrator provides that the aggregate fees for the aforementioned
administration, accounting, and recordkeeping services shall not be
less than $4,000 per month. The Administrator also charges the Fund for
certain expenses involved with the daily valuation of portfolio
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including the Trustees who are not "interested
persons" of the Trust as defined in the Investment Company Act of 1940
(the "Act"), adopted a distribution and service plan pursuant to Rule
12b-1 of the Act (the "Plan") applicable to the Investor and Class C
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% and 0.75% per annum of the average daily net assets of
Investor Shares and Class C Shares, respectively, 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 Class and Class C
Shares' average daily net assets. The Fund incurred $18,962 of such
expenses for the Investor class and $1,325 of such expenses for the
Class C shares under the Plan for the year ended March 31, 2000.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $14,487,255 and $8,498,090, respectively, for the year ended
March 31, 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
WST Growth Fund:
We have audited the accompanying statement of assets and liabilities of WST
Growth Fund, including the portfolio of investments, as of March 31, 2000, and
the related statement of operations for the year then ended, the statements of
changes in net assets for the years ended March 31, 2000 and 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of WST
Growth Fund as of March 31, 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 accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
________________________________________________________________________________
[LOGO]
WST GROWTH FUND
________________________________________________________________________________
a series of The Nottingham Investment Trust II
INVESTOR SHARES
ANNUAL REPORT 2000
FOR THE YEAR ENDED MARCH 31, 2000
INVESTMENT ADVISOR
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
WST GROWTH FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
[LETTERHEAD]
Annual Report
WST Growth Fund
Investor Shares
It is our pleasure to enclose the annual report for the WST Growth Fund. This
letter highlights the progress of the Fund during the last twelve months and
outlines our expectations for the coming year. Stocks are experiencing one of
their most volatile weeks on record as we write this note so please view these
comments in the light of a highly dynamic market. We appreciate the confidence
you have placed us to manage your assets and we are working diligently to
maximize the performance of those assets.
The management team at Wilbanks, Smith & Thomas made several important decisions
regarding the Fund last year. Most importantly we shifted the investment focus
of the Fund to a pure growth orientation from the original growth and income
policy. The shift allows us to better match the strategy of the Fund with goals
of our investors. The elimination of the income objective also allows us to
align the Fund's holdings with the firm's standard equity model. We made these
changes after discussions with many shareholders and believe that by
repositioning the Fund as a pure growth portfolio we will enhance the
performance of your holdings.
Performance Analysis: Technology and Telecommunications Rule!
A review of the last year's performance data reveals that there were truly two
stock markets. Owners of technology and telecommunication stocks enjoyed another
year of watching the NASDAQ skyrocket while entire sectors including finance,
consumer cyclicals, and health care stocks traded lower throughout the year.
A number of well-publicized statistics highlight the discrepancy between tech
and all the rest in 1999. The average technology stock in the S&P 500 rose 74.5%
while the average non-technology stock was up 4.5%. 61% of the stocks on the New
York Stock Exchange declined during 1999, and approximately 25 stocks made up
100% of the return in the S&P 500. The majority of these issues were in the
technology and telecommunications sectors. When you consider that 475 of the 500
stocks in the index combined to generate a 0% return last year, it is easy to
understand our excitement at the opportunities this group of stocks presents us
now.
Your Fund enjoyed positive returns over the twelve months ending March 31st of
10.66%. This return compared favorably with the 5.42% return of the Lipper
Multi-Cap Value Index to which we are normally compared. The portfolio posted
strong results during the fiscal third quarter and matched the return of the S&P
500 during the final quarter. The Fund has delivered a 13.53% annualized rate of
return since inception^1, outpacing the Multi-cap Value Index. Our shift in
focus to an all equity strategy will result in performance more in line with the
large cap indices with which most of our shareholders are familiar.
<PAGE>
The Fund's turnover rate was 50% last year, a figure well below the 90% turnover
rate of the average growth equity fund. More importantly the Fund generated zero
capital gains during the calendar year, a result that underlines its tax
efficiency. Our goal will continue to be minimizing realized gains wherever
possible.
The expense ratio in the Fund continued to decline as assets exceeded $21
million. The bottom line will be impacted positively as the ratio drops with
asset growth.
Fiscal 2000 In Review:
The Trend Remains the Same
When reviewing the 1999 Annual Report for the WST Growth Fund we noticed several
similarities between that year and Fiscal 2000. The interest rate driven
sell-off in growth stocks in the third quarter of 1999 was reminiscent of the
buying opportunity created in October 1998 by the collapse of the Russian
economy and the failure of Long Term Capital Management and other hedge funds.
The narrow breadth of the market discussed above was also a topic last year. By
narrow breadth we mean that a very small number of large capitalization growth
companies have generated all of the market's performance over the past two
years. This trend continued into the first calendar quarter of 2000 but began to
reverse in late March and early April. Later in this report we will discuss in
detail the difference between old and new economy stocks but it is clear that
investors have favored new economy stocks and have been willing to set
fundamentals and valuation aside in their quest for performance.
The chaotic market activity we are experiencing now is the beginning of the
unwinding of some of the performance and valuation disparities between
technology and telecommunication stocks and the rest of the market. While we
expect the market to broaden this year it will continue to be dominated by the
mid and large capitalization growth companies.
Volatility and the "New Economy"
As outlined above both the stock and bond markets endured the most violent
intra-quarter volatility in recent memory during the first quarter of 2000.
Morgan Stanley strategist Barton Biggs, a veteran market watcher, described it
as the most volatile market he has seen in his career.
The essence of the maelstrom is the war raging between Old and New economy
stocks. Old economy stocks include financial companies, capital goods producers,
"bricks and mortar" retailers and any other companies not included in the
Internet driven "TMT" sectors (Telecommunications, Media and Technology) that
make up the new economy. After the first ten weeks of the first calendar quarter
of 2000 the new economy companies appeared indomitable as they raced to a
performance edge that had many wondering if 2000 will be a replay of 1999.
Despite a 10% decline at the end of March, the NASDAQ market, which is heavily
weighted in these new economy companies, remains the driver of year to date
performance. In fact, the market narrowed further around these companies during
2000, and at one point the NASDAQ Index was up 20% year to date while the Dow
Jones Industrial Average was down 5%. Small and mid capitalization companies
continued their surge relative to large cap stocks during the quarter, finishing
with gains far outpacing their larger brethren.
<PAGE>
The volatility statistics for the past three months are amazing. The S&P 500
declined over 10% during the first two months, then posted a rally of 15% during
the subsequent three weeks. The last week of the quarter degenerated to absolute
market havoc with the end result being a gain of 2% for the S&P for the quarter.
The Dow Jones declined 4.7% while the NASDAQ increased 12.9% over the same
period.
"Hot" Money Flows to Technology
Mutual fund money flows account for much of the market's action. The massive
amounts of dollars flowing into growth and aggressive growth funds over the past
several quarters have required the managers of those funds continually to put
money to work by buying more of their stocks regardless of valuation.
Conversely, money flows out of value funds and away from value managers have
driven the forced liquidation of stocks held by these funds and resulted in the
ever-widening gap between classic growth and value.
The damage was so bad and the sentiment so negative for value investors that two
of the industry's most successful value investors retired during the first
quarter. First, Bob Sanborn stepped down as manager of the Oakmark Fund. His
retirement was driven by his frustration at the valuations of the new economy
stocks and the lack of respect paid by the market to his old economy holdings.
Next Julian Robertson, the famed manager of the $6 billion Tiger Fund, announced
that he would retire and liquidate his portfolio. In his exit interview he cited
his inability to understand the current market. Any investor with even a hint of
contrarian nature would cite these two retirements as evidence that valuations
will matter again one day, and we agree. Ironically, sanity seemed to return to
the markets shortly after these announcements as the unreasonably priced biotech
and Internet stocks imploded and old economy sectors began their rebound.
What lessons are we to learn from these events? First, our earnings growth based
stock selection process continues to work. We have avoided the pitfalls
associated with owning concept stocks with unproven business models or
inexperienced management teams, but we have participated fully in the growth of
the TMT economy by owning its "best in class" participants. Second, when the
flow of funds begins to shift out of the richly valued names and into the more
reasonably priced stocks, the price impact on the recipients of those fund flows
will be significant. For example, Fidelity's Magellan Fund holds $100 billion in
assets. A normal position in the fund is $3-4 billion. The door seems very small
when large players like Fidelity begin to establish positions in any but the
largest stocks.
The underlying fundamentals of the companies in the Fund continue to be
excellent. Although the technology stocks have posted impressive earnings gains
over the past twelve months, the reported profits of other holdings have proven
as strong as ever.
Dollar Tree Stores - A Bargain Price Every Day
A perfect example of the liquidity phenomenon addressed above is the price
action of Dollar Tree Stores over the past four months. As we have discussed at
great length, Wilbanks Smith and Thomas's goal is to buy, at reasonable prices,
great growth businesses run by highly intelligent and motivated management
teams. Dollar Tree Stores is a mid-size retailing company that fits this model.
We have researched the company extensively and spent significant time with
senior management including Macon Brock, the company's C.E.O. His team has the
experience and discipline to build their business over the next 5 - 10 years at
a pace which will rival the early growth of Wal-Mart.
Despite the company's fundamentals the stock exhibited dramatic volatility over
the past six months with relatively little trading volume. The company has
traded in a range between $32 and $54 with no change in fundamentals and an
outlook that continues to brighten. Wilbanks, Smith & Thomas has taken advantage
of the volatility to build the Fund's positions, especially as the company drops
into the $30 range. We recommended the stock on CNBC at $33 and $38 per share.
We believe that the large growth mutual funds will return to the stock
eventually and will drive it higher as they attempt to reestablish positions
liquidated during 1999.
Research: In Search of the Next Oracle
In our last update we discussed in great detail the process that led to our
investment in Oracle Corporation. The basis of that decision was our belief that
Wall Street did not recognize the magnitude of the opportunity that Larry
Ellison and his management team were trying to exploit through the design of a
complete mission critical database software system for the Internet. Surely
Oracle benefited from the massive move in technology stocks, but the stock's
performance was driven mainly by the growing recognition on Wall Street that the
company is perfectly positioned with a set of products that will lead the market
in enabling Internet commerce.
Using the Oracle investment as a model, our research team has spent countless
days on the road visiting our current holdings and potential new ones and
increasing our focus on the technology and telecommunication sectors. Our
mission is to repeat the Oracle success by uncovering other companies with the
potential to be revalued based on their association with the Internet.
A recent purchase that fits this model is Computer Associates. As in the case of
Oracle in 1998, most analysts' valuation of Computer Associates is based upon
their legacy mainframe software business, which is a relatively slow growth
business. However, the company has built large, fast growing businesses in both
data storage software and Internet security. In the past several months we met
with the senior management of the company in both New York and at their "CA
World" trade show New Orleans. The picture that has emerged is that of a company
with a truly exceptional business model that can be purchased at an
exceptionally reasonable price (21 times earnings).
CEO Sanjay Kumar is communicating to Wall Street the opportunity presented by
the several billions of dollars of revenues the company can generate from its
Internet businesses. His goal is to convince Wall Street to reclassify the
company as an Internet investment. The result will be a substantially higher
price/earnings ratio and stock price. It is difficult to predict when the
discovery will occur but we are comfortable waiting patiently for the value to
be recognized.
<PAGE>
The price of Computer Associates' stock price could double in the next six
months with no change in fundamentals. Contrast that scenario, purchasing a
solid growth company at 21 times earnings, with an investment in Cisco Systems
at a price earnings ratio of 143 times earnings. Without a doubt Cisco is the
leader in the Internet infrastructure gold rush, but perhaps Wall Streets' great
expectations for the company are already reflected in the stock price.
Historically it has been very difficult to make money in stocks purchased at 150
times earnings irrespective of even the most perfect fundamentals.
Second Quarter Technology Turmoil??
Forecasting the direction of the financial markets is a dangerous pastime and is
fraught with pitfalls. In our last quarterly update we predicted a 10% - 15%
correction in the equity markets during the first quarter with Internet stocks
leading the decline. In retrospect our market call was half correct as the Dow
Jones Industrial average declined approximately 15% by the end of February.
However, the old economy stocks led the retreat rather than Internet and tech
related issues. Our other prediction was that interest rates would peak below
7%. Ironically, and much to Alan Greenspan's dismay, long-term interest rates
declined from 6.75% to 5.9% at quarter-end. This decline flies in the face of
his restrictive monetary policy that has led to five rate hikes in the past six
months.
The most critical variable in the market now is clear: how will the NASDAQ Index
unravel its extremely overvalued condition? The answer to this question will
drive financial markets over the next six months. The NASDAQ Index is currently
almost 40% above its 200-day moving average, a condition not seen since 1991.
Although this is a sign of a powerful trend it also presents a precarious
technical condition for the strongest segment of the economy and market. The
average stock in the NASDAQ 100 Index currently trades for over 90 times
earnings, a level considered excessive under any valuation model.
The market will either digest this condition with a sharp correction as it did
in October 1998, or it will unravel slowly as it did in the first half of 1998.
Either way, investors can expect continued volatility. We expect market action
like we saw during the last three weeks of the first quarter. While certain
sectors such as biotechs collapsed, dropping 25% over a period of days, the
overall index endured a more moderate 10%- 12% correction, albeit through a
series of very violent sell-offs of 3% - 4% daily. Importantly, the money
flowing out of the NASDAQ flowed into the old economy stocks as we discussed
above, benefiting the financials and capital goods makers like Honeywell and
Tyco.
As we often point out, the Fund is full of quality companies trading at prices
comparable to those several years ago. Bank of America, Fannie Mae, New York
Times, CVS, and MCI Worldcom have all made great fundamental progress yet Wall
Street values them at the same levels it did in 1998. Like shoppers at K-Mart's
Blue Light Special, we are happy to take advantage of these discounts! In these
cases the powerful combination of a positive economic and political backdrop
coupled with good business fundamentals and strong free cash flow clearly
indicate higher stock prices down the road.
<PAGE>
New Economy or Bust!
The research team at Wilbanks, Smith & Thomas has never been more excited about
the opportunities we see the economy and market presenting us. Putting aside for
a minute the old economy/new economy debate, we recognize the importance of the
fundamental changes the Internet is causing in all areas of commerce and daily
life. Investors must make adjustments to their portfolios to take advantage of
this secular change. Our challenge is to find the future winners and buy them
while they are priced reasonably, and we see many opportunities in both the
technology and telecommunication sectors. Clearly an investment in these sectors
requires more flexibility and tolerance for short term volatility than some
investors are accustomed to. Still, we believe that managers who ignore these
trends will be left behind as the new economy streaks ahead.
Having said that, it is also a very risky time for investors who ignore
valuations. Stock charts of former favorites like eToys, Excite-at-Home or Red
Hat remind us that regardless of a company's potential there are times when its
stock is simply too expensive. To us it makes no sense to invest in companies
that have not and most likely never will earn a dollar. As we remind our
clients, only our 35 to 45 best ideas make it into the Fund. The stocks that do
make it need to be the best possible combination of growth business models,
skillful management, and attractive valuations.
Our equity research team is in the process of developing a white paper on the
technology and telecommunications sectors. This document will be posted to our
website during the next several months and should be helpful in outlining our
focus. We are spending an increasing amount of time in both Silicon Valley and
New York meeting with industry leaders and visionaries and honing our investment
process. We look forward to sharing our thoughts with you.
Thank you for your continued confidence in the WST Growth Fund. Patience and a
strong investment discipline are keys to victory in the equity markets. We are
excited about the coming year and the opportunities that will present
themselves. Please know that our interests are always aligned with yours as our
principals and employees remain among the largest shareholders in the Fund.
Wayne F. Wilbanks
L. Norfleet Smith, Jr.
Norwood A. Thomas, Jr.
T. Carl Turnage
Lawrence A. Bernert, III
______________________
1 Footnote - Annual return for the Investor Class shares would be 6.51% net of
the 3.75% sales charge. The annualized since inception return would be 11.80%.
<PAGE>
WST GROWTH FUND
Investor Class Shares
Performance Update - $10,000 Investment
For the period from October 3, 1997 (Date of Initial Public Investment)
to March 31, 2000
[Line graph here]:
--------------------------------------------------------------------------------
WST Growth Fund 60% S&P 500 Index/
Investor 20% Lehman Inter. Gov't/Corp Bond Index
Class Shares 20% Russell 2000 Index
--------------------------------------------------------------------------------
10/3/97 $ 9,625 $10,000
12/31/97 9,607 10,015
3/31/98 10,606 11,093
6/30/98 10,701 11,268
9/30/98 9,297 10,261
12/31/98 11,463 11,895
3/31/99 11,934 12,181
6/30/99 12,593 13,021
9/30/99 11,454 12,368
12/31/99 13,017 13,946
3/31/00 13,206 14,292
This graph depicts the performance of the WST Growth Fund Investor Class Shares
versus the combined index of 60% S&P 500 Index, 20% Lehman Intermediate
Government/Corporate Bond Index, and 20% Russell 2000 Index. It is important to
note that the WST Growth Fund is a professionally managed mutual fund while the
indexes are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only.
Average Annual Total Returns
--------------------------------------------------------------------------
One Year Since Inception
--------------------------------------------------------------------------
No Sales Load 10.66% 13.53%
--------------------------------------------------------------------------
Maximum 3.75% Sales Load 6.51% 11.80%
--------------------------------------------------------------------------
The graph assumes an initial $10,000 investment ($9,625 after maximum sales load
of 3.75%) at October 3, 1997 (inception date). All dividends and distributions
are reinvested.
At March 31, 2000, the WST Growth Fund Investor Class Shares would have grown to
$13,206 - a cumulative total investment return of 32.06% since October 3, 1997.
Without the deduction of the 3.75% maximum sales load, the WST Growth Fund
Investor Class Shares would have grown to $13,720 - a cumulative total
investment return of 37.20% since October 3, 1997.
At March 31, 2000, a similar investment in the combined index of 60% S&P 500
Index, 20% Lehman Intermediate Government/Corporate Bond Index, and 20% Russell
2000 Index would have grown to $14,292 - a cumulative total investment return of
42.92% since October 3, 1997. The Lipper Growth and Income Fund Index that was
used in previous years' graphs for illustrative purposes is not used in this
year's graph because of modifications made to Lipper's fund classification
structure.
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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WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 97.51%
Beverages - 2.49%
PepsiCo, Inc. .......................................................... 15,700 $ 542,631
-----------
Broadcast - Radio & Television - 2.13%
(a)Cox Communications, Inc. ............................................... 9,600 465,600
-----------
Computers - 3.60%
(a)Dell Computer Corporation .............................................. 5,000 269,687
(a)Sun Microsystems, Inc. ................................................. 5,500 515,367
-----------
785,054
-----------
Computer Software & Services - 19.06%
Computer Associates International, Inc. ................................ 12,000 710,250
First Data Corporation ................................................. 12,000 530,250
Microsoft Corporation .................................................. 4,000 425,000
(a)Novell, Inc. ........................................................... 5,000 143,125
(a)Oracle Corporation ..................................................... 28,000 2,185,750
(a)Parametric Technology Corporation ...................................... 8,000 168,500
-----------
4,162,875
-----------
Cosmetics & Personal Care - 2.20%
Colgate-Palmolive Company .............................................. 3,000 169,125
(a)Playtex Products, Inc. ................................................. 24,000 312,000
-----------
481,125
-----------
Diversified Manufacturing - 4.67%
General Electric Company ............................................... 2,500 387,969
Honeywell, Inc. ........................................................ 12,000 632,250
-----------
1,020,219
-----------
Electronics - Semiconductor - 3.63%
Intel Corporation ...................................................... 6,000 791,625
-----------
Financial - Banks, Commercial - 2.88%
Bank of America Corporation ............................................ 5,000 262,188
Citigroup Inc. ......................................................... 5,000 296,563
Resource Bankshares Corporation ........................................ 7,700 69,300
-----------
628,051
-----------
Financial Services - 3.17%
American Express Company ............................................... 2,000 297,875
Fannie Mae ............................................................. 7,000 395,063
-----------
692,938
-----------
Insurance - Life & Health - 1.67%
AFLAC INCORPORATED .................................................... 8,000 365,000
-----------
(Continued)
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WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Insurance - Multiline - 2.51%
American International Group, Inc. ..................................... 5,000 $ 547,500
-----------
Medical Supplies - 1.77%
Johnson & Johnson ...................................................... 5,500 385,687
-----------
Miscellaneous - Manufacturing - 4.40%
Tyco International Ltd. ................................................ 19,000 960,687
-----------
Oil & Gas - Equipment & Services - 2.85%
Schlumberger, Limited .................................................. 8,000 622,000
-----------
Oil & Gas - Exploration - 2.50%
Exxon Mobil Corporation ................................................ 6,996 545,688
-----------
Pharmaceuticals - 4.12%
Bristol-Myers Squibb Company ........................................... 5,000 288,750
Merck & Co., Inc. ...................................................... 6,000 374,250
Pharmacia & Upjohn, Inc. ............................................... 4,000 237,000
-----------
900,000
-----------
Publishing - Newspaper - 2.17%
The New York Times Company ............................................. 11,000 473,000
-----------
Retail - General Merchandise - 3.82%
(a)Dollar Tree Stores, Inc. ............................................... 16,000 834,000
-----------
Retail - Specialty Line - 4.20%
CVS Corporation ........................................................ 12,000 450,750
Lowe's Companies, Inc. ................................................. 8,000 467,000
-----------
917,750
-----------
Telecommunications - 19.79%
ALLTEL Corporation ..................................................... 9,000 567,562
AT&T Corporation ....................................................... 8,143 459,571
Bell Atlantic Corporation .............................................. 5,000 305,625
Lucent Technologies Inc. ............................................... 9,000 546,750
(a)MCI WorldCom, Inc. ..................................................... 20,000 906,250
(a)Qwest Communications International, Inc. ............................... 4,000 192,000
(a)Tellabs, Inc. .......................................................... 8,000 503,875
Time Warner, Inc. ...................................................... 8,500 840,969
-----------
4,322,602
-----------
(Continued)
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WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Telecommunications Equipment - 3.88%
Nokia Oyj - ADR ........................................................ 1,000 $ 217,250
Nortel Networks Corporation ............................................ 5,000 630,000
-----------
847,250
-----------
Total Common Stocks (Cost $15,811,012) ................................................... 21,291,282
-----------
------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATION - 1.48%
Macsaver Financial Services ......................... $500,000 7.875% 08/01/03 322,500
(Cost $447,292) -----------
------------------------------------------------------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 6.85%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ............................... 949,829 949,829
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ......................... 545,541 545,541
-----------
Total Investment Companies (Cost $1,495,370) ............................................. 1,495,370
-----------
Total Value of Investments (Cost $17,753,674%(b)) .................................. 105.84 % $23,109,152
Liabilities In Excess of Other Assets .............................................. (5.84)% (1,275,220)
------ -----------
Net Assets .................................................................. 100.00 % $21,833,932
====== ===========
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is $17,818,382. Unrealized appreciation (depreciation) of investments for
federal income tax purposes is as follows:
Unrealized appreciation .................................................................. $ 6,095,086
Unrealized depreciation .................................................................. (804,316)
-----------
Net unrealized appreciation .............................................. $ 5,290,770
===========
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
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WST GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $17,753,674) .......................................................... $23,109,152
Cash .............................................................................................. 3,726
Income receivable ................................................................................. 18,643
Receivable for fund shares sold ................................................................... 2,117
Deferred organization expenses, net (note 4) ...................................................... 20,525
-----------
Total assets ................................................................................. 23,154,163
-----------
LIABILITIES
Accrued expenses .................................................................................. 22,784
Payable for investment purchases .................................................................. 1,294,820
Payable for fund shares redeemed .................................................................. 1,950
Other liabilities ................................................................................. 677
-----------
Total liabilities ............................................................................ 1,320,231
-----------
NET ASSETS ............................................................................................... $21,833,932
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................... $17,655,490
Accumulated net realized loss on investments ...................................................... (1,177,036)
Net unrealized appreciation on investments ........................................................ 5,355,478
-----------
$21,833,932
===========
CLASS C
Net asset value, redemption and maximum offering price per share
($453,984 / 32,451 shares) ................................................................... $13.99
===========
INSTITUTIONAL CLASS
Net asset value, redemption and maximum offering price per share
($16,737,026 / 1,178,752 shares) ............................................................. $14.20
===========
INVESTOR CLASS
Net asset value, redemption and offering price per share .......................................... $14.02
($4,642,922 / 331,189 shares) ===========
Maximum offering price per share (100 / 96.25 of $14.02) .......................................... $14.57
===========
See accompanying notes to financial statements
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WST GROWTH FUND
STATEMENT OF OPERATIONS
Year ended March 31, 2000
INVESTMENT LOSS
Income
Interest ...................................................................................... $ 55,224
Dividends ..................................................................................... 159,931
-----------
Total income ............................................................................ 215,155
-----------
Expenses
Investment advisory fees (note 2) ............................................................. 131,567
Fund administration fees (note 2) ............................................................. 30,699
Distribution and service fees - Investor Class shares (note 3) ................................ 18,962
Distribution and service fees - Class C shares (note 3) ....................................... 1,325
Custody fees .................................................................................. 3,905
Registration and filing administration fees (note 2) .......................................... 5,655
Fund accounting fees (note 2) ................................................................. 40,500
Audit fees .................................................................................... 11,317
Legal fees .................................................................................... 7,214
Securities pricing fees ....................................................................... 3,339
Shareholder recordkeeping fees ................................................................ 9,000
Shareholder servicing expenses ................................................................ 7,605
Registration and filing expenses .............................................................. 4,516
Printing expenses ............................................................................. 21,547
Amortization of deferred organization expenses (note 4) ....................................... 8,250
Trustee fees and meeting expenses ............................................................. 3,916
Other operating expenses ...................................................................... 4,810
-----------
Total expenses .......................................................................... 314,127
-----------
Less investment advisory fees waived (note 2) ........................................... (13,785)
-----------
Net expenses ............................................................................ 300,342
-----------
Net investment loss ................................................................ (85,187)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investment transactions ..................................................... (555,913)
Increase in unrealized appreciation on investments ................................................. 2,771,724
-----------
Net realized and unrealized gain on investments ............................................... 2,215,811
-----------
Net increase in net assets resulting from operations .................................... $ 2,130,624
===========
See accompanying notes to financial statements
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ...................................................... $ (85,187) $ (8,424)
Net realized loss from investment transactions ........................... (555,913) (578,937)
Increase in unrealized appreciation on investments ....................... 2,771,724 1,853,775
----------- -----------
Net increase in net assets resulting from operations ................. 2,130,624 1,266,414
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .... 5,744,786 5,552,729
----------- -----------
Total increase in net assets .................................... 7,875,410 6,819,143
NET ASSETS
Beginning of year ............................................................. 13,958,522 7,139,379
----------- -----------
End of year ................................................................... $21,833,932 $13,958,522
=========== ===========
(a) A summary of capital share activity follows:
-------------------------------------------------------------------------------------
Year ended Year ended
March 31, 2000 March 31, 1999
Shares Value Shares Value
-------------------------------------------------------------------------------------
----------------------------------------------
CLASS C (a)
----------------------------------------------
Shares sold .................................. 32,451 $ 426,228 0 $ 0
Shares redeemed .............................. 0 0 0 0
----------- ----------- ----------- -----------
Net increase ............................ 32,451 $ 426,228 0 $ 0
=========== =========== =========== ===========
----------------------------------------------
INSTITUTIONAL CLASS
----------------------------------------------
Shares sold .................................. 331,219 $ 4,408,827 361,611 $ 4,344,114
Shares redeemed .............................. (46,784) (604,849) (32,095) (380,601)
----------- ----------- ----------- -----------
Net increase ............................ 284,435 $ 3,803,978 329,516 $ 3,963,513
=========== =========== =========== ===========
----------------------------------------------
INVESTOR CLASS
----------------------------------------------
Shares sold .................................. 221,528 $ 2,686,217 143,763 $ 1,721,117
Shares redeemed .............................. (90,704) (1,171,637) (11,169) (131,901)
----------- ----------- ----------- -----------
Net increase ............................ 130,824 $ 1,514,580 132,594 $ 1,589,216
=========== =========== =========== ===========
----------------------------------------------
FUND SUMMARY
----------------------------------------------
Shares sold .................................. 585,198 $ 7,521,272 505,374 $ 6,065,231
Shares redeemed .............................. (137,488) (1,776,486) (43,264) (512,502)
----------- ----------- ----------- -----------
Net increase ............................ 447,710 $ 5,744,786 462,110 $ 5,552,729
=========== =========== =========== ===========
(a) For the period beginning May 20, 1999 (date of initial public investment) through March 31, 2000.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
CLASS C
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
May 20, 1999
(date of initial public
investment) to
March 31,
2000
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................................................... $ 13.05
Income from investment operations
Net investment loss ............................................................... (0.06)
Net realized and unrealized gain on investments ................................... 1.00
---------
Total from investment operations ............................................ 0.94
---------
Net asset value, end of period ............................................................... $ 13.99
=========
Total return (a) ............................................................................. 7.20 %
=========
Ratios/supplemental data
Net assets, end of period .............................................................. $ 453,984
=========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ..................................... 2.45 % (b)
After expense reimbursements and waived fees ...................................... 2.34 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ..................................... (1.30)% (b)
After expense reimbursements and waived fees ...................................... (1.19)% (b)
Portfolio turnover rate ................................................................ 50.40 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements (Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INSTITUTIONAL CLASS
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
September 30, 1997
(date of initial public
Year ended Year ended investment) to
March 31, March 31, March 31,
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.77 $ 11.29 $ 10.02
Income from investment operations
Net investment loss ................................ (0.04) 0.00 0.00
Net realized and unrealized gain on investments .... 1.47 1.48 1.27
----------- ----------- -----------
Total from investment operations ............. 1.43 1.48 1.27
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.20 $ 12.77 $ 11.29
=========== =========== ===========
Total return (a) .............................................. 11.20 % 13.11 % 12.72 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $16,737,026 $11,419,391 $ 6,376,193
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 1.68 %(b) 2.08 % 3.15 %(b)
After expense reimbursements and waived fees ....... 1.60 %(b) 1.75 % 1.75 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.45)%(b) (0.35)% (1.31)%(b)
After expense reimbursements and waived fees ....... (0.37)%(b) (0.01)% 0.09 %(b)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements (Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INVESTOR CLASS
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
October 3, 1997
(date of initial public
Year ended Year ended investment) to
March 31, March 31, March 31,
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.67 $ 11.26 $ 10.22
Income from investment operations
Net investment loss ................................ (0.10) (0.04) (0.01)
Net realized and unrealized gain on investments .... 1.45 1.45 1.05
----------- ----------- -----------
Total from investment operations ............. 1.35 1.41 1.04
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.02 $ 12.67 $ 11.26
=========== =========== ===========
Total return (a) .............................................. 10.66 % 12.52 % 10.52 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $ 4,642,922 $ 2,539,131 $ 763,186
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 2.15 %(b) 2.56 % 3.63 %(b)
After expense reimbursements and waived fees ....... 2.10 %(b) 2.25 % 2.10 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.93)%(b) (0.84)% (1.70)%(b)
After expense reimbursements and waived fees ....... (0.88)%(b) (0.53)% (0.31)%(b)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The WST Growth Fund (the "Fund"), formerly known as the WST Growth &
Income Fund prior to January 3, 2000, is a diversified series of shares
of beneficial interest of The Nottingham Investment Trust II (the
"Trust"). The Trust, an open-end investment company, was organized on
October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The Fund began
operations on September 9, 1997. The investment objective of the fund
is to provide its shareholders with a maximum total return consisting
of any combination of capital appreciation, both realized and
unrealized, and income. The Board of Trustees of the Trust approved on
March 15, 1999 a plan to authorize a new class of shares designated as
Class C Shares. On May 20, 1999, the Class C Shares became effective.
The Fund has an unlimited number of authorized shares, which are
divided into three classes - Institutional Shares, Investor Shares, and
Class C.
Each class of shares has equal rights as to assets of the Fund, and the
classes are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Class C and Investor Class), and realized and unrealized gains
or losses on investments are allocated to each class of shares based
upon its relative net assets. Investor Shares purchased are subject to
a maximum sales charge of 3.75%. All three classes have equal voting
privileges, except where otherwise required by law or when the Board of
Trustees determines that the matter to be voted on affects only the
interests of the shareholders of a particular class. The following is a
summary of significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at 4:00 p.m., New York
time. Other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that
date are valued at the most recent bid price. Securities for
which market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The Fund has capital loss carryforwards for federal income tax
purposes of $919,853, of which $42,186 expires in the year
2006, $342,266 expires in the year 2007 and $535,401 expires
in the year 2008. It is the intention of the Board of Trustees
of the Trust not to distribute any realized gains until the
carryforwards have been offset or expire.
As a result of the Fund's operating net investment loss, a
reclassification adjustment of $85,187 has been made on the
statement of assets and liabilities to decrease accumulated
net investment loss, bringing it to zero, and decrease paid in
capital.
(Continued)
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October 31,
which are deferred for income tax purposes. The character of
distributions to shareholders made during the year from net
investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
Also, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year
that the income or realized gains were recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded
on trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September, and December on
a date selected by the Trust's Trustees. In addition,
distributions may be made annually in December out of net
realized gains through October 31 of that year. The Fund may
make a supplemental distribution subsequent to the end of its
fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results
could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Wilbanks, Smith & Thomas
Asset Management, Inc. (the "Advisor"), provides the fund with a
continuous program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and recommendations
with respect to investments, investment policies, and the purchase and
sale of securities. As compensation for its services, the Advisor
receives a fee at the annual rate of 0.75% of the first $250 million of
the Fund's average daily net assets and 0.65% of all assets over $250
million.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class, a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class, and a maximum of
2.50% of the average daily net assets of the Fund's Class C. 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 $13,785 for the year ended March 31,
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 an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, 0.125% of the next $50
(Continued)
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
million, and 0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting and
record-keeping services for the initial class of shares and $750 per
month for each additional class of shares. The contract with the
Administrator provides that the aggregate fees for the aforementioned
administration, accounting, and recordkeeping services shall not be
less than $4,000 per month. The Administrator also charges the Fund for
certain expenses involved with the daily valuation of portfolio
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including the Trustees who are not "interested
persons" of the Trust as defined in the Investment Company Act of 1940
(the "Act"), adopted a distribution and service plan pursuant to Rule
12b-1 of the Act (the "Plan") applicable to the Investor and Class C
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% and 0.75% per annum of the average daily net assets of
Investor Shares and Class C Shares, respectively, 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 Class and Class C
Shares' average daily net assets. The Fund incurred $18,962 of such
expenses for the Investor class and $1,325 of such expenses for the
Class C shares under the Plan for the year ended March 31, 2000.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $14,487,255 and $8,498,090, respectively, for the year ended
March 31, 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
WST Growth Fund:
We have audited the accompanying statement of assets and liabilities of WST
Growth Fund, including the portfolio of investments, as of March 31, 2000, and
the related statement of operations for the year then ended, the statements of
changes in net assets for the years ended March 31, 2000 and 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of WST
Growth Fund as of March 31, 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 accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
________________________________________________________________________________
[LOGO]
WST GROWTH FUND
________________________________________________________________________________
a series of The Nottingham Investment Trust II
CLASS C SHARES
ANNUAL REPORT 2000
FOR THE YEAR ENDED MARCH 31, 2000
INVESTMENT ADVISOR
Wilbanks, Smith & Thomas Asset Management, Inc.
One Commercial Place, Suite 1450
Norfolk, Virginia 23510
WST GROWTH FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-525-3863
This Report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
<PAGE>
[LETTERHEAD]
Annual Report
WST Growth Fund
Class C Shares
It is our pleasure to enclose the annual report for the WST Growth Fund. This
letter highlights the progress of the Fund during the last twelve months and
outlines our expectations for the coming year. Stocks are experiencing one of
their most volatile weeks on record as we write this note so please view these
comments in the light of a highly dynamic market. We appreciate the confidence
you have placed us to manage your assets and we are working diligently to
maximize the performance of those assets.
The management team at Wilbanks, Smith & Thomas made several important decisions
regarding the Fund last year. Most importantly we shifted the investment focus
of the Fund to a pure growth orientation from the original growth and income
policy. The shift allows us to better match the strategy of the Fund with goals
of our investors. The elimination of the income objective also allows us to
align the Fund's holdings with the firm's standard equity model. We made these
changes after discussions with many shareholders and believe that by
repositioning the Fund as a pure growth portfolio we will enhance the
performance of your holdings.
Performance Analysis: Technology and Telecommunications Rule!
A review of the last year's performance data reveals that there were truly two
stock markets. Owners of technology and telecommunication stocks enjoyed another
year of watching the NASDAQ skyrocket while entire sectors including finance,
consumer cyclicals, and health care stocks traded lower throughout the year.
A number of well-publicized statistics highlight the discrepancy between tech
and all the rest in 1999. The average technology stock in the S&P 500 rose 74.5%
while the average non-technology stock was up 4.5%. 61% of the stocks on the New
York Stock Exchange declined during 1999, and approximately 25 stocks made up
100% of the return in the S&P 500. The majority of these issues were in the
technology and telecommunications sectors. When you consider that 475 of the 500
stocks in the index combined to generate a 0% return last year, it is easy to
understand our excitement at the opportunities this group of stocks presents us
now.
Your Fund enjoyed positive returns the quarter ended March 31st of 1.38%. This
return compared favorably with the 0.23% return of the Lipper Multi-Cap Value
Index to which we are normally compared. The Fund posted strong results during
the fiscal third quarter and matched the return of the S&P 500 during the final
quarter. The Fund has delivered a 7.20% annualized rate of return since
inception, outpacing the Multi-cap Value Index. Our shift in focus to an all
equity strategy will result in performance more in line with the large cap
indices with which most of our shareholders are familiar.
<PAGE>
The Fund's turnover rate was 50% last year, a figure well below the 90% turnover
rate of the average growth equity fund. More importantly the Fund generated zero
capital gains during the calendar year, a result that underlines its tax
efficiency. Our goal will continue to be minimizing realized gains wherever
possible.
The expense ratio in the Fund continued to decline as assets exceeded $21
million. The bottom line will be impacted positively as the ratio drops with
asset growth.
Fiscal 2000 In Review:
The Trend Remains the Same
When reviewing the 1999 Annual Report for the WST Growth Fund we noticed several
similarities between that year and Fiscal 2000. The interest rate driven
sell-off in growth stocks in the third quarter of 1999 was reminiscent of the
buying opportunity created in October 1998 by the collapse of the Russian
economy and the failure of Long Term Capital Management and other hedge funds.
The narrow breadth of the market discussed above was also a topic last year. By
narrow breadth we mean that a very small number of large capitalization growth
companies have generated all of the market's performance over the past two
years. This trend continued into the first calendar quarter of 2000 but began to
reverse in late March and early April. Later in this report we will discuss in
detail the difference between old and new economy stocks but it is clear that
investors have favored new economy stocks and have been willing to set
fundamentals and valuation aside in their quest for performance.
The chaotic market activity we are experiencing now is the beginning of the
unwinding of some of the performance and valuation disparities between
technology and telecommunication stocks and the rest of the market. While we
expect the market to broaden this year it will continue to be dominated by the
mid and large capitalization growth companies.
Volatility and the "New Economy"
As outlined above both the stock and bond markets endured the most violent
intra-quarter volatility in recent memory during the first quarter of 2000.
Morgan Stanley strategist Barton Biggs, a veteran market watcher, described it
as the most volatile market he has seen in his career.
The essence of the maelstrom is the war raging between Old and New economy
stocks. Old economy stocks include financial companies, capital goods producers,
"bricks and mortar" retailers and any other companies not included in the
Internet driven "TMT" sectors (Telecommunications, Media and Technology) that
make up the new economy. After the first ten weeks of the first calendar quarter
of 2000 the new economy companies appeared indomitable as they raced to a
performance edge that had many wondering if 2000 will be a replay of 1999.
Despite a 10% decline at the end of March, the NASDAQ market, which is heavily
weighted in these new economy companies, remains the driver of year to date
performance. In fact, the market narrowed further around these companies during
2000, and at one point the NASDAQ Index was up 20% year to date while the Dow
Jones Industrial Average was down 5%. Small and mid capitalization companies
continued their surge relative to large cap stocks during the quarter, finishing
with gains far outpacing their larger brethren.
<PAGE>
The volatility statistics for the past three months are amazing. The S&P 500
declined over 10% during the first two months, then posted a rally of 15% during
the subsequent three weeks. The last week of the quarter degenerated to absolute
market havoc with the end result being a gain of 2% for the S&P for the quarter.
The Dow Jones declined 4.7% while the NASDAQ increased 12.9% over the same
period.
"Hot" Money Flows to Technology
Mutual fund money flows account for much of the market's action. The massive
amounts of dollars flowing into growth and aggressive growth funds over the past
several quarters have required the managers of those funds continually to put
money to work by buying more of their stocks regardless of valuation.
Conversely, money flows out of value funds and away from value managers have
driven the forced liquidation of stocks held by these funds and resulted in the
ever-widening gap between classic growth and value.
The damage was so bad and the sentiment so negative for value investors that two
of the industry's most successful value investors retired during the first
quarter. First, Bob Sanborn stepped down as manager of the Oakmark Fund. His
retirement was driven by his frustration at the valuations of the new economy
stocks and the lack of respect paid by the market to his old economy holdings.
Next Julian Robertson, the famed manager of the $6 billion Tiger Fund, announced
that he would retire and liquidate his portfolio. In his exit interview he cited
his inability to understand the current market. Any investor with even a hint of
contrarian nature would cite these two retirements as evidence that valuations
will matter again one day, and we agree. Ironically, sanity seemed to return to
the markets shortly after these announcements as the unreasonably priced biotech
and Internet stocks imploded and old economy sectors began their rebound.
What lessons are we to learn from these events? First, our earnings growth based
stock selection process continues to work. We have avoided the pitfalls
associated with owning concept stocks with unproven business models or
inexperienced management teams, but we have participated fully in the growth of
the TMT economy by owning its "best in class" participants. Second, when the
flow of funds begins to shift out of the richly valued names and into the more
reasonably priced stocks, the price impact on the recipients of those fund flows
will be significant. For example, Fidelity's Magellan Fund holds $100 billion in
assets. A normal position in the fund is $3-4 billion. The door seems very small
when large players like Fidelity begin to establish positions in any but the
largest stocks.
The underlying fundamentals of the companies in the Fund continue to be
excellent. Although the technology stocks have posted impressive earnings gains
over the past twelve months, the reported profits of other holdings have proven
as strong as ever.
Dollar Tree Stores - A Bargain Price Every Day
A perfect example of the liquidity phenomenon addressed above is the price
action of Dollar Tree Stores over the past four months. As we have discussed at
great length, Wilbanks Smith and Thomas's goal is to buy, at reasonable prices,
great growth businesses run by highly intelligent and motivated management
teams. Dollar Tree Stores is a mid-size retailing company that fits this model.
We have researched the company extensively and spent significant time with
senior management including Macon Brock, the company's C.E.O. His team has the
experience and discipline to build their business over the next 5 - 10 years at
a pace which will rival the early growth of Wal-Mart.
Despite the company's fundamentals the stock exhibited dramatic volatility over
the past six months with relatively little trading volume. The company has
traded in a range between $32 and $54 with no change in fundamentals and an
outlook that continues to brighten. Wilbanks, Smith & Thomas has taken advantage
of the volatility to build the Fund's positions, especially as the company drops
into the $30 range. We recommended the stock on CNBC at $33 and $38 per share.
We believe that the large growth mutual funds will return to the stock
eventually and will drive it higher as they attempt to reestablish positions
liquidated during 1999.
Research: In Search of the Next Oracle
In our last update we discussed in great detail the process that led to our
investment in Oracle Corporation. The basis of that decision was our belief that
Wall Street did not recognize the magnitude of the opportunity that Larry
Ellison and his management team were trying to exploit through the design of a
complete mission critical database software system for the Internet. Surely
Oracle benefited from the massive move in technology stocks, but the stock's
performance was driven mainly by the growing recognition on Wall Street that the
company is perfectly positioned with a set of products that will lead the market
in enabling Internet commerce.
Using the Oracle investment as a model, our research team has spent countless
days on the road visiting our current holdings and potential new ones and
increasing our focus on the technology and telecommunication sectors. Our
mission is to repeat the Oracle success by uncovering other companies with the
potential to be revalued based on their association with the Internet.
A recent purchase that fits this model is Computer Associates. As in the case of
Oracle in 1998, most analysts' valuation of Computer Associates is based upon
their legacy mainframe software business, which is a relatively slow growth
business. However, the company has built large, fast growing businesses in both
data storage software and Internet security. In the past several months we met
with the senior management of the company in both New York and at their "CA
World" trade show New Orleans. The picture that has emerged is that of a company
with a truly exceptional business model that can be purchased at an
exceptionally reasonable price (21 times earnings).
CEO Sanjay Kumar is communicating to Wall Street the opportunity presented by
the several billions of dollars of revenues the company can generate from its
Internet businesses. His goal is to convince Wall Street to reclassify the
company as an Internet investment. The result will be a substantially higher
price/earnings ratio and stock price. It is difficult to predict when the
discovery will occur but we are comfortable waiting patiently for the value to
be recognized.
<PAGE>
The price of Computer Associates' stock price could double in the next six
months with no change in fundamentals. Contrast that scenario, purchasing a
solid growth company at 21 times earnings, with an investment in Cisco Systems
at a price earnings ratio of 143 times earnings. Without a doubt Cisco is the
leader in the Internet infrastructure gold rush, but perhaps Wall Streets' great
expectations for the company are already reflected in the stock price.
Historically it has been very difficult to make money in stocks purchased at 150
times earnings irrespective of even the most perfect fundamentals.
Second Quarter Technology Turmoil??
Forecasting the direction of the financial markets is a dangerous pastime and is
fraught with pitfalls. In our last quarterly update we predicted a 10% - 15%
correction in the equity markets during the first quarter with Internet stocks
leading the decline. In retrospect our market call was half correct as the Dow
Jones Industrial average declined approximately 15% by the end of February.
However, the old economy stocks led the retreat rather than Internet and tech
related issues. Our other prediction was that interest rates would peak below
7%. Ironically, and much to Alan Greenspan's dismay, long-term interest rates
declined from 6.75% to 5.9% at quarter-end. This decline flies in the face of
his restrictive monetary policy that has led to five rate hikes in the past six
months.
The most critical variable in the market now is clear: how will the NASDAQ Index
unravel its extremely overvalued condition? The answer to this question will
drive financial markets over the next six months. The NASDAQ Index is currently
almost 40% above its 200-day moving average, a condition not seen since 1991.
Although this is a sign of a powerful trend it also presents a precarious
technical condition for the strongest segment of the economy and market. The
average stock in the NASDAQ 100 Index currently trades for over 90 times
earnings, a level considered excessive under any valuation model.
The market will either digest this condition with a sharp correction as it did
in October 1998, or it will unravel slowly as it did in the first half of 1998.
Either way, investors can expect continued volatility. We expect market action
like we saw during the last three weeks of the first quarter. While certain
sectors such as biotechs collapsed, dropping 25% over a period of days, the
overall index endured a more moderate 10%- 12% correction, albeit through a
series of very violent sell-offs of 3% - 4% daily. Importantly, the money
flowing out of the NASDAQ flowed into the old economy stocks as we discussed
above, benefiting the financials and capital goods makers like Honeywell and
Tyco.
As we often point out, the Fund is full of quality companies trading at prices
comparable to those several years ago. Bank of America, Fannie Mae, New York
Times, CVS, and MCI Worldcom have all made great fundamental progress yet Wall
Street values them at the same levels it did in 1998. Like shoppers at K-Mart's
Blue Light Special, we are happy to take advantage of these discounts! In these
cases the powerful combination of a positive economic and political backdrop
coupled with good business fundamentals and strong free cash flow clearly
indicate higher stock prices down the road.
<PAGE>
New Economy or Bust!
The research team at Wilbanks, Smith & Thomas has never been more excited about
the opportunities we see the economy and market presenting us. Putting aside for
a minute the old economy/new economy debate, we recognize the importance of the
fundamental changes the Internet is causing in all areas of commerce and daily
life. Investors must make adjustments to their portfolios to take advantage of
this secular change. Our challenge is to find the future winners and buy them
while they are priced reasonably, and we see many opportunities in both the
technology and telecommunication sectors. Clearly an investment in these sectors
requires more flexibility and tolerance for short term volatility than some
investors are accustomed to. Still, we believe that managers who ignore these
trends will be left behind as the new economy streaks ahead.
Having said that, it is also a very risky time for investors who ignore
valuations. Stock charts of former favorites like eToys, Excite-at-Home or Red
Hat remind us that regardless of a company's potential there are times when its
stock is simply too expensive. To us it makes no sense to invest in companies
that have not and most likely never will earn a dollar. As we remind our
clients, only our 35 to 45 best ideas make it into the Fund. The stocks that do
make it need to be the best possible combination of growth business models,
skillful management, and attractive valuations.
Our equity research team is in the process of developing a white paper on the
technology and telecommunications sectors. This document will be posted to our
website during the next several months and should be helpful in outlining our
focus. We are spending an increasing amount of time in both Silicon Valley and
New York meeting with industry leaders and visionaries and honing our investment
process. We look forward to sharing our thoughts with you.
Thank you for your continued confidence in the WST Growth Fund. Patience and a
strong investment discipline are keys to victory in the equity markets. We are
excited about the coming year and the opportunities that will present
themselves. Please know that our interests are always aligned with yours as our
principals and employees remain among the largest shareholders in the Fund.
Wayne F. Wilbanks
L. Norfleet Smith, Jr.
Norwood A. Thomas, Jr.
T. Carl Turnage
Lawrence A. Bernert, III
<PAGE>
WST GROWTH FUND
Class C Shares
Performance Update - $10,000 Investment
For the period from May 20, 1999 (Date of Initial Public Investment)
to March 31, 2000
[Line graph here]:
--------------------------------------------------------------------------------
WST Growth Fund 60% S&P 500 Index/
Investor 20% Lehman Inter. Gov't/Corp Bond Index
Class C Shares 20% Russell 2000 Index
--------------------------------------------------------------------------------
5/20/99 $ 10,000 $10,000
6/30/99 10,245 10,202
7/31/99 10,008 9,951
8/31/99 9,533 9,850
9/30/99 9,310 9,708
10/31/99 9,739 10,088
11/30/99 9,923 10,333
12/31/99 10,575 10,925
1/31/00 9,969 10,547
2/29/00 9,839 10,816
3/31/00 10,720 11,225
This graph depicts the performance of the WST Growth Fund Class C Shares versus
the combined index of 60% S&P 500 Index, 20% Lehman Intermediate
Government/Corporate Bond Index, and 20% Russell 2000 Index. It is important to
note that the WST Growth Fund is a professionally managed mutual fund while the
indexes are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only.
Cumulative Total Return
-------------------------
Since Inception
-------------------------
7.20%
-------------------------
The graph assumes an initial $10,000 investment at May 20, 1999 (inception
date). All dividends and distributions are reinvested.
At March 31, 2000, the WST Growth Fund Class C Shares would have grown to
$10,720 - a cumulative total investment return of 7.20% since May 20, 1999.
At March 31, 2000, a similar investment in the combined index of 60% S&P 500
Index, 20% Lehman Intermediate Government/Corporate Bond Index, and 20% Russell
2000 Index would have grown to $11,225 - a cumulative total investment return of
12.25% since May 20, 1999.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 97.51%
Beverages - 2.49%
PepsiCo, Inc. .......................................................... 15,700 $ 542,631
-----------
Broadcast - Radio & Television - 2.13%
(a)Cox Communications, Inc. ............................................... 9,600 465,600
-----------
Computers - 3.60%
(a)Dell Computer Corporation .............................................. 5,000 269,687
(a)Sun Microsystems, Inc. ................................................. 5,500 515,367
-----------
785,054
-----------
Computer Software & Services - 19.06%
Computer Associates International, Inc. ................................ 12,000 710,250
First Data Corporation ................................................. 12,000 530,250
Microsoft Corporation .................................................. 4,000 425,000
(a)Novell, Inc. ........................................................... 5,000 143,125
(a)Oracle Corporation ..................................................... 28,000 2,185,750
(a)Parametric Technology Corporation ...................................... 8,000 168,500
-----------
4,162,875
-----------
Cosmetics & Personal Care - 2.20%
Colgate-Palmolive Company .............................................. 3,000 169,125
(a)Playtex Products, Inc. ................................................. 24,000 312,000
-----------
481,125
-----------
Diversified Manufacturing - 4.67%
General Electric Company ............................................... 2,500 387,969
Honeywell, Inc. ........................................................ 12,000 632,250
-----------
1,020,219
-----------
Electronics - Semiconductor - 3.63%
Intel Corporation ...................................................... 6,000 791,625
-----------
Financial - Banks, Commercial - 2.88%
Bank of America Corporation ............................................ 5,000 262,188
Citigroup Inc. ......................................................... 5,000 296,563
Resource Bankshares Corporation ........................................ 7,700 69,300
-----------
628,051
-----------
Financial Services - 3.17%
American Express Company ............................................... 2,000 297,875
Fannie Mae ............................................................. 7,000 395,063
-----------
692,938
-----------
Insurance - Life & Health - 1.67%
AFLAC INCORPORATED .................................................... 8,000 365,000
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Insurance - Multiline - 2.51%
American International Group, Inc. ..................................... 5,000 $ 547,500
-----------
Medical Supplies - 1.77%
Johnson & Johnson ...................................................... 5,500 385,687
-----------
Miscellaneous - Manufacturing - 4.40%
Tyco International Ltd. ................................................ 19,000 960,687
-----------
Oil & Gas - Equipment & Services - 2.85%
Schlumberger, Limited .................................................. 8,000 622,000
-----------
Oil & Gas - Exploration - 2.50%
Exxon Mobil Corporation ................................................ 6,996 545,688
-----------
Pharmaceuticals - 4.12%
Bristol-Myers Squibb Company ........................................... 5,000 288,750
Merck & Co., Inc. ...................................................... 6,000 374,250
Pharmacia & Upjohn, Inc. ............................................... 4,000 237,000
-----------
900,000
-----------
Publishing - Newspaper - 2.17%
The New York Times Company ............................................. 11,000 473,000
-----------
Retail - General Merchandise - 3.82%
(a)Dollar Tree Stores, Inc. ............................................... 16,000 834,000
-----------
Retail - Specialty Line - 4.20%
CVS Corporation ........................................................ 12,000 450,750
Lowe's Companies, Inc. ................................................. 8,000 467,000
-----------
917,750
-----------
Telecommunications - 19.79%
ALLTEL Corporation ..................................................... 9,000 567,562
AT&T Corporation ....................................................... 8,143 459,571
Bell Atlantic Corporation .............................................. 5,000 305,625
Lucent Technologies Inc. ............................................... 9,000 546,750
(a)MCI WorldCom, Inc. ..................................................... 20,000 906,250
(a)Qwest Communications International, Inc. ............................... 4,000 192,000
(a)Tellabs, Inc. .......................................................... 8,000 503,875
Time Warner, Inc. ...................................................... 8,500 840,969
-----------
4,322,602
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Telecommunications Equipment - 3.88%
Nokia Oyj - ADR ........................................................ 1,000 $ 217,250
Nortel Networks Corporation ............................................ 5,000 630,000
-----------
847,250
-----------
Total Common Stocks (Cost $15,811,012) ................................................... 21,291,282
-----------
------------------------------------------------------------------------------------------------------------------------------------
Interest Maturity
Principal Rate Date
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE OBLIGATION - 1.48%
Macsaver Financial Services ......................... $500,000 7.875% 08/01/03 322,500
(Cost $447,292) -----------
------------------------------------------------------------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 6.85%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ............................... 949,829 949,829
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ......................... 545,541 545,541
-----------
Total Investment Companies (Cost $1,495,370) ............................................. 1,495,370
-----------
Total Value of Investments (Cost $17,753,674%(b)) .................................. 105.84 % $23,109,152
Liabilities In Excess of Other Assets .............................................. (5.84)% (1,275,220)
------ -----------
Net Assets .................................................................. 100.00 % $21,833,932
====== ===========
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is $17,818,382. Unrealized appreciation (depreciation) of investments for
federal income tax purposes is as follows:
Unrealized appreciation .................................................................. $ 6,095,086
Unrealized depreciation .................................................................. (804,316)
-----------
Net unrealized appreciation .............................................. $ 5,290,770
===========
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $17,753,674) .......................................................... $23,109,152
Cash .............................................................................................. 3,726
Income receivable ................................................................................. 18,643
Receivable for fund shares sold ................................................................... 2,117
Deferred organization expenses, net (note 4) ...................................................... 20,525
-----------
Total assets ................................................................................. 23,154,163
-----------
LIABILITIES
Accrued expenses .................................................................................. 22,784
Payable for investment purchases .................................................................. 1,294,820
Payable for fund shares redeemed .................................................................. 1,950
Other liabilities ................................................................................. 677
-----------
Total liabilities ............................................................................ 1,320,231
-----------
NET ASSETS ............................................................................................... $21,833,932
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................... $17,655,490
Accumulated net realized loss on investments ...................................................... (1,177,036)
Net unrealized appreciation on investments ........................................................ 5,355,478
-----------
$21,833,932
===========
CLASS C
Net asset value, redemption and maximum offering price per share
($453,984 / 32,451 shares) ................................................................... $13.99
===========
INSTITUTIONAL CLASS
Net asset value, redemption and maximum offering price per share
($16,737,026 / 1,178,752 shares) ............................................................. $14.20
===========
INVESTOR CLASS
Net asset value, redemption and offering price per share .......................................... $14.02
($4,642,922 / 331,189 shares) ===========
Maximum offering price per share (100 / 96.25 of $14.02) .......................................... $14.57
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
WST GROWTH FUND
STATEMENT OF OPERATIONS
Year ended March 31, 2000
INVESTMENT LOSS
Income
Interest ...................................................................................... $ 55,224
Dividends ..................................................................................... 159,931
-----------
Total income ............................................................................ 215,155
-----------
Expenses
Investment advisory fees (note 2) ............................................................. 131,567
Fund administration fees (note 2) ............................................................. 30,699
Distribution and service fees - Investor Class shares (note 3) ................................ 18,962
Distribution and service fees - Class C shares (note 3) ....................................... 1,325
Custody fees .................................................................................. 3,905
Registration and filing administration fees (note 2) .......................................... 5,655
Fund accounting fees (note 2) ................................................................. 40,500
Audit fees .................................................................................... 11,317
Legal fees .................................................................................... 7,214
Securities pricing fees ....................................................................... 3,339
Shareholder recordkeeping fees ................................................................ 9,000
Shareholder servicing expenses ................................................................ 7,605
Registration and filing expenses .............................................................. 4,516
Printing expenses ............................................................................. 21,547
Amortization of deferred organization expenses (note 4) ....................................... 8,250
Trustee fees and meeting expenses ............................................................. 3,916
Other operating expenses ...................................................................... 4,810
-----------
Total expenses .......................................................................... 314,127
-----------
Less investment advisory fees waived (note 2) ........................................... (13,785)
-----------
Net expenses ............................................................................ 300,342
-----------
Net investment loss ................................................................ (85,187)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized loss from investment transactions ..................................................... (555,913)
Increase in unrealized appreciation on investments ................................................. 2,771,724
-----------
Net realized and unrealized gain on investments ............................................... 2,215,811
-----------
Net increase in net assets resulting from operations .................................... $ 2,130,624
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ...................................................... $ (85,187) $ (8,424)
Net realized loss from investment transactions ........................... (555,913) (578,937)
Increase in unrealized appreciation on investments ....................... 2,771,724 1,853,775
----------- -----------
Net increase in net assets resulting from operations ................. 2,130,624 1,266,414
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .... 5,744,786 5,552,729
----------- -----------
Total increase in net assets .................................... 7,875,410 6,819,143
NET ASSETS
Beginning of year ............................................................. 13,958,522 7,139,379
----------- -----------
End of year ................................................................... $21,833,932 $13,958,522
=========== ===========
(a) A summary of capital share activity follows:
-------------------------------------------------------------------------------------
Year ended Year ended
March 31, 2000 March 31, 1999
Shares Value Shares Value
-------------------------------------------------------------------------------------
----------------------------------------------
CLASS C (a)
----------------------------------------------
Shares sold .................................. 32,451 $ 426,228 0 $ 0
Shares redeemed .............................. 0 0 0 0
----------- ----------- ----------- -----------
Net increase ............................ 32,451 $ 426,228 0 $ 0
=========== =========== =========== ===========
----------------------------------------------
INSTITUTIONAL CLASS
----------------------------------------------
Shares sold .................................. 331,219 $ 4,408,827 361,611 $ 4,344,114
Shares redeemed .............................. (46,784) (604,849) (32,095) (380,601)
----------- ----------- ----------- -----------
Net increase ............................ 284,435 $ 3,803,978 329,516 $ 3,963,513
=========== =========== =========== ===========
----------------------------------------------
INVESTOR CLASS
----------------------------------------------
Shares sold .................................. 221,528 $ 2,686,217 143,763 $ 1,721,117
Shares redeemed .............................. (90,704) (1,171,637) (11,169) (131,901)
----------- ----------- ----------- -----------
Net increase ............................ 130,824 $ 1,514,580 132,594 $ 1,589,216
=========== =========== =========== ===========
----------------------------------------------
FUND SUMMARY
----------------------------------------------
Shares sold .................................. 585,198 $ 7,521,272 505,374 $ 6,065,231
Shares redeemed .............................. (137,488) (1,776,486) (43,264) (512,502)
----------- ----------- ----------- -----------
Net increase ............................ 447,710 $ 5,744,786 462,110 $ 5,552,729
=========== =========== =========== ===========
(a) For the period beginning May 20, 1999 (date of initial public investment) through March 31, 2000.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
CLASS C
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
May 20, 1999
(date of initial public
investment) to
March 31,
2000
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ......................................................... $ 13.05
Income from investment operations
Net investment loss ............................................................... (0.06)
Net realized and unrealized gain on investments ................................... 1.00
---------
Total from investment operations ............................................ 0.94
---------
Net asset value, end of period ............................................................... $ 13.99
=========
Total return (a) ............................................................................. 7.20 %
=========
Ratios/supplemental data
Net assets, end of period .............................................................. $ 453,984
=========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ..................................... 2.45 % (b)
After expense reimbursements and waived fees ...................................... 2.34 % (b)
Ratio of net investment (loss) income to average net assets
Before expense reimbursements and waived fees ..................................... (1.30)% (b)
After expense reimbursements and waived fees ...................................... (1.19)% (b)
Portfolio turnover rate ................................................................ 50.40 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements (Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INSTITUTIONAL CLASS
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
September 30, 1997
(date of initial public
Year ended Year ended investment) to
March 31, March 31, March 31,
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.77 $ 11.29 $ 10.02
Income from investment operations
Net investment loss ................................ (0.04) 0.00 0.00
Net realized and unrealized gain on investments .... 1.47 1.48 1.27
----------- ----------- -----------
Total from investment operations ............. 1.43 1.48 1.27
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.20 $ 12.77 $ 11.29
=========== =========== ===========
Total return (a) .............................................. 11.20 % 13.11 % 12.72 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $16,737,026 $11,419,391 $ 6,376,193
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 1.68 %(b) 2.08 % 3.15 %(b)
After expense reimbursements and waived fees ....... 1.60 %(b) 1.75 % 1.75 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.45)%(b) (0.35)% (1.31)%(b)
After expense reimbursements and waived fees ....... (0.37)%(b) (0.01)% 0.09 %(b)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements (Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
WST GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
INVESTOR CLASS
------------------------------------------------------------------------------------------------------------------------------------
For the
period from
October 3, 1997
(date of initial public
Year ended Year ended investment) to
March 31, March 31, March 31,
2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .......................... $ 12.67 $ 11.26 $ 10.22
Income from investment operations
Net investment loss ................................ (0.10) (0.04) (0.01)
Net realized and unrealized gain on investments .... 1.45 1.45 1.05
----------- ----------- -----------
Total from investment operations ............. 1.35 1.41 1.04
----------- ----------- -----------
Net asset value, end of period ................................ $ 14.02 $ 12.67 $ 11.26
=========== =========== ===========
Total return (a) .............................................. 10.66 % 12.52 % 10.52 %
=========== =========== ===========
Ratios/supplemental data
Net assets, end of period ............................... $ 4,642,922 $ 2,539,131 $ 763,186
=========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees ...... 2.15 %(b) 2.56 % 3.63 %(b)
After expense reimbursements and waived fees ....... 2.10 %(b) 2.25 % 2.10 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees ...... (0.93)%(b) (0.84)% (1.70)%(b)
After expense reimbursements and waived fees ....... (0.88)%(b) (0.53)% (0.31)%(b)
Portfolio turnover rate ................................. 50.40 % 31.11 % 23.64 %
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The WST Growth Fund (the "Fund"), formerly known as the WST Growth &
Income Fund prior to January 3, 2000, is a diversified series of shares
of beneficial interest of The Nottingham Investment Trust II (the
"Trust"). The Trust, an open-end investment company, was organized on
October 18, 1990 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940, as amended. The Fund began
operations on September 9, 1997. The investment objective of the fund
is to provide its shareholders with a maximum total return consisting
of any combination of capital appreciation, both realized and
unrealized, and income. The Board of Trustees of the Trust approved on
March 15, 1999 a plan to authorize a new class of shares designated as
Class C Shares. On May 20, 1999, the Class C Shares became effective.
The Fund has an unlimited number of authorized shares, which are
divided into three classes - Institutional Shares, Investor Shares, and
Class C.
Each class of shares has equal rights as to assets of the Fund, and the
classes are identical except for differences in their sales charge
structures and ongoing distribution and service fees. Income, expenses
(other than distribution and service fees, which are only attributable
to the Class C and Investor Class), and realized and unrealized gains
or losses on investments are allocated to each class of shares based
upon its relative net assets. Investor Shares purchased are subject to
a maximum sales charge of 3.75%. All three classes have equal voting
privileges, except where otherwise required by law or when the Board of
Trustees determines that the matter to be voted on affects only the
interests of the shareholders of a particular class. The following is a
summary of significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are
carried at value. Securities listed on an exchange or quoted
on a national market system are valued at 4:00 p.m., New York
time. Other securities traded in the over-the-counter market
and listed securities for which no sale was reported on that
date are valued at the most recent bid price. Securities for
which market quotations are not readily available, if any, are
valued by using an independent pricing service or by following
procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - No provision has been made for federal
income taxes since it is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal
income taxes.
The Fund has capital loss carryforwards for federal income tax
purposes of $919,853, of which $42,186 expires in the year
2006, $342,266 expires in the year 2007 and $535,401 expires
in the year 2008. It is the intention of the Board of Trustees
of the Trust not to distribute any realized gains until the
carryforwards have been offset or expire.
As a result of the Fund's operating net investment loss, a
reclassification adjustment of $85,187 has been made on the
statement of assets and liabilities to decrease accumulated
net investment loss, bringing it to zero, and decrease paid in
capital.
(Continued)
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October 31,
which are deferred for income tax purposes. The character of
distributions to shareholders made during the year from net
investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
Also, due to the timing of dividend distributions, the fiscal
year in which amounts are distributed may differ from the year
that the income or realized gains were recorded by the Fund.
C. Investment Transactions - Investment transactions are recorded
on trade date. Realized gains and losses are determined using
the specific identification cost method. Interest income is
recorded daily on an accrual basis. Dividend income is
recorded on the ex-dividend date
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September, and December on
a date selected by the Trust's Trustees. In addition,
distributions may be made annually in December out of net
realized gains through October 31 of that year. The Fund may
make a supplemental distribution subsequent to the end of its
fiscal year ending March 31.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results
could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Wilbanks, Smith & Thomas
Asset Management, Inc. (the "Advisor"), provides the fund with a
continuous program of supervision of the Fund's assets, including the
composition of its portfolio, and furnishes advice and recommendations
with respect to investments, investment policies, and the purchase and
sale of securities. As compensation for its services, the Advisor
receives a fee at the annual rate of 0.75% of the first $250 million of
the Fund's average daily net assets and 0.65% of all assets over $250
million.
The Advisor currently intends to voluntarily waive all or a portion of
its fee and to reimburse expenses of the Fund to limit total Fund
operating expenses to a maximum of 1.75% of the average daily net
assets of the Fund's Institutional Class, a maximum of 2.25% of the
average daily net assets of the Fund's Investor Class, and a maximum of
2.50% of the average daily net assets of the Fund's Class C. 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 $13,785 for the year ended March 31,
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 an accounting and administrative agreement with the Trust. As
compensation for its services, the Administrator receives a fee at the
annual rate of 0.175% of the Fund's first $50 million of average daily
net assets, 0.15% of the next $50 million, 0.125% of the next $50
(Continued)
<PAGE>
WST GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
million, and 0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting and
record-keeping services for the initial class of shares and $750 per
month for each additional class of shares. The contract with the
Administrator provides that the aggregate fees for the aforementioned
administration, accounting, and recordkeeping services shall not be
less than $4,000 per month. The Administrator also charges the Fund for
certain expenses involved with the daily valuation of portfolio
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor, the Distributor, or the Administrator.
NOTE 3 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including the Trustees who are not "interested
persons" of the Trust as defined in the Investment Company Act of 1940
(the "Act"), adopted a distribution and service plan pursuant to Rule
12b-1 of the Act (the "Plan") applicable to the Investor and Class C
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% and 0.75% per annum of the average daily net assets of
Investor Shares and Class C Shares, respectively, 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 Class and Class C
Shares' average daily net assets. The Fund incurred $18,962 of such
expenses for the Investor class and $1,325 of such expenses for the
Class C shares under the Plan for the year ended March 31, 2000.
NOTE 4 - DEFERRED ORGANIZATION EXPENSES
All expenses of the Fund incurred in connection with its organization
and the registration of its shares have been assumed by the Fund. The
organization expenses are being amortized over a period of sixty
months. Investors purchasing shares of the Fund bear such expenses only
as they are amortized against the Fund's investment income.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $14,487,255 and $8,498,090, respectively, for the year ended
March 31, 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
WST Growth Fund:
We have audited the accompanying statement of assets and liabilities of WST
Growth Fund, including the portfolio of investments, as of March 31, 2000, and
the related statement of operations for the year then ended, the statements of
changes in net assets for the years ended March 31, 2000 and 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of WST
Growth Fund as of March 31, 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 accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
Prospectus
Balanced Fund
Equity Fund
Small Company Fund
International Equity Fund
August 1, 2000
[LOGO]
BROWN CAPITAL MANAGEMENT
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
Mutual fund shares are not deposits or obligations of, or guaranteed by, any
depository institution. Shares are not insured by the FDIC, Federal Reserve
Board, or any other agency and are subject to investment risks including
possible loss of principal amount invested. Neither the Funds nor the Funds'
distributor is a bank. You should read the prospectus carefully before you
invest or send money.
<PAGE>
This prospectus includes information about the four Brown Capital Management
Funds ("Funds") - three equity funds:
o The Brown Capital Management Equity Fund,
o The Brown Capital Management Small Company Fund, and
o The Brown Capital Management International Equity Fund;
and one balanced fund:
o The Brown Capital Management Balanced Fund.
The equity funds seek long-term capital appreciation. The balanced fund seeks a
maximum total return consisting of capital appreciation and current income.
2
<PAGE>
TABLE OF CONTENTS
Page
----
THE FUNDS.....................................................................4
---------
Investment Objectives................................................4
Principal Investment Strategies......................................5
The Brown Capital Management Equity Fund........................5
The Brown Capital Management Small Company Fund.................6
The Brown Capital Management International Equity Fund..........8
The Brown Capital Management Balanced Fund.....................10
Principal Risks Of Investing In The Funds...........................11
All Funds......................................................11
Fund Specific Risk Factors.....................................11
Bar Charts And Performance Tables...................................15
Fees and Expenses Of The Funds......................................19
MANAGEMENT OF THE FUNDS......................................................22
-----------------------
The Investment Advisor..............................................22
The Administrator...................................................25
The Transfer Agent..................................................26
The Distributor.....................................................26
INVESTING IN THE FUNDS.......................................................27
----------------------
Minimum Investment..................................................27
Purchase And Redemption Price.......................................27
Purchasing Shares...................................................28
Redeeming Your Shares...............................................30
OTHER IMPORTANT INVESTMENT INFORMATION.......................................33
--------------------------------------
Dividends, Distributions, And Taxes.................................33
Financial Highlights................................................34
Additional Information......................................Back Cover
3
<PAGE>
THE FUNDS
INVESTMENT OBJECTIVES
The investment objective of The Brown Capital Management Equity Fund, The Brown
Capital Management Small Company Fund and The Brown Capital Management
International Equity Fund is to seek long-term capital appreciation. Current
income is a secondary consideration in selecting portfolio investments for the
equity funds. The investment objective of The Brown Capital Management Balanced
Fund is total return, consisting of capital appreciation and current income.
Each of the Funds is a diversified series of the Nottingham Investment Trust II
("Trust").
4
<PAGE>
Principal Investment Strategy
The Brown Capital Management Equity Fund
Goal
The Brown Capital Management Equity Fund ("Equity Fund") seeks capital
appreciation by identifying securities that Brown Capital Management, Inc.
("Advisor") believes are undervalued relative to their growth potential. These
securities may be undervalued as a result of one or more of the following:
o presently being out of favor;
o currently not well known; or
o possessing value that is not currently recognized by the investment
community.
The Equity Fund generally consists of the equity securities of medium and large
capitalization companies, generally defined as those companies with a market
capitalization of $1 billion or more.
Strategy
The Advisor looks at the fundamental characteristics of each company
individually, using analysis that:
o contains elements of traditional dividend discount and earnings yield
models;
o establishes relative valuation for equity and fixed income markets; and
o determines the attractiveness of individual securities through evaluation
of growth and risk characteristics of the underlying company relative to
the overall equity market.
The Advisor generally expects to hold securities for the long term, although
securities will be sold when the Advisor feels their potential for future growth
is diminished.
The Equity Fund invests in a variety of companies and industries as well as
economic sectors.
Under normal market conditions the portfolio allocation range for the Equity
Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the Equity Fund may invest in U.S.
Government and agency securities, cash, money market securities, and other
fixed-income securities for temporary or defensive purposes. Such investment
strategies are inconsistent with the Equity Fund's investment objective and
could result in the Equity Fund not achieving it investment objective.
5
<PAGE>
Principal Investment Strategy
The Brown Capital Management Small Company Fund
Goal
The Brown Capital Management Small Company Fund ("Small Company Fund") invests
primarily in the equity securities of those companies with total operating
revenues of $250 million or less at the time of the initial investment, ("small
companies"). The Advisor seeks to build a portfolio of exceptional small
companies with the following overall portfolio characteristics:
o price-to-earnings ratio to prospective earnings per share growth rate that
is less than an appropriate market benchmark (on twelve month estimated
earnings) and
o profitability that is greater than the market benchmark.
Currently, the Small Company Fund uses the Russell 2000 Index as its market
benchmark. The Russell 2000 Index is a widely-recognized unmanaged index of
small capitalization common stocks.
Strategy
This analysis includes many factors that, in the Advisor's view, are critical to
the small company sector. The Advisor believes that:
o a sustained commitment to a portfolio of exceptional small companies will,
over time, produce a significant investment return and
o an investment analysis that identifies and successfully evaluates those few
small companies with the legitimate potential to become large companies can
be a very rewarding investment strategy.
The Advisor employs analysis that:
o contains elements of traditional dividend discount and earnings yield
models;
o establishes relative valuation for equity and fixed income markets; and
o determines the attractiveness of individual securities through evaluation
of growth and risk characteristics of the underlying company relative to
the overall equity market.
6
<PAGE>
The Advisor identifies small companies with the potential to become successful
large companies by analyzing the potential for:
o sustainable revenue growth;
o adequate resources to establish and defend a viable product or service
market, and market share;
o sufficient profitability to support long term growth; and
o management skills and resources necessary to plan and execute a long-term
growth plan.
The Advisor generally expects to hold securities for the long term, although
securities will be sold when the Advisor feels their potential for future growth
is diminished.
Under normal market conditions the portfolio allocation range for the Small
Company Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the Small Company Fund may invest
in U.S. Government and agency securities, cash, money market securities and
other fixed-income securities for temporary or defensive purposes. Such
investment strategies are inconsistent with the Small Company Fund's investment
objective and could result in the Small Company Fund not achieving it investment
objective.
7
<PAGE>
Principal Investment Strategy
The Brown Capital Management International Equity Fund
Goal
The Brown Capital Management International Equity Fund ("International Equity
Fund") invests primarily in the equity securities of non-U.S. based companies.
The Advisor seeks to purchase equity securities of those companies that the
Advisor feels are undervalued relative to their long-term potential in the
securities markets. The Advisor utilizes an analysis that seeks to identify
those companies trading at the deepest discount to their long-term earnings
potential and/or present value of assets held by the company which may be
realized.
Strategy
The Advisor looks at the fundamental characteristics of each company
individually, using analysis that include:
o relative valuation, within an industry sector, and between countries or
economic markets;
o fundamental analysis of the company;
o long term forecasting of earnings and asset values;
o fundamental analysis of the country in which the company operates, taking
into consideration the macroeconomic, regulatory and political trends
within that country;
o use of investment industry research; and
o use of direct local contacts in various countries, investment industry
research, discussions with company personnel, and company visits.
In constructing and managing the International Equity Fund, the following
additional restrictions are used:
o no country will represent more than 25% of the International Equity Fund's
total assets;
o no more than 15% of the International Equity Fund's total assets will be
invested in emerging market securities;
o no industry will represent more than 20% of the International Equity Fund's
total assets; and
o no individual security will represent more than 5% of the International
Equity Fund's total assets.
8
<PAGE>
Under normal market conditions the portfolio allocation range for the
International Equity Fund will be:
% of Total Assets
-----------------
Equity securities 70 - 99%
Money market instruments 1 - 30%
When market or financial conditions warrant, the International Equity Fund may
invest, without limitation, in securities of any kind, including securities
traded primarily in U.S. markets, cash, and money market instruments for
temporary or defensive purposes. Such investment strategies are inconsistent
with the International Equity Fund's investment objective and could result in
the International Equity Fund not achieving it investment objective.
9
<PAGE>
Principal Invesment Strategy
The Brown Capital Management Balanced Fund
Goal
The Brown Capital Management Balanced Fund ("Balanced Fund") varies the
percentage of its assets invested in equities and fixed income securities,
including money market instruments, according to the Advisor's judgment of
market and economic conditions and its view of which asset class can best
achieve the Balanced Fund's objectives.
The percentage invested in fixed income securities (including money market
instruments) will comprise not less than 25% and not more than 75% of the
portfolio.
Strategy
Key elements of the Advisor's management of the Balanced Fund include:
o The equity portion of the Balanced Fund will be managed using the same
investment strategies as described above for the Equity Fund.
o Fixed income securities will be selected primarily for income. The capital
appreciation potential of those fixed income securities is of secondary
importance.
o The Advisor will continually review the macroeconomic environment and
alternative expected rates of return between fixed income securities and
equity securities in determining the asset allocation of the Fund.
o In structuring the fixed income portion of the Fund, the Advisor examines
the following:
o spread relationships between quality grades in determining the quality
distribution; and
o expected trends in inflation and interest rates in structuring the
maturity distribution.
o Not more than 20% of the total fixed income portion of the portfolio (not
more than 15% of the entire Balanced Fund) will be invested in bonds rated
below "A," as rated by Standard & Poor's Ratings Services ("S&P") or by
Moody's Investor Services, Inc. ("Moody's"), both nationally recognized
securities rating organizations and described in the Statement of
Additional Information ("SAI").
Under normal market conditions the portfolio allocation range for the Balanced
Fund will be:
% of Total Assets
-----------------
Equity securities 25 - 75%
Fixed income securities 25 - 75%
Money market instruments 1 - 25%
10
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
All Funds
An investment in the Funds is subject to investment risks, including the
possible loss of the principal amount invested. There can be no assurance that
the Funds will be successful in meeting their objectives.
Market Risk. The Funds will also be subject to market risk. Market risk refers
to the risk related to investments in securities in general and the daily
fluctuations in the securities markets. The Funds' performances per share will
change daily based on many factors, including fluctuation in interest rates, the
quality of the instruments in each Fund's investment portfolio, national and
international economic conditions, and general market conditions.
Fund Specific Risk Factors
International Equity Fund
Foreign Securities. The International Equity Fund will invest primarily in
equity securities of non-U.S. based companies that involve investment risks
different from those associated with domestic securities. Foreign markets,
particularly emerging markets, may be less liquid, more volatile, and subject to
less government supervision than domestic markets. There may be difficulties
enforcing contractual obligations, and it may take more time for trades to clear
and settle. The specific risks of investing in foreign securities among others,
include:
Emerging Market Risk: The International Equity Fund may invest a portion of
its assets in countries with less developed securities markets. However, no
more than 15% of its portfolio will be invested in emerging markets
securities. There are greater risks involved in investing in emerging
markets countries and/or their securities markets. Generally, economic
structures in these countries are less diverse and mature than those in
developed countries and their political systems are less stable.
Investments in emerging markets countries may be affected by national
policies that restrict foreign investment in certain issuers or industries.
The small size of their securities markets and low trading volumes can make
investments illiquid and more volatile than investments in developed
countries and such securities may be subject to abrupt and severe price
declines. As a result, the International Equity Fund, when investing in
emerging markets countries, may be required to establish special custody or
other arrangements before investing.
Currency Risk: The risk that changes in currency exchange rates will
negatively affect securities denominated in, and/or receiving revenues in,
foreign currencies. Adverse changes in currency exchange rates (relative to
the U.S. dollar) may erode or reverse any potential gains from a
Portfolio's investment in securities denominated in a foreign currency or
may widen existing losses.
11
<PAGE>
Euro Risk: The International Equity Fund may invest in securities issued by
European issuers. On January 1, 1999, 11 of the 15 member states of the
European Monetary Union ("EMU") introduced the "Euro" as a common currency.
During a three-year transitional period, the Euro will coexist with each
participating state's currency and, on July 1, 2002, the Euro is expected
to become the sole currency of the participating states. The introduction
of the Euro will result in the redenomination of European debt and equity
securities over a period of time, which may result in various legal and
accounting differences and/or tax treatments that otherwise would not
likely occur. During this period, the creation and implementation of
suitable clearing and settlement systems and other operational problems may
cause market disruptions that could adversely affect investments quoted in
the Euro.
The consequences of the Euro conversion for foreign exchange rates,
interest rates and the value of European securities eligible for purchase
by the International Equity Fund are presently unclear and it is not
possible to predict the eventual impact of the Euro implementation plan.
There are a number of significant risks associated with EMU. Monetary and
economic union on this scale has never been attempted before. There is a
significant degree of uncertainty as to whether participating countries
will remain committed to EMU in the face of changing economic conditions.
The conversion may adversely affect the International Equity Fund if the
Euro does not take effect as planned or if a participating state withdraws
from the EMU. Such actions may adversely affect the value and/or increase
the volatility of securities held by the International Equity Fund.
Political/Economic Risk: Changes in economic and tax policies, government
instability, war or other political or economic actions or factors may have
an adverse effect on the International Equity Fund's foreign investments.
Regulatory Risk: Less information may be available about foreign companies.
In general, foreign companies are not subject to uniform accounting,
auditing, and financial reporting standards or to other regulatory
practices and requirements as are U.S. companies.
Transaction Costs Risk: The costs of buying and selling foreign securities,
including tax, brokerage and custody costs, generally are higher than those
involving domestic transactions.
12
<PAGE>
Please see the SAI dated the same date of this Prospectus, for more information
about these investment policies.
Small Company Fund
The Small Company Fund is intended for aggressive investors seeking
above-average gains and willing to accept the risks involved in investing in the
securities of small companies.
Small Company Risk. Investing in the securities of small companies generally
involves greater risk than investing in larger, more established companies. This
greater risk is, in part, attributable to the fact that the securities of small
companies usually have more limited marketability and therefore, may be more
volatile than securities of larger, more established companies or the market
averages in general. Because small companies normally have fewer shares
outstanding than larger companies, it may be more difficult to buy or sell
significant amounts of such shares without an unfavorable impact on prevailing
prices. Another risk factor is that small companies often have limited product
lines, markets, or financial resources and may lack management depth.
Additionally, small companies are typically subject to greater changes in
earnings and business prospects than are larger, more established companies and
there typically is less publicly available information concerning small
companies than for larger, more established companies.
Although investing in securities of small companies offers potential
above-average returns if the companies are successful, the risk exists that the
companies will not succeed and the prices of the companies' shares could
significantly decline in value. Therefore, an investment in the Small Company
Fund may involve a greater degree of risk than an investment in other mutual
funds that seek capital growth by investing in more established, larger
companies.
Balanced Fund
In addition to the investment and market risks outlined above with regards to
the equity portion of the Balanced Fund, there will be additional risks for the
fixed income portion of the portfolio.
o Credit Risk: Credit risk is the risk that the issuer or guarantor of a debt
security or counterparty to the Balanced Fund's transactions will be unable
or unwilling to make timely principal and/or interest payments, or
otherwise will be unable or unwilling to honor its financial obligations.
The Balanced Fund may be subject to credit risk to the extent that it
invests in debt securities or engages in transactions, such as securities
loans, which involve a promise by a third party to honor an obligation to
the Balanced Fund. Credit risk is particularly significant to the Balanced
Fund when investing a portion of its assets in "junk bonds" or lower-rated
securities.
13
<PAGE>
o Interest Rate Risk: The price of a bond or a fixed income security is
dependent upon interest rates. Therefore, the share price and total return
of the Balanced Fund, when investing a significant portion of its assets in
bonds or fixed income securities, will vary in response to changes in
interest rates. A rise in interest rates causes the value of a bond to
decrease, and vice versa. There is the possibility that the value of the
Balanced Fund's investment in bonds or fixed income securities may fall
because bonds or fixed income securities generally fall in value when
interest rates rise. The longer the term of a bond or fixed income
instrument, the more sensitive it will be to fluctuations in value from
interest rate changes. Changes in interest rates may have a significant
effect on the Balanced Fund holding a significant portion of its assets in
fixed income securities with long term maturities.
In the case of mortgage-backed securities, rising interest rates tend to
extend the term to maturity of the securities, making them even more
susceptible to interest rate changes. When interest rates drop, not only
can the value of fixed income securities drop, but the yield can drop,
particularly where the yield on fixed income securities is tied to changes
in interest rates, such as adjustable mortgages. Also when interest rates
drop, the holdings of mortgage-backed securities by the Balanced Fund can
reduce returns if the owners of the underlying mortgages pay off their
mortgages sooner than expected since the funds prepaid must be reinvested
at the then lower prevailing rates. This is known as prepayment risk. When
interest rates rise, the holdings of mortgage-backed securities the
Balanced Fund can reduce returns if the owners of the underlying mortgages
pay off their mortgages later than anticipated. This is known as extension
risk.
o Maturity Risk: Maturity risk is another factor that can affect the value of
the Balanced Fund's debt holdings. The Balanced Fund does not have a
limitation policy regarding the length of maturity of its debt holdings. In
general, the longer the maturity of a debt obligation, the higher its yield
and the greater its sensitivity to changes in interest rates. Conversely,
the shorter the maturity, the lower the yield but the greater the price
stability.
o Investment-Grade Securities Risk: Debt securities are rated by national
bond ratings agencies. Securities rated BBB by S&P or Baa by Moody's are
considered investment- grade securities, but are somewhat riskier than
higher rated investment-grade obligations because they are regarded as
having only an adequate capacity to pay principal and interest, and are
considered to lack outstanding investment characteristics and may be
speculative.
14
<PAGE>
BAR CHARTS AND PERFORMANCE TABLES
The bar charts and tables shown below for the Equity Fund, the Small Company
Fund, and the Balanced Fund provide an indication of the risks of investing in
the Funds by showing (on a calendar year basis) changes in the Funds' annual
total returns from year to year and by showing (on a calendar year basis) how
the Funds' average annual returns for one year, five years, and since inception
compare to those of broad-based securities market indexes. Because the
International Equity Fund has not been in operation for an entire calendar year,
there is no calendar year performance information to be presented here for that
fund. How the Funds have performed in the past is not necessarily an indication
of how the Funds will perform in the future.
15
<PAGE>
Equity Fund
[BAR CHART HERE]
Calendar Year Returns
1993 6.81%
1994 -0.75%
1995 32.04%
1996 19.04%
1997 22.65%
1998 29.15%
1999 7.82%
o During the 7-year period shown in the bar chart above, the highest return
for a calendar quarter was 26.64% (quarter ended December 31, 1998).
o During the 7-year period shown in the bar chart above, the lowest return
for a calendar quarter was -14.57% (quarter ended September 30, 1998).
o The calendar year-to-date return as of the end of the most recent calendar
quarter was 3.81% (quarter ended June 30, 2000).
------------------------------------ ------------- ------------ ----------------
Average Annual Total Returns Past 1 Past 5 Since
Period ended December 31, 1999 Year Years Inception*
------------------------------------ ------------- ------------ ----------------
Brown Capital Management Equity Fund 7.82% 21.82% 17.13%
------------------------------------ ------------- ------------ ----------------
------------------------------------ ------------- ------------ ----------------
S&P 500 Total Return Index ** 21.04% 28.54% 21.52%
------------------------------------ ------------- ------------ ----------------
* September 30, 1992 (commencement of operations of the Equity Fund)
** 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.
16
<PAGE>
Small Company Fund
[BAR CHART HERE]
Calendar Year Returns
1993 5.74%
1994 4.76%
1995 33.96%
1996 17.08%
1997 15.78%
1998 18.39%
1999 44.02%
o During the 7-year period shown in the bar chart above, the highest return
for a calendar quarter was 34.30% (quarter ended December 31, 1999).
o During the 7-year period shown in the bar chart above, the lowest return
for a calendar quarter was -14.87% (quarter ended September 30, 1998).
o The calendar year-to-date return as of the end of the most recent calendar
quarter was 11.59% (quarter ended June 30, 2000).
-------------------------------- --------------- ------------- -----------------
Average Annual Total Returns Past 1 Year Past 5 Years Since Inception*
Period ended December 31, 1999
-------------------------------- --------------- ------------- -----------------
Brown Capital Management
Small Company Fund 44.02% 25.35% 19.24%
-------------------------------- --------------- ------------- -----------------
Russell 2000 Index ** 21.35% 16.58% 13.59%
-------------------------------- --------------- ------------- -----------------
* December 31, 1992 (commencement of operations of the Small Company Fund)
** The Russell 2000 Index is a widely-recognized unmanaged index of small
capitalization stocks.
17
<PAGE>
Balanced Fund
[BAR CHART HERE]
Calendar Year Returns
1993 9.75%
1994 -1.22%
1995 29.75%
1996 13.84%
1997 18.87%
1998 24.40%
1999 5.27%
o During the 7-year period shown in the bar chart above, the highest return
for a calendar quarter was 19.63% (quarter ended December 31, 1998).
o During the 7-year period shown in the bar chart above, the lowest return
for a calendar quarter was -10.33% (quarter ended September 30, 1998).
o The calendar year-to-date return as of the end of the most recent calendar
quarter was 2.25% (quarter ended June 30, 2000).
-------------------------------------------- ---------- ----------- ------------
Average Annual Total Returns Past Past Since
Period ended December 31, 1999 1 Year 5 Years Inception*
-------------------------------------------- ---------- ----------- ------------
Brown Capital Management Balanced Fund 5.27% 18.11% 14.30%
-------------------------------------------- ---------- ----------- ------------
Benchmark of 75% S&P 500 Total Return Index
25% Lehman Government &
Corporate Bond Index** 17.92% 24.79% 18.72%
-------------------------------------------- ---------- ----------- ------------
* September 30, 1992 (commencement of operations of the Balanced Fund)
** The S&P 500 Total Return Index is the Standard & Poor's Composite Index
of 500 stocks and is a widely recognized unmanaged index of common stock
prices. The Lehman Government & Corporate Bond Index represents an
unmanaged group of securities widely regarded by investors as
representative of the bond market.
18
<PAGE>
FEES AND EXPENSES OF THE FUNDS
The tables below describe the fees and expenses that you may pay if you buy and
hold shares of the Funds:
Shareholder Fees For Institutional Shares
(fees paid directly from your investment)
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) ...................................None
Redemption fee .............................................................None
19
<PAGE>
Annual Fund Operating Expenses For Institutional Shares
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Small International
Equity Company Balanced Equity
Management Fees..................................... 0.65% 1.00% 0.65% 1.00%
Distribution and/or Service (12b-1) Fees............ None None None None
Other Expenses...................................... 1.10% 0.48% 0.94% 8.23%^1
---- ---- ---- ----
Total Annual Fund Operating Expenses................ 1.75%^1 1.48%^1 1.59%^1 9.23%^1
Fee Waivers and/or Expense Reimbursements.. (0.55%) 0.00% (0.39%) (7.23%)
---- ---- ---- ----
Net Expenses............................... 1.20% 1.48%^2 1.20% 2.00%
==== ==== ==== ====
</TABLE>
1 "Total Annual Fund Operating Expenses" are based upon actual expenses
incurred by each of the Equity Fund, the Small Company Fund, and the
Balanced Fund for the fiscal year ended March 31, 2000 and by the
International Equity Fund for the period May 28, 1999 (commencement of
operations) to March 31, 2000. The Advisor has entered into a
contractual agreement with the Trust under which it has agreed to
waive or reduce its fees and to assume other expenses of the Funds, if
necessary, in an amount that limits Total Annual Fund Operating
Expenses (exclusive of interest, taxes, brokerage fees and
commissions, and extraordinary expenses, and payments, if any, under a
Rule 12b-1 Plan) to not more than 1.20% of the average daily net
assets of the Equity Fund and Balanced Fund, 1.50% of the average
daily net assets of the Small Company Fund, and 2.00% of the average
daily net assets of the International Equity Fund, respectively, for
the fiscal year to end March 31, 2001. It is expected that the
contractual agreement will continue from year-to-year provided such
continuance is approved by the Board of Trustees. See the "Expense
Limitation Agreement" section below for more detailed information.
2 After additional voluntary waivers of a portion of the investment
advisory fees by the Advisor, Net Fund Operating Expenses were 1.43%
of the average daily net assets of the of the Small Company Fund for
the fiscal year ended March 31, 2000.
20
<PAGE>
Example: This example shows you the expenses that you may pay over time by
investing in the Funds. Since all funds use the same hypothetical conditions,
this example should help you compare the costs of investing in the Funds versus
other funds. This example assumes the following conditions:
(1) You invest $10,000 in one or more of the Funds 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 Funds' 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.
------------------------ ----------- ----------- ----------- --------------
Fund 1 Year 3 Years 5 Years 10 Years
------------------------ ----------- ----------- ----------- --------------
Equity $122 $497 $897 $2,017
------------------------ ----------- ----------- ----------- --------------
Small Company $151 $468 $808 $1,768
------------------------ ----------- ----------- ----------- --------------
Balanced $122 $464 $829 $1,856
------------------------ ----------- ----------- ----------- --------------
International Equity $203 $2,025 $3,696 $7,293
------------------------ ----------- ----------- ----------- --------------
21
<PAGE>
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR
The Funds' investment advisor is Brown Capital Management, Inc., 1201 North
Calvert Street, Baltimore, Maryland 21202. The Advisor serves in that capacity
pursuant to an advisory contract with the Trust on behalf of the Funds. Subject
to the authority of the Trustees, the Advisor provides guidance and policy
direction in connection with its daily management of the Funds' assets. The
Advisor manages the investment and reinvestment of the Funds' assets. The
Advisor is also responsible for the selection of broker-dealers through which
the Funds execute portfolio transactions, subject to the brokerage policies
established by the Trustees, and it provides certain executive personnel to the
Funds.
The Advisor, organized as a Maryland corporation in 1983, is controlled by Eddie
C. Brown. The Advisor has been managing each of the Funds since their inception
and has been providing investment advice to investment companies, individuals,
corporations, pension and profit sharing plans, endowments, and other business
and private accounts since the firm was founded in 1983. The Advisor currently
has approximately $6.0 billion in assets under management.
22
<PAGE>
The Funds will be managed primarily by a portfolio management team consisting of
the following:
--------------------- --------------- ------------------------------------------
Portfolio
Fund(s) Manager Work Experience
--------------------- --------------- ------------------------------------------
Equity Fund and Management The two funds are managed by a team led by
Balanced Fund Team led by Eddie C. Brown. Mr. Brown is founder,
Eddie C. Brown President and controlling shareholder of
the Advisor. Mr. Brown has been with the
Advisor since its inception in 1983.
Theodore M. Alexander III, Maurice L.
Haywood and Stephon A. Jackson work
together with Mr. Brown in the management
of the two funds. Mr. Alexander, Vice
President and Portfolio Manager/Analyst
joined the Advisor in October 1995.
Prior to this, Mr. Alexander was a
Securities Analyst at Legg Mason Wood
Walker from June 1994 to October 1995.
From June 1990 to January 1994, Mr.
Alexander was a Securities Analyst at
Alex Brown & Sons, Inc. Mr. Haywood
joined the Advisor in February 2000.
Prior to this, Mr. Haywood was a Partner
and Investment Analyst at Holland Capital
Management from November 1993 to January
2000. From August 1987 to November 1993,
Mr. Haywood was an Assistant Vice
President at First National Bank of
Chicago. Mr. Jackson, Vice President and
Portfolio Manager/Analyst joined the
Advisor in July 1997. Prior to this, Mr.
Jackson was Portfolio Manager/ Director
of Research at NCM Capital Management
from March1994 to June 1997. From March
1993 to March 1994, Mr. Jackson was an
Analyst at Putnam Investments.
--------------------- --------------- ------------------------------------------
Small Company Fund Management Mr. Lee is a Senior Vice President and
Team led by has been a portfolio manager of the
Keith A. Lee Advisor since 1991. Prior to this, Mr.
Lee was a Vice President at Nexus
Consulting from June 1990 to June 1991.
From November 1987 to July 1988, Mr. Lee
was an Investment Representative at BT
Alex Brown. Mr. Lee works with Robert E.
Hall and Eddie C. Brown in the management
of the fund. Mr. Hall, Senior Vice
President and Portfolio Manager/Analyst
joined the Advisor in September 1993.
Prior to this, Mr. Hall was an Investment
Advisor at the Investment Center from
March 1990 to August 1993. From April
1983 to December 1989, Mr. Hall was an
Advisor and Portfolio Manager for
Emerging Growth Partners.
--------------------- --------------- ------------------------------------------
International Equity Management Mr. Ramos has been Vice President of the
Fund Team led by Advisor since December 1998. Previously,
Eddie Ramos Mr. Ramos was Vice President at Templeton
Investment Counsel from July 1993 to
November 1998. Mr. Ramos works with
Eddie C. Brown in the management of the
fund.
--------------------- --------------- ------------------------------------------
23
<PAGE>
The Advisor's Compensation. As full compensation for the investment advisory
services provided to the Funds, the Advisor receives monthly compensation based
on each of the Funds' average daily net assets at the annual rate of:
Equity Fund and Balanced Fund:
0.65% of the first $25 million
0.50% on all assets over $25 million
Small Company Fund:
1.00% on all assets
International Equity Fund:
1.00% of the first $100 million
0.75% on all assets over $100 million
During the Funds last fiscal year, fiscal year ending March 31, 2000, the
Advisor waived a portion of the advisory fees for the Equity Fund, the Small
Company Fund, and the Balanced Fund and all of its fees for the International
Equity Fund. Accordingly, the amount of compensation received as a percentage of
assets of each of the Funds during the last fiscal year was as follows:
---------------------------------------------------------------
Fees Paid to the Advisor
Fund as a Percentage of Assets
---------------------------------------------------------------
Equity Fund 0.10%
Small Company Fund 0.95%
Balanced Fund 0.26%
International Equity Fund 0.00%
Expense Limitation Agreement. In the interest of limiting expenses of the Funds,
the Advisor has entered into an expense limitation agreement with the Trust,
with respect to each of the Funds ("Expense Limitation Agreement"), pursuant to
which the Advisor has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of the Funds (other than
interest, taxes, brokerage commissions, other expenditures which are capitalized
in accordance with generally accepted accounting principles, and other
extraordinary expenses not incurred in the ordinary course of each Fund's
business, and amounts, if any, payable pursuant to a Rule 12b-1 Plan) are
limited to 1.20% of the average daily assets of the Equity Fund and the Balanced
Fund, 1.50% of the average daily assets of the Small Company Fund, and 2.00% of
the average daily net assets of the International Equity Fund for the fiscal
year to end March 31, 2001. The Expense Limitation Agreement shall continue from
year-to-year provided such continuance is specifically approved by a majority of
the Trustees of the Trust who (i) are not "interested persons" of the Trust or
any other party to this Agreement, as defined in the 1940 Act, and (ii) have no
direct or indirect financial interest in the operation of this Expense
Limitation Agreement.
24
<PAGE>
Each of the Funds may, at a later date, reimburse the Advisor the management
fees waived or limited and other expenses assumed and paid by the Advisor
pursuant to the Expense Limitation Agreement during any of the previous five
fiscal years, provided that the particular fund has reached a sufficient asset
size to permit such reimbursement to be made without causing the total annual
expense ratio of the particular fund to exceed the percentage limits stated
above. Consequently, no reimbursement by any of the Funds will be made unless:
(i) the particular fund's assets exceed $20 million; (ii) the particular fund's
total annual expense ratio is less than the percentage stated above; and (iii)
the payment of such reimbursement has been approved by the Trust's Board of
Trustees on a quarterly basis.
Brokerage Practices. In selecting brokers and dealers to execute portfolio
transactions, the Advisor may consider research and brokerage services furnished
to the Advisor or its affiliates. Subject to seeking the most favorable net
price and execution available, the Advisor may also consider sales of shares of
the Fund as a factor in the selection of brokers and dealers.
The Investment Company Act of 1940, as amended ("1940 Act") generally prohibits
the Funds from engaging in principal securities transactions with an affiliate
of the Advisor. Thus, the Funds do not engage in principal transactions with any
affiliate of the Advisor. The Funds have adopted procedures, under Rule 17e-1
under the 1940 Act, that are reasonably designed to provide that any brokerage
commission that the Funds pay to an affiliate of the Advisor does not exceed the
industry's customary brokerage commission for similar transactions. In addition,
the Funds will adhere to Section 11(a) of the Securities Exchange Act of 1934
and any applicable rules thereunder governing floor trading.
THE ADMINISTRATOR
The Nottingham Company, Inc. ("Administrator") assists the Trust in the
performance of its administrative responsibilities to the Funds, coordinates the
services of each vendor of services to the Funds, and provides the Funds with
other necessary administrative, fund accounting, and compliance services. In
addition, the Administrator makes available the office space, equipment,
personnel, and facilities required to provide such services to the Funds.
25
<PAGE>
THE TRANSFER AGENT
NC Shareholder Services, LLC ("NCSS") serves as the transfer agent and dividend
disbursing agent of the Funds. As indicated later in the section of this
Prospectus, "Investing in the Funds," NCSS will handle your orders to purchase
and redeem shares of the Funds, and will disburse dividends paid by the Funds.
THE DISTRIBUTOR
Capital Investment Group, Inc. ("Distributor") is the principal underwriter and
distributor of the Funds' shares and serves as the Funds' exclusive agent for
the distribution of the Funds' shares. The Distributor may sell the Funds'
shares to or through qualified securities dealers or others.
Other Expenses. The Funds pay all expenses not assumed by the Funds' Advisor,
including, without limitation: the fees and expenses of its independent
accountants and legal counsel; the costs of printing and mailing to shareholders
annual and semi-annual reports, proxy statements, prospectuses, statements of
additional information, and supplements thereto; the costs of printing
registration statements; bank transaction charges and custodian's fees; any
proxy solicitors' fees and expenses; filing fees; any federal, state, or local
income or other taxes; any interest; any membership fees of the Investment
Company Institute and similar organizations; fidelity bond and Trustees'
liability insurance premiums; and any extraordinary expenses, such as
indemnification payments or damages awarded in litigation or settlements made.
All general Trust expenses are allocated among and charged to the assets of each
separate series of the Trust, such as the Funds, on a basis that the Trustees
deem fair and equitable, which may be on the basis of relative net assets of
each series or the nature of the services performed and relative applicability
to each series.
26
<PAGE>
INVESTING IN THE FUNDS
MINIMUM INVESTMENT
The Funds' Institutional Shares are sold and redeemed at net asset value. Shares
may be purchased by any account managed by the Advisor and any other
institutional investor or any broker-dealer authorized to sell shares in the
Funds. The minimum initial investment is $10,000 ($2,000 for IRA and Keogh
Plans) and the minimum additional investment is $500. Each of the Funds may, in
the Advisor's sole discretion, accept certain accounts with less than the
minimum investment.
PURCHASE AND REDEMPTION PRICE
Determining a Fund's Net Asset Value. The price at which you purchase or redeem
shares is based on the next calculation of net asset value after an order is
accepted in good form. An order is considered to be in good form if it includes
a complete and accurate application and payment in full of the purchase amount.
The Funds' net asset values per share is calculated by dividing the value of the
particular fund's total assets, less liabilities (including that fund's
expenses, which are accrued daily), by the total number of outstanding shares of
that fund. To the extent that any of the Funds hold portfolio securities that
are primarily listed on foreign exchanges that trade on weekends or other days
when the Funds do not price their shares (e.g. the International Equity Fund),
the net asset values of the Funds' shares may change on days when shareholders
will not be able to purchase or redeem the Funds' shares. The net asset value
per share of each of the Funds is normally determined at the time regular
trading closes on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
Eastern time, Monday through Friday, except on business holidays when the NYSE
is closed.
In valuing each of the Funds' total assets, portfolio securities are generally
valued at their market value. Instruments with maturities of 60 days or less are
valued at amortized cost, which approximates market value. Securities and assets
for which representative market quotations are not readily available are valued
at fair value as determined in good faith under policies approved by the Board
of Trustees.
Other Matters. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for each of the Funds. All redemption
requests will be processed and payment with respect thereto will normally be
made within seven days after tenders. Each of the Funds may suspend redemptions,
if permitted by the 1940 Act, for any period during which the NYSE is closed or
during which trading is restricted by the Securities and Exchange Commission
("SEC") or if the SEC declares that an emergency exists. Redemptions may also be
suspended during other periods permitted by the SEC for the protection of each
of the Funds' 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
Funds' remaining shareholders to make payment in cash, each of the Funds may pay
redemption proceeds in whole or in part by a distribution-in-kind of readily
marketable securities.
27
<PAGE>
PURCHASING SHARES
The Funds have authorized one or more brokers to accept purchase and redemption
orders on its behalf and such brokers are authorized to designate intermediaries
to accept orders on behalf of the Funds. In addition, orders will be deemed to
have been received by the Funds when an authorized broker, or broker authorized
designee, accepts the order. Investors may also be charged a fee if they effect
transactions through a broker or agent.
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 particular fund will charge a $20 fee
or may redeem shares of that fund already owned by the purchaser to recover any
such loss. For regular mail orders, please complete the attached Fund Shares
Application and mail it, along with your check made payable to the applicable
fund to:
Brown Capital Management Funds
[Name of Fund]
Institutional Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Please remember to add a reference to the applicable fund and to "Institutional
Shares" on your check to ensure proper credit to your account. The application
must contain your Social Security Number ("SSN") or Taxpayer Identification
Number ("TIN"). If you have applied for a SSN 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 SSN and TIN are met.
28
<PAGE>
Bank Wire Orders. Purchases may also be made through bank wire orders. To
establish a new account or add to an existing account by wire, please call the
Fund at 1-877-892-4226, before wiring funds, to advise the Funds of the
investment, dollar amount, and the account identification number. Additionally,
please have your bank use the following wire instructions:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For credit to either: (please specify)
The Brown Capital Management Equity Fund
Account # 2000000861768
The Brown Capital Management Small Company Fund
Account # 2000000861904
The Brown Capital Management Balanced Fund
Account # 2000000861917
The Brown Capital Management International Equity Fund
Account # 2000001293296
For further credit to (shareholder's name and SSN 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. The minimum
additional investment is $500. Before adding funds by bank wire, please call the
Funds at 1-877-892-4226 and follow the above directions for wire purchases. Mail
orders should include, if possible, the "Invest by Mail" stub that is attached
to your confirmation statement. Otherwise, please identify your account in a
letter accompanying your purchase payment.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
particular 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 the Funds.
Exchange Feature. You may exchange shares of any of Funds for shares of any
other series of the Trust advised by the Advisor and offered for sale in the
state in which you reside. Shares may be exchanged for shares of any other
series of the Trust at the net asset value. Prior to making an investment
decision or giving us your instructions to exchange shares, please read the
prospectus for the series in which you wish to invest.
29
<PAGE>
A pattern of frequent purchase and redemption transactions is considered by the
Advisor to not be in the best interest of the shareholders of the Funds. Such a
pattern may, at the discretion of the Advisor, be limited by a fund's refusal to
accept further purchase and/or exchange orders form an investor, after providing
the investor with 60-days' prior notice.
The Board of Trustees reserves the right to suspend, terminate, or amend the
terms of the exchange privilege upon 60-days' written notice to the
shareholders.
Stock Certificates. You do not have the option of receiving stock certificates
for your shares. Evidence of ownership will be given by issuance of periodic
account statements that will show the number of shares owned.
REDEEMING YOUR SHARES
Regular Mail Redemptions. Regular mail redemption requests should be addressed
to:
Brown Capital Management Funds
[Name of Fund]
Institutional Shares
c/o NC Shareholder Services
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption requests should include:
(1) Your letter of instruction specifying the applicable fund, account
number, and number of shares or the dollar amount to be redeemed
(these requests must be signed by all registered shareholders in the
exact names in which they are registered);
(2) Any required signature guarantees (see "Signature Guarantees" below);
and
(3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships,
pension or profit sharing plans, and other organizations.
Your redemption proceeds normally will be sent to you within 7 days after
receipt of your redemption request. However, the Funds may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to 15 days from
the date of purchase) may be reduced or avoided if the purchase is made by
certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
30
<PAGE>
Telephone and Bank Wire Redemptions. You may also redeem shares by telephone and
bank wire under certain limited conditions. Each of the Funds will redeem shares
in this manner when so requested by the shareholder only if the shareholder
confirms redemption instructions in writing.
Each of the Funds may rely upon confirmation of redemption requests transmitted
via facsimile (FAX# 252-972-1908). The confirmation instructions must include:
(1) Designation of Institutional Shares and name of fund (Equity Fund,
Balanced Fund, Small Company Fund, or International Equity Fund),
(2) Shareholder name and account number,
(3) Number of shares or dollar amount to be redeemed,
(4) Instructions for transmittal of redemption funds to the shareholder,
and
(5) Shareholder signature as it appears on the application then on file
with the Funds.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your bank, or
to any other authorized person, or you can have the proceeds sent by bank wire
to your bank ($5,000 minimum). Shares of each of the Funds may not be redeemed
by wire on days in which your bank is not open for business. You can change your
redemption instructions anytime you wish by filing a letter including your new
redemption instructions with the Funds. See "Signature Guarantees" below.
Each of the Funds in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the custodian for wire redemptions. The
custodian currently charges each of the Funds $10.00 per transaction for wiring
redemption proceeds. If this cost is passed through to redeeming shareholders by
the Funds, the charge will be deducted automatically from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. If wire transfer of funds is impossible
or impractical, the redemption proceeds will be sent by mail to the designated
account.
You may redeem shares, subject to the procedures outlined above, by calling the
Funds at 1-877-892-4226. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Funds. Telephone redemption privileges authorize the Funds to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Funds to be genuine. Each of the Funds
will employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine, and if it does not
follow such procedures, each of the Funds will be liable for any losses due to
fraudulent or unauthorized instructions. The Funds will not be liable for
following telephone instructions reasonably believed to be genuine.
31
<PAGE>
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Funds to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the particular fund. Securities delivered in
payment of redemptions would be valued at the same value assigned to them in
computing the net asset value per share. Shareholders receiving them would incur
brokerage costs when these securities are sold. An irrevocable election has been
filed under Rule 18f-1 of the 1940 Act, wherein each of the Funds committed
itself to pay redemptions in cash, rather than in kind, to any shareholder of
record of that particular fund who redeems during any ninety-day period, the
lesser of (a) $250,000 or (b) one percent (1%) of that fund's net asset value at
the beginning of such period.
Signature Guarantees. To protect your account and each of the Funds from fraud,
signature guarantees are required to be sure that you are the person who has
authorized a change in registration or standing instructions for your account.
Signature guarantees are required for (1) change of registration requests, (2)
requests to establish or to change exchange privileges or telephone and bank
wire redemption service other than through your initial account application, and
(3) redemption requests in excess of $50,000. Signature guarantees are
acceptable from a member bank of the Federal Reserve System, a savings and loan
institution, credit union (if authorized under state law), registered
broker-dealer, securities exchange, or association clearing agency and must
appear on the written request for change of registration, establishment or
change in exchange privileges, or redemption request.
Systematic Withdrawal Plan. A shareholder who owns shares of one or more of the
Funds valued at $10,000 or more at the current offering price may establish a
Systematic Withdrawal Plan to receive a monthly or quarterly check in a stated
amount not less than $100. Each month or quarter, as specified, the particular
fund(s) will automatically redeem sufficient shares from your account to meet
the specified withdrawal amount. The shareholder may establish this service
whether dividends and distributions are reinvested in shares of the Funds or
paid in cash. Call or write the Funds for an application form.
32
<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 Funds.
The Funds 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 Funds 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 a 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 between
series may be treated as a sale.
As with all mutual funds, the Funds 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 Funds 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.
33
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data included in the tables below have been derived from audited
financial statements of each of the Funds. The financial data for the fiscal
years ended March 31, 2000, 1999, 1998, and 1997, have been audited by Deloitte
& Touche LLP, independent auditors, whose report covering such years is
incorporated by reference into SAI. The financial data for the prior fiscal year
were audited by other independent auditors. This information should be read in
conjunction with the Funds' latest audited annual financial statements and notes
thereto, which are also incorporated by reference into the SAI, a copy of which
may be obtained at no charge by calling the Funds. Further information about the
performance of the Funds is contained in the Annual Report of the Funds, a copy
of which may also be obtained at no charge by calling the Funds at
1-877-892-4226.
The Brown Capital Management Equity Fund
Institutional Shares
(For a Share Outstanding Throughout each Year)
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------
Net Asset Value, Beginning of Year $23.24 $21.87 $16.61 $15.81 $12.36
Income from investment operations
Net investment (loss) gain (0.09) (0.08) (0.03) 0.05 0.00
Net realized and unrealized gain on investments 3.13 2.12 7.31 1.36 3.72
----- ----- ----- ----- -----
Total from investment operations 3.04 2.04 7.28 1.41 3.72
----- ----- ----- ----- -----
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.05) 0.00
Net realized gain from investment transactions (2.02) (0.69) (1.98) (0.56) (0.27)
Distributions in excess of net realized gains 0.00 0.00 (0.04) 0.00 0.00
----- ----- ----- ----- -----
Total distributions (2.02) (0.69) (2.02) (0.61) (0.27)
===== ===== ===== ===== =====
Net Asset Value, End of Year $24.26 $23.22 $21.87 $16.61 $15.81
Total return 13.41% 9.34% 44.68% 8.91% 30.25%
Ratios/supplemental data
Net Assets, End of Year (in thousands) $10,394 $9,822 $8,150 $4,405 $1,966
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.75% 1.88 % 1.98 % 3.37 % 5.58 %
After expense reimbursements and waived fees 1.20% 1.20 % 1.20 % 1.20 % 1.56 %
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (0.95)% (1.07)% (0.94)% (1.85)% (4.20)%
After expense reimbursements and waived fees (0.40)% (0.39)% (0.16)% 0.32 % 0.01 %
Portfolio turnover rate 52.09 % 67.43 % 38.42 % 34.21 % 48.06 %
</TABLE>
34
<PAGE>
The Brown Capital Management Small Company Fund
Institutional Shares
(For a Share Outstanding Throughout each Year)
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended March 31,
-------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------
Net Asset Value, Beginning of Year $19.48 $21.02 $15.01 $15.13 $12.24
Income (loss) from investment operations
Net investment loss (0.18) (0.12) (0.11) (0.03) (0.06)
Net realized and unrealized gain (loss) on investments 15.25 (1.19) 6.36 0.27 4.00
----- ----- ----- ----- -----
Total from investment operations 15.07 (1.31) 6.25 0.24 3.94
----- ----- ----- ----- -----
Distributions to shareholders from
Net realized gain from investment transactions (2.12) (0.23) (0.24) (0.36) (1.05)
Net Asset Value, End of Year $32.43 $19.48 $21.02 $15.01 $15.13
===== ===== ===== ===== =====
Total return 78.85% (6.27)% 41.84% 1.56% 33.00%
Ratios/supplemental data
Net Assets, End of Year (in thousands) $61,020 $24,078 $11,566 $6,519 $3,740
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.48% 1.85% 2.05% 2.70% 3.49%
After expense reimbursements and waived fees 1.43% 1.50% 1.50% 1.50% 1.69%
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (0.99)% (1.33)% (1.23)% (1.50)% (2.29)%
After expense reimbursements and waived fees (0.94)% (0.98)% (0.68)% (0.30)% (0.50)%
Portfolio turnover rate 28.26% 29.45% 11.64% 13.39% 23.43%
</TABLE>
35
<PAGE>
The Brown Capital Management Balanced Fund
Institutional Shares
(For a Share Outstanding Throughout each Year)
<TABLE>
<S> <C> <C> <C> <C> <C>
Year ended March 31,
-----------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------
Net Asset Value, Beginning of Year $17.78 $16.83 $13.60 $13.76 $11.56
Income from investment operations
Net investment income 0.10 0.13 0.17 0.21 0.12
Net realized and unrealized gain on investments 1.34 1.39 4.65 0.76 2.98
----- ----- ----- ----- -----
Total from investment operations 1.44 1.52 4.82 0.97 3.10
----- ----- ----- ----- -----
Distributions to shareholders from
Net investment income (0.10) (0.13) (0.17) (0.21) (0.12)
Net realized gain from investment transactions (0.92) (0.44) (1.42) (0.92) (0.78)
Total distributions (1.02) (0.57) (1.59) (1.13) (0.90)
Net Asset Value, End of Year $18.20 $17.78 $16.83 $13.60 $13.76
===== ===== ===== ===== =====
Total return 8.22% 8.99% 36.19% 7.03% 27.04%
Ratios/supplemental data
Net Assets, End of Year (in thousands) $14,278 $9,603 $6,078 $3,875 $3,319
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.59 % 2.11 % 2.22 % 2.85 % 3.50 %
After expense reimbursements and waived fees 1.20 % 1.20 % 1.20 % 1.20 % 1.59 %
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees 0.21 % (0.17)% 0.05 % (0.13)% (0.97)%
After expense reimbursements and waived fees 0.60 % 0.74 % 1.08 % 1.51 % 0.94 %
Portfolio turnover rate 45.01 % 58.38 % 33.54 % 45.58 % 43.59 %
</TABLE>
36
<PAGE>
The Brown Capital Management International Equity Fund
Institutional Shares
(For a Share Outstanding Throughout the Period)
For the Period from May 28, 1999
(commencement of operations) to
March 31, 2000
--------------
Net Asset Value, Beginning of Period $10.00
Income from investment operations
Net investment income 0.02
Net realized and unrealized gain on investments and
Translation of assets and liabilities in
foreign currencies 1.83
Total from investment operations 1.85
----
Distributions to shareholders from
Net investment income (0.02)
----
Net Asset Value, End of Period $11.83
=====
Total return 18.56%
Ratios/supplemental data
Net Assets, End of Period $1,647,537
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 9.23% (a)
After expense reimbursements and waived fees 2.00% (a)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (7.11)%(a)
After expense reimbursements and waived fees 0.12% (a)
Portfolio turnover rate 23.61 %
(a) Annualized.
37
<PAGE>
The Brown Capital Management
Mutual Funds are a series of
The Nottingham Investment Trust II
Additional information about the Funds is available in the Funds' SAI, which is
incorporated by reference in this prospectus. Additional information about the
Funds' investments is also available in the Funds' Annual and Semi-annual
Reports to shareholders. The Funds' Annual Report includes a discussion of
market conditions and investment strategies that significantly affected the
Funds' performance during its last fiscal year.
The SAI and the Annual and Semi-annual Reports are available free of charge upon
request (you may also request other information about the Funds or make
shareholder inquiries) by contacting us:
Docuemented:
Brown Capital Management Funds World Wide Web @:
Institutional Shares
c/o NC Shareholder Services browncapital.com
107 North Washington Street
Post Office Box 4365 E-Mail:
Rocky Mount, NC 27803-0365
[email protected]
Toll-Free Telephone:
1-877-892-4BCM
1-877-892-4226
Information about the Funds 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 1-202-942-8090. Reports and
other information about the Funds 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 electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act file number 811-06199
[LOGO]
BROWN CAPITAL MANAGEMENT
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
BROWN CAPITAL MANAGEMENT FUNDS
August 1, 2000
Each a series of the
NOTTINGHAM INVESTMENT TRUST II
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-877-892-4226
Table of Contents
-----------------
OTHER INVESTMENT POLICIES....................................................2
INVESTMENT LIMITATIONS.......................................................3
PORTFOLIO TRANSACTIONS.......................................................5
NET ASSET VALUE..............................................................6
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...............................7
DESCRIPTION OF THE TRUST.....................................................7
ADDITIONAL INFORMATION CONCERNING TAXES......................................8
MANAGEMENT AND OTHER SERVICE PROVIDERS......................................10
SPECIAL SHAREHOLDER SERVICES................................................17
ADDITIONAL INFORMATION ON PERFORMANCE.......................................18
FINANCIAL STATEMENTS........................................................19
APPENDIX A - DESCRIPTION OF RATINGS.........................................20
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with the Prospectus, dated August 1, 2000, for The Brown Capital
Management Equity Fund ("Equity Fund"), The Brown Capital Management Balanced
Fund ("Balanced Fund"), The Brown Capital Management Small Company Fund ("Small
Company Fund"), and The Brown Capital Management International Equity Fund
("International Equity Fund") (each a "Fund" and collectively, the "Funds") and
is incorporated by reference in its entirety into the Prospectus. Because this
SAI is not itself a prospectus, no investment in shares of the Funds should be
made solely upon the information contained herein. Copies of the Funds'
Prospectus may be obtained at no charge by writing or calling the Funds at the
address and phone number shown above. Capitalized terms used but not defined
herein have the same meanings as in the Prospectus.
<PAGE>
OTHER INVESTMENT POLICIES
The Equity Fund, Small Company Fund, and Balanced Fund were organized in 1992,
and the International Equity Fund was organized in 1999, as diversified,
open-end management companies. The following policies supplement the Funds'
investment objectives and policies as set forth in the Prospectus for the Funds.
Attached to this SAI is Appendix A, which contains descriptions of the rating
symbols used by Rating Agencies for securities in which the Funds may invest.
Repurchase Agreements. Each of the Funds may acquire U.S. Government Securities
or corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the particular 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 ("1940 Act"), collateralized by the underlying security. The
Trust will implement procedures to monitor on a continuous basis the value of
the collateral serving as security for repurchase obligations. Additionally, the
Advisor to the Funds will consider the creditworthiness of the vendor. If the
vendor fails to pay the agreed upon resale price on the delivery date, the Fund
will retain or attempt to dispose of the collateral. A Fund's risk is that such
default may include any decline in value of the collateral to an amount which is
less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Funds will not enter into any repurchase agreement which will
cause more than 10% of their net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
Money Market Instruments. The Funds may invest in money market instruments may
include U.S. Government Securities or corporate debt securities (including those
subject to repurchase agreements), provided that they mature in thirteen months
or less from the date of acquisition and are otherwise eligible for purchase by
the Funds. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When one of the Funds acquires a
Banker's Acceptance the bank which "accepted" the time draft is liable for
payment of interest and principal when due. The Banker's Acceptance carries the
full faith and credit of such bank. A Certificate of Deposit ("CD") is an
unsecured interest-bearing debt obligation of a bank. Commercial Paper is an
unsecured, short-term debt obligation of a bank, corporation or other borrower.
Commercial Paper maturity generally ranges from two to 270 days and is usually
sold on a discounted basis rather than as an interest-bearing instrument. The
Funds will invest in Commercial Paper only if it is rated in one of the top two
rating categories by either Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services ("S&P"), Fitch Investors Service, Inc.
("Fitch") or Duff & Phelps ("D&P") or, if not rated, of equivalent quality in
the Advisor's opinion. Commercial Paper may include Master Notes of the same
quality. Master Notes are unsecured obligations which are redeemable upon demand
of the holder and which permit the investment of fluctuating amounts at varying
rates of interest. Master Notes are acquired by the Funds only through the
Master Note program of the Funds' custodian bank, acting as administrator
thereof. The Advisor will monitor, on a continuous basis, the earnings power,
cash flow and other liquidity ratios of the issuer of a Master Note held by the
Funds.
Illiquid Investments. Each of the Funds may invest up to 10% of its net assets
in illiquid securities, which are investments that cannot be sold or disposed of
in the ordinary course of business within seven days at approximately the prices
at which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of a Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of a Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Funds' rights and obligations
relating to the investment). Investments currently considered by the Funds to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, one of the Funds was in a position where more
than 10% of its net assets were invested in illiquid securities, it would seek
to take appropriate steps to protect liquidity. The Funds may not purchase
restricted securities, which are securities that cannot be sold to the public
without registration under the federal securities laws.
INVESTMENT LIMITATIONS
Each Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the particular fund. A "majority" for this purpose, means, with
respect to the Funds, the lesser of (i) 67% of the Fund's outstanding shares
represented in person or by proxy at a meeting at which more than 50% of its
outstanding shares are represented, or (ii) more than 50% of its outstanding
shares. Unless otherwise indicated, percentage limitations apply at the time of
purchase.
As a matter of fundamental policy, the Equity Fund, Small Company Fund, and
Balanced Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities are
not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry or
group of industries (except that securities of the U.S. Government, its
agencies and instrumentalities are not subject to these limitations);
(3) Invest in the securities of any issuer if any of the officers or trustees
of the Trust or its Investment Advisor who own beneficially more than 1/2
of 1% of the outstanding securities of such issuer or together own more
than 5% of the outstanding securities of such issuer;
(4) Invest for the purpose of exercising control or management of another
issuer;
(5) Invest in interests in real estate, real estate mortgage loans, real estate
limited partnerships, oil, gas or other mineral exploration or development
programs or leases, except that the Fund may invest in the readily
marketable securities of companies which own or deal in such things;
(6) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter under the federal securities laws, in
connection with the disposition of portfolio securities;
(7) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(8) Make short sales of securities or maintain a short position, except short
sales "against the box"; (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.)
(9) Participate on a joint or joint and several basis in any trading account in
securities;
(10) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(11) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be invested
in such securities;
(12) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not readily
marketable securities; included in this category are any assets for which
an active and substantial market does not exist at the time of purchase or
subsequent valuation;
(13) Issue senior securities, borrow money, or pledge its assets;
(14) With respect to the Balanced Fund and the Equity Fund, purchase foreign
securities (except the Fund may purchase foreign securities sold as
American Depository Receipts without limit);
(15) Write, purchase, or sell puts, calls, warrants or combinations thereof, or
purchase or sell commodities, commodities contracts, futures contracts, or
related options; and
(16) Invest in restricted securities.
As a matter of fundamental policy, the International Equity Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities are
not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry or
group of industries (except that securities of the U.S. Government, its
agencies and instrumentalities are not subject to these limitations);
(3) Invest for the purpose of exercising control or management of another
issuer;
(4) Invest in interests in real estate, real estate mortgage loans, real estate
limited partnerships, oil, gas or other mineral exploration or development
programs or leases, except that the International Equity Fund may invest in
the readily marketable securities of companies which own or deal in such
things;
(5) Underwrite securities issued by others except to the extent the
International Equity Fund may be deemed to be an underwriter under the
federal securities laws, in connection with the disposition of portfolio
securities;
(6) Make loans of money or securities, except that the Fund may invest in
repurchase agreements;
(7) Issue senior securities, borrow money, or pledge its assets, except in
accordance with the 1940 Act;
(8) Invest 25% or more of the value of its total assets in any one country; and
(9) Write, purchase, or sell puts, calls, warrants or combinations thereof, or
purchase or sell commodities, commodities contracts, futures contracts, or
related options.
The following are the International Equity Fund's non-fundamental operating
restrictions, which may be changed by the Board of Trustees without shareholder
approval. The International Equity Fund may not:
(1) Invest in the securities of any issuer if any of the officers or trustees
of the Trust or its Investment Advisor who own beneficially more than 1/2
of 1% of the outstanding securities of such issuer or together own more
than 5% of the outstanding securities of such issuer;
(2) Purchase securities on margin but the International Equity Fund may obtain
such short-term credits as may be necessary for the clearance of
transactions;
(3) Make short sales of securities or maintain a short position, except short
sales "against the box"; (A short sale is made by selling a security the
International Equity Fund does not own. A short sale is "against the box"
to the extent that the International Equity Fund contemporaneously owns or
has the right to obtain at no additional cost securities identical to those
sold short.)
(4) Participate on a joint or joint and several basis in any trading account in
securities;
(5) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be invested
in such securities;
(6) Invest more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not readily
marketable securities; included in this category are any assets for which
an active and substantial market does not exist at the time of purchase or
subsequent valuation; and
(7) Invest in restricted securities.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Trust's Board of Trustees, the Advisor
is responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for the Funds.
The annualized portfolio turnover rate for each Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of each Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and each Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Funds are made from dealers,
underwriters and issuers. The Funds currently do not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, which may include a dealer mark-up, or otherwise involve
transactions directly with the issuer of an instrument.
Normally, most of the Funds' fixed income portfolio transactions will be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer mark-up. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Funds may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. A Fund will engage
in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for each Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Funds. In addition, the Advisor is authorized to cause the
Funds to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Funds. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Funds. The Trustees will periodically review
any commissions paid by the Funds to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Funds. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by the Advisor. Conversely, the Funds may be the primary beneficiary
of the research or services received as a result of securities transactions
effected for such other account or investment company.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Funds will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Funds will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may be at a disadvantage because of these limitations
in comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Funds will be made independently from those for any
other Fund and any other series of the Trust, if any, and for any other
investment companies and accounts advised or managed by the Advisor. Such other
investment companies and accounts may also invest in the same securities as a
Fund. To the extent permitted by law, the Advisor may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for
another Fund or other investment companies or accounts in executing
transactions. When a purchase or sale of the same security is made at
substantially the same time on behalf of a Fund and another investment company
or account, the transaction will be averaged as to price and available
investments allocated as to amount, in a manner which the Advisor believes to be
equitable to the Funds and such other investment company or account. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained or sold by a Fund.
For the fiscal years ended March 31, 1998, 1999, and 2000, the Equity Fund paid
brokerage commissions of $4,598, $10,555, and $9,397, respectively; the Balanced
Fund paid brokerage commissions of $3,019, $4,691, and $7,918, respectively; the
Small Company Fund paid brokerage commissions of $1,715, $3,340, and $2,199,
respectively; and the International Equity Fund paid brokerage commissions of
$4,792 for the period May 28, 1999 (commencement of operatons) to March 31,
2000.
NET ASSET VALUE
The net asset value per share of each class of each Fund is determined at the
time normal trading closes on the New York Stock Exchange ("NYSE"), currently
4:00 p.m. New York time, Monday through Friday, except on business holidays when
the NYSE is closed. The NYSE 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 NYSE will be deemed a business holiday on which the net asset
value of each Class of the Funds will not be calculated.
The net asset value per share of each class of each Fund is calculated
separately by adding the value of the Fund's securities and other assets
belonging to the Fund and attributable to that class, subtracting the
liabilities charged to the Fund and to that class, and dividing the result by
the number of outstanding shares of such class. "Assets belonging to" a Fund
consist of the consideration received upon the issuance of shares of the Fund
together with all net investment income, realized gains/losses and proceeds
derived from the investment thereof, including any proceeds from the sale of
such investments, any funds or payments derived from any reinvestment of such
proceeds, and a portion of any general assets of the Trust not belonging to a
particular investment Fund. Income, realized and unrealized capital gains and
losses, and any expenses of a Fund not allocated to a particular class of such
Fund will be allocated to each class of the Fund on the basis of the net asset
value of that class in relation to the net asset value of the Fund. Assets
belonging to a Fund are charged with the direct liabilities of the Fund and with
a share of the general liabilities of the Trust, which are normally allocated in
proportion to the number of or the relative net asset values of all of the
Trust's series at the time of allocation or in accordance with other allocation
methods approved by the Board of Trustees. Certain expenses attributable to a
particular class of shares (such as the distribution and service fees
attributable to Investor Shares) will be charged against that class of shares.
Certain other expenses attributable to a particular class of shares (such as
registration fees, professional fees, and certain printing and postage expenses)
may be charged against that class of shares if such expenses are actually
incurred in a different amount by that class or if the class receives services
of a different kind or to a different degree than other classes, and the Board
of Trustees approves such allocation. Subject to the provisions of the Amended
and Restated Declaration of Trust, determinations by the Board of Trustees as to
the direct and allocable liabilities, and the allocable portion of any general
assets, with respect to a Fund and the classes of such Fund arc conclusive.
For the fiscal year ended March 31, 2000, the total expenses after fee waivers
and expense reimbursements for the Institutional Shares were $118,178 for the
Equity Fund, $140,133 for the Balanced Fund, $502,799 for the Small Company
Fund, and $22,194 for the International Equity Fund (period from May 28, 1999,
commencement of operations, to March 31, 2000). For the fiscal year ended March
31, 1999, the total expenses after fee waivers and expense reimbursements for
the Institutional Shares were $100,792 for the Equity Fund, $81,878 for the
Balanced Fund, and $227,262 for the Small Company Fund. For the fiscal year
ended March 31, 1998, the total expenses after fee waivers and expense
reimbursements for the Institutional Shares were $76,747 for the Equity Fund,
$60,276 for the Balanced Fund, and $139,847 for the Small Company Fund. Investor
Shares of the Funds were either not authorized for issuance or were not issued
during such fiscal years.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of each Fund are offered and sold on a continuous basis and
may be purchased through authorized investment dealers or directly by contacting
the distributor or the Funds. Selling dealers have the responsibility of
transmitting orders promptly to the Funds. The public offering price of shares
of each Fund equals net asset value. Capital Investment Group, Inc.
("Distributor") serves as distributor of shares of the Funds.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution ("Plan") for
the Investor Shares of the Funds pursuant to Rule 12b-1 under the 1940 Act. At
this time, however, the Investor shares are not being offered publicly.
Redemptions. Under the 1940 Act, each Fund may suspend the right of redemption
or postpone the date of payment for shares during any period when (a) trading on
the NYSE is restricted by applicable rules and regulations of the SEC; (b) the
NYSE is closed for other than customary weekend and holiday closings; (c) the
SEC has by order permitted such suspension; or (d) an emergency exists as
determined by the SEC. Each Fund may also suspend or postpone the recordation of
the transfer of shares upon the occurrence of any of the foregoing conditions.
In addition to the situations described in the Prospectus under "Redeeming Your
Shares," each Fund may redeem shares involuntarily to reimburse the Fund for any
loss sustained by reason of the failure of a shareholder to make full payment
for shares purchased by the shareholder or to collect any charge relating to a
transaction effected for the benefit of a shareholder which is applicable to
Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust, which is an unincorporated business trust organized under
Massachusetts law on October 25, 1990, is an open-end diversified management
investment company. The Trust's Amended and Restated Declaration of Trust
authorizes the Board of Trustees to divide shares into series, each series
relating to a separate portfolio of investments, and to classify and reclassify
any unissued shares into one or more classes of shares of each such series. The
Amended and Restated Declaration of Trust currently provides for the shares of
seven series, as follows: the Capital Value Fund managed by Capital Investment
Counsel, Inc. of Raleigh, North Carolina; EARNEST Partners Fixed Income Trust
managed by EARNEST Partners Limited, LLC of Atlanta, Georgia; The Brown Capital
Management Equity Fund, The Brown Capital Management Balanced Fund, The Brown
Capital Management Small Company Fund, and The Brown Capital Management
International Equity Fund managed by Brown Capital Management, Inc. of
Baltimore, Maryland; and WST Growth Fund managed by Wilbanks, Smith & Thomas
Asset Management, Inc. of Norfolk, Virginia.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as each Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Funds, will vote
together and not separately on a series-by-series basis except as otherwise
required by law or when the Board of Trustees determines that the matter to be
voted upon affects only the interests of the shareholders of a particular series
or class. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each series or class affected by the matter. A series or class is affected by a
matter unless it is clear that the interests of each series or class in the
matter are substantially identical or that the matter does not affect any
interest of the series or class. Under Rule 18f-2, the approval of an investment
advisory agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a series only if approved by a majority
of the outstanding shares of such series. However, the Rule also provides that
the ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting together, without regard to a
particular series or class.
When used in the Prospectus or this SAI, a "majority" of shareholders means the
vote of the lesser of (1) 67% of the shares of the Trust or the applicable
series or class present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy, or (2) more than 50% of
the outstanding shares of the Trust or the applicable series or class.
When issued for payment as described in the Prospectus and this SAI, shares of
each Fund will be fully paid and non-assessable.
The Amended and Restated Declaration of Trust provides that the Trustees of the
Trust will not be liable in any event in connection with the affairs of the
Trust, except as such liability may arise from his or her own bad faith, willful
misfeasance, gross negligence, or reckless disregard of duties. It also provides
that all third parties shall look solely to the Trust property for satisfaction
of claims arising in connection with the affairs of the Trust. With the
exceptions stated, the Amended and Restated Declaration of Trust provides that a
Trustee or officer is entitled to be indemnified against all liability in
connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting each Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of each Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof, such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
Each series of the Trust, including each Fund, will be treated as a separate
corporate entity under the Internal Revenue Code and intends to qualify or
remain qualified as a regulated investment company. In order to so qualify, each
series must elect to be a regulated investment company or have made such an
election for a previous year and must satisfy, in addition to the distribution
requirement described in the Prospectus, certain requirements with respect to
the source of its income for a taxable year. At least 90% of the gross income of
each series must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stocks, securities
or foreign currencies, and other income derived with respect to the series'
business of investing in such stock, securities or currencies. Any income
derived by a series from a partnership or trust is treated as derived with
respect to the series' business of investing in stock, securities or currencies
only to the extent that such income is attributable to items of income that
would have been qualifying income if realized by the series in the same manner
as by the partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. Each
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including each Fund, will designate any distribution
of long-term capital gains as a capital gain dividend in a written notice mailed
to shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long-term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including each Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including each Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure properly to
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Dividends paid by the Funds derived from net investment income or net short-term
capital gains are taxable to shareholders as ordinary income, whether received
in cash or reinvested in additional shares. Long-term capital gains
distributions, if any, are taxable as long-term capital gains, whether received
in cash or reinvested in additional shares, regardless of how long Fund shares
have been held.
The Funds will send shareholders information each year on the tax status of
dividends and disbursements. A dividend or capital gains distribution paid
shortly after shares have been purchased, although in effect a return of
investment, is subject to federal income taxation. Dividends from net investment
income, along with capital gains, will be taxable to shareholders, whether
received in cash or shares and no matter how long you have held Fund shares,
even if they reduce the net asset value of shares below your cost and thus, in
effect, result in a return of a part of your investment.
MANAGEMENT AND OTHER SERVICE PROVIDERS
The Board of Trustees of the Trust ("Trustees") is responsible for the
management and supervision of the Funds. The Trustees approve all significant
agreements between the Trust, on behalf of the Funds, and those companies that
furnish services to the Funds. This section of the SAI provides information
about the persons who serve as Trustees and Officers to the Trust and Funds,
respectively, as well as the entities that provide services to the Funds.
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
<TABLE>
<S> <C> <C>
TRUSTEES
----------------------------------------------- -------------------------------- ---------------------------------------------
Principal Occupation(s)
Name, Age and Address Position During Past 5 Years
----------------------------------------------- -------------------------------- ---------------------------------------------
Jack E. Brinson, 68 Trustee and Chairman President, Brinson Investment Co.,
1105 Panola Street President, Brinson Chevrolet, Inc.,
Tarboro, North Carolina 27886 Tarboro, North Carolina
Independent Trustee - New Providence
Investment Trust, Gardner Lewis Investment
Trust, de Leon Funds Trust,
Rocky Mount, North Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
Thomas W. Steed, 42 Trustee Assistant General Counsel
101 Bristol Court Hardee's Food Systems, Inc.
Rocky Mount, North Carolina 27802 Rocky Mount, North Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
J. Buckley Strandberg, 40 Trustee President, Standard Insurance and Realty,
Post Office Box 1375 Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 59 Trustee* President, Brown Capital Management, Inc.,
1201 N. Calvert Street Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 41 Trustee* President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina; Vice President
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act.
OFFICERS
----------------------------------------------- -------------------------------- ---------------------------------------------
Name, Age and Address Position Principal Occupation(s)
During Past 5 Years
----------------------------------------------- -------------------------------- ---------------------------------------------
Michael T. McRee, 56 President, EARNEST Partners Partner and Manager, EARNEST Partners
317 East Capitol Street Fixed Income Trust Limited, LLC; previously, President,
Jackson, Mississippi 39201 Investek Capital Management, Inc.
Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
Wayne F. Wilbanks, 39 President, The WST Growth Fund President, Wilbanks, Smith & Thomas
One Commercial Place, Suite 1150 Asset Management, Inc., Norfolk, Virginia
Norfolk, Virginia 25510
----------------------------------------------- -------------------------------- ---------------------------------------------
Eddie C. Brown, 59 President, The Brown Capital President, Brown Capital Management, Inc.,
1201 N. Calvert Street Management Funds Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
Richard K. Bryant, 41 President, Capital Value Fund; President, Capital Investment Group,
Post Office Box 32249 Raleigh, North Carolina, Vice President,
Raleigh, North Carolina 27622 Capital Investment Counsel, Raleigh, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
Elmer O. Edgerton, Jr., 58 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, 39 Vice President, EARNEST Partner and Portfolio Manager, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Investment, Inc.
Jackson, Mississippi, since 1996; Portfolio
Manager, Southern Farm Bureau Life Insurance
Company, Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
R. Mark Fields, 47 Vice President, EARNEST Partner and Director of Marketing, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Management, Inc.
Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
John M. Friedman, 56 Vice President, EARNEST Partner and Portfolio Manager, EARNEST
317 East Capitol Street Partners Fixed Income Trust Partners Limited, LLC; previously, Vice
Jackson, Mississippi 39201 President, Investek Capital Management,
Inc., Jackson, Mississippi
----------------------------------------------- -------------------------------- ---------------------------------------------
Keith A. Lee, 40 Vice President, The Brown Vice President, Brown Capital Management,
1201 N. Calvert Street Capital Management Funds Inc., Baltimore, Maryland
Baltimore, Maryland 21202
----------------------------------------------- -------------------------------- ---------------------------------------------
C. Frank Watson, III, 29 Secretary President, The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802
----------------------------------------------- -------------------------------- ---------------------------------------------
Julian G. Winters, 31 Treasurer and Assistant Legal and Compliance Director, The
105 North Washington Street Secretary Nottingham Company, Rocky Mount, North
Rocky Mount, North Carolina 27802 Carolina, since 1996; previously Operations
Manager, Tar Heel Medical, Nashville, North
Carolina
----------------------------------------------- -------------------------------- ---------------------------------------------
</TABLE>
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $2,000 each year plus $250
per series of the Trust per meeting attended in person and $100 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
Compensation Table *
<TABLE>
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Compensation Benefits Accrued As Estimated Annual Total Compensation
Name of Person, from each of the Part of Fund Benefits Upon from the Trust Paid
Position Funds ** Expenses Retirement to Trustees**
------------------------------------------------------------------------------------------------------------------------------------
Eddie C. Brown None None None None
Trustee
Richard K. Bryant None None None None
Trustee
Jack E. Brinson $1,250 None None $10,000
Trustee
Thomas W. Steed $1,250 None None $10,000
Trustee
J. Buckley Strandberg $1,250 None None $10,000
Trustee
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Figures are for the fiscal year ended March 31, 2000.
** Each of the Trustees serves as a Trustee to the seven funds of the Trust,
including each of the Funds.
Principal Holders of Voting Securities. As of July 11, 2000, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) 2.387% of the then outstanding Institutional Shares of the
Equity Fund, 3.187% of the Balanced Fund, 0.349% of the Small Company Fund, and
46.418% of the International Equity Fund. On the same date the following
shareholders owned of record more than 5% of the outstanding Institutional
Shares of the Funds. Except as provided below, no person is known by the Trust
to be the beneficial owner of more than 5% of the outstanding Institutional
Shares of the Funds as of July 11, 2000.
EQUITY FUND
<TABLE>
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership
--------------------------------------------------------------------------------------------------------
Brown Family Limited Partnership 117,056.432 shares 22.987%
11102 Old Carriage Road
Glen Arm, Maryland 21057
Chris E. Dishman 99,010.091 shares 19.443%
Karen T. Dishman
5019 Mariposa Circle
Fresno, Texas 77545
Great West Life & Annuity 43,470.848 shares 8.536%
401(k) Plan
8515 E. Orchard Road
Englewood, Colorado 80111-5097
</TABLE>
BALANCED FUND
<TABLE>
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership
--------------------------------------------------------------------------------------------------------
Brown Capital Management, Inc. Money 146,254.185 shares 17.873%
Purchase Pension & Proffit Sharing
Trust
1201 North Calvert Street
Baltimore, Maryland 21202
FTC & Co. 114,526.167 shares 13.996%
Attn: Datalynx #T28
Post Office Box 173736
Denver, Colorado 80217
Great West Life & Annuity 96,672.037 shares 11.814%
401(k) Plan
8515 E. Orchard Road
Englewood, Colorado 80111-5097
Charles S. Thurston IRA 85,963.022 shares 10.505%
701 North St. Mary's St. #35
San Antonio, Texas 78205
Raymond Haysbert IRA 55,383.381 shares 6.768%
3300 Hillen Road
Baltimore, Maryland 21218
Diana M. Epps Beneficiary UTA 42,643.211 shares 5.211%
Charles Schwab & Co., Inc. IRA
1040 Deer Ridge Drive #144
Baltimore, Maryland 21210
</TABLE>
<TABLE>
SMALL COMPANY FUND
<S> <C> <C>
--------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership
--------------------------------------------------------------------------------------------------------
T. Rowe Price Trust Co. 496,381.389 shares 23.942%
FBO King Co. Deferred Compensation Plan
4555 Painters Mill Rd.
Owings Mill, Maryland 21117
Dingle & Co. 208,202.790 shares 10.042%
c/o Comerica Bank
Post Office Box 75000
Detroit, Michigan 48275
Nationwide Insurance Company 151,094.488 shares 7.288%
NACO
Post Office Box 182029
Columbus, Ohio 43218
Woods Fund of Chicago 147,550.893 shares 7.117%
3 First National Plaza
Suite 2010
Chicago, Illinois 60602
Nationwide Insurance Company 124,458.473 shares 6.003%
c/o IPO Portfolio Accounting
Post Office Box 182029
Columbus, Ohio 43218
Louisville Presbyterian Theological 119,652.602 shares 5.771%
Seminary
1044 Alta Vista Rd.
Louisville, Kentucky 40205-1798
Fidelity Investments Inst. Operations 109,214.161 shares 5.268%
Co, Inc.
100 Magellan Way
Covington, Kentucky 41015
</TABLE>
<TABLE>
<S> <C> <C>
INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership
--------------------------------------------------------------------------------------------------------
Carmen & Eddie Brown, JTWROS 71,938.236 shares 46.418%*
11102 Old Carriage Road
Glen Arm, Maryland 21057
Brown Capital Management, Inc. Money 20,553.782 shares 13.262%
Purchase Pension & Proffit Sharing Trust
1201 North Calvert Street
Baltimore, Maryland 21202
Central Maryland Cardiology 16,720.049 shares 10.789%
The Good Samaritan Hospital
5601 Loch Raven Blvd. 4th Floor
Baltimore, Maryland 21239
Brown Capital Management, Inc. 10,276.891 shares 6.631%
1201 North Calvert Street
Baltimore, Maryland 21202
</TABLE>
* Deemed a "control person" of the Fund as defined by applicable SEC
regulations.
Investment Advisor. Information about Brown Capital Management, Inc., Baltimore,
Maryland ("Advisor") and its duties and compensation as Advisor is contained in
the Prospectus.
Compensation of the Advisor with regards to the Equity Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived all or a portion of its fee and reimbursed a portion of the
Equity Fund's operating expenses for the fiscal years ended March 31, 1998 and
1999. The total fees waived amounted to $41,375 (the Advisor received $248 of
its fee), and $51,828 (the Advisor received $2,754 of its fee), respectively,
and expenses reimbursed amounted to $8,549, and $5,117, respectively. For the
fiscal year ended March 31, 2000, the Advisor received $9,936 of its fee after
waiving $54,071 of its fee.
Compensation of the Advisor with regards to the Balanced Fund, based upon the
Fund's average daily net assets, is at the annual rate of 0.65% of the first $25
million of net assets and 0.50% of all assets over $25 million. The Advisor
voluntarily waived its fee and reimbursed a portion of the Balanced Fund's
operating expenses for the fiscal years ended March 31, 1998 and 1999. The total
fees waived amounted to $32,686 and $44,418, respectively, and expenses
reimbursed amounted to $18,899 and $17,850, respectively. For the fiscal year
ended March 31, 2000, the Advisor received $30,866 of its fee after waiving
$44,989 of its fee.
Compensation of the Advisor with regards to the Small Company Fund, based upon
the Fund's average daily net assets, is at the annual rate of 1.00% of net
assets. The Advisor voluntarily waived a portion of its fee and reimbursed a
portion of the Small Company Fund's operating expenses for the fiscal years
ended March 31, 1998 and 1999. The total fees waived amounted to $51,594 (the
Advisor received $41,776 of its fee) and $52,153 (the Advisor received $99,714
of its fee), respectively, and expenses reimbursed amounted to $0, and $1,384,
respectively. For the fiscal year ended March 31, 2000, the Advisor received
$332,953 of its fee after waiving $18,220 of its fee.
Compensation of the Advisor with regards to the International Equity Fund, based
upon the Fund's average daily net assets, is at the annual rate of 1.00% of the
first $100 million of net assets and 0.75% of all assets over $100 million. For
the fiscal period May 28, 1999 (commencement of operations) to March 31, 2000,
the Advisor voluntarily waived all of its fee in the amount of $11,074 and
reimbursed $65,077 of the Fund's operating expenses.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator. The Trust has entered into a Fund Accounting and Compliance
Administration Agreement with The Nottingham Company, Inc. ("Administrator"), a
North Carolina corporation, whose address is 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069.
The Administrator performs the following services for the Funds: (1) coordinates
with the custodian and monitors the services it provides to the Funds; (2)
coordinates with and monitors any other third parties furnishing services to the
Funds; (3) provides the Funds with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Funds; (4) supervises the maintenance by third
parties of such books and records of the Funds as may be required by applicable
federal or state law; (5) prepares or supervises the preparation by third
parties of all federal, state, and local tax returns and reports of the Funds
required by applicable law; (6) prepares and, after approval by the Trust, files
and arranges for the distribution of proxy materials and periodic reports to
shareholders of the Funds as required by applicable law; (7) prepares and, after
approval by the Trust, arranges for the filing of such registration statements
and other documents with the SEC and other federal and state regulatory
authorities as may be required by applicable law; (8) reviews and submits 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) takes such other action with respect to the Funds 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
Funds.
Compensation of the Administrator, based upon the average daily net assets of an
equity or balanced fund, is at the following annual rates: 0.175% of the Fund's
first $50 million, 0.150% on the next $50 million, 0.125% on the next $50
million, and 0.100% on average daily net assets over $150 million. In addition,
the Administrator currently receives a monthly fee of $2,000 per Fund for
accounting and recordkeeping services and an additional fee of $750 per month
for each additional class of shares. The Administrator charges a minimum fee of
$4,000 per month per Fund for all of its fees taken in the aggregate, analyzed
monthly. The Administrator also charges the Trust for certain costs involved
with the daily valuation of investment securities and is reimbursed for
out-of-pocket expenses.
Transfer Agent. The Trust has entered into a Dividend Disbursing and Transfer
Agent Agreement with NC Shareholder Services, LLC ("Transfer Agent"), a North
Carolina limited liability company, to serve as transfer, dividend paying, and
shareholder servicing agent for the Funds. The address of the Transfer Agent is
107 North Washington Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. The Transfer Agent is compensated for its services based upon a $15
fee per shareholder per year, subject to a minimum fee of $750 per month, per
fund.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622, acts as an underwriter and distributor of each Fund's
shares for the purpose of facilitating the registration of shares of the Fund
under state securities laws and to assist in sales of Fund shares pursuant to a
Distribution Agreement ( "Distribution Agreement") approved by the Board of
Trustees of the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
each Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Funds.
The Distributor is a broker-dealer registered with the SEC and a member in good
standing of the National Association of Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60-days' prior
written notice to the other party.
Custodian. First Union National Bank ("Custodian"), 123 South Broad Street,
Philadelphia, Pennsylvania 19109, serves as custodian for each Fund's assets.
The Custodian acts as the depository for each Fund, safekeeps its portfolio
securities, collects all income and other payments with respect to portfolio
securities, disburses monies at the Funds' request and maintains records in
connection with its duties as Custodian. For its services as Custodian, the
Custodian is entitled to receive from each Fund an annual fee based on the
average net assets of the Fund held by the Custodian.
Independent Auditors. Deloitte & Touche LLP, Princeton Forrestal Village,
116-300 Village Boulevard, Princeton, New Jersey 08540, serves as independent
auditors for the Funds, audits the annual financial statements of the Funds,
prepares each Fund's federal and state tax returns, and consults with each Fund
on matters of accounting and federal and state income taxation. A copy of the
most recent annual report of the Funds will accompany this SAI whenever it is
requested by a shareholder or prospective investor.
Legal Counsel. Dechert serves as legal counsel to the Trust and the Funds.
Code of Ethics. The Trust, the Advisor, and the Distributor each have adopted a
code of ethics, as required by applicable law, which is designed to prevent
affiliated persons of the Trust and the Advisor from engaging in deceptive,
manipulative, or fraudulent activities in connection with securities held or to
be acquired by the Funds (which may also be held by persons subject to a code).
There can be no assurance that the codes will be effective in preventing such
activities.
SPECIAL SHAREHOLDER SERVICES
Each Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year-to-date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Funds will automatically charge the checking account for the amount specified
($100 minimum) which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Funds.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $10,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $100 per payment, by
authorizing the Funds to redeem the necessary number of shares periodically
(each month, or quarterly in the months of March, June, September and December)
in order to make the payments requested. Each Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Funds. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Funds. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the
Funds upon sixty days written notice or by a shareholder upon written notice to
the Funds. Applications and further details may be obtained by calling the Funds
at 1-877-892-4226, or by writing to:
Brown Capital Management Funds
[Name of fund]
Institutional Shares
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. Each Fund may accept securities in lieu of cash in payment
for the purchase of shares in the Fund. The acceptance of such securities is at
the sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
Redemptions in Kind. The Funds do not intend, under normal circumstances, to
redeem their securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Funds to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein each Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the applicable Fund at the address shown herein. Your request should
include the following: (1) the Fund name and existing account registration; (2)
signature(s) of the registered owner(s) exactly as the signature(s) appear(s) on
the account registration; (3) the new account registration, address, social
security or taxpayer identification number and how dividends and capital gains
are to be distributed; (4) signature guarantees (See the Prospectus under the
heading "Signature Guarantees"); and (5) any additional documents which are
required for transfer by corporations, administrators, executors, trustees,
guardians, etc. If you have any questions about transferring shares, call or
write the Funds.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each class of each Fund may be quoted in
advertisements, sales literature, shareholder reports, or other communications
to shareholders. Each Fund computes the "average annual total return" of each
class of the Fund by determining the average annual compounded rates of return
during specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by determining the ending
redeemable value of a hypothetical $ 1,000 initial payment. This calculation is
as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at
the beginning of the period.
P = hypothetical initial payment of $1,000 from which the maximum
sales load is deducted.
n = period covered by the computation,
expressed in terms of years.
Each Fund may also compute the aggregate total return of each class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. Each Fund may also quote other total
return information that does not reflect the effects of the sales load.
The total return quotations for the Institutional Shares of the Equity Fund,
Balanced Fund and Small Company Fund for the fiscal year ended March 31, 2000
are 13.41%, 8.22%, and 78.85%, respectively for those funds. The average annual
total return quotations for the Institutional Shares of those fund for the five
fiscal years ended March 31, 2000 are 20.52%, 16.89%, and 26.25%, respectively.
The average annual total return quotations for those funds since inception
(September 30, 1992 for the Equity Fund and Balanced Fund and December 31, 1992
for the Small Company Fund) of the Institutional Shares of those funds to March
31, 2000 are 16.87%, 13.95%, and 20.54%, respectively. The cumulative total
return quotations since inception of the Institutional Shares of those funds
through March 31, 2000 are 222.12%, 166.35%, and 287.57%, respectively. The
cumulative total return for Institutional Shares of the International Equity
Fund for the period May 28, 1999 (commencement of operations) through March 31,
2000 is 18.56%. These performance quotations should not be considered as
representative of the performance of the Institutional Shares of the Funds for
any specified period in the future. No Investor Shares of the Funds were issued
during any such period quoted above.
Each Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, each Fund may compare its performance to
the S&P 500 Total Return Index. The Balanced Fund may also compare its
performance with a combination of the S&P 500 Total Return Index and the Lehman
Government/Corporate Bond Index. The Small Company Fund may compare its
performance, alone or in a combination, with the Russell 2000 Index, Russell
2000 Growth Index, the NASDAQ Composite Index, and the NASDAQ Industrials Index.
The International Equity Fund may compare its performance with the S&P 500 Total
Return Index, the MSCI All Country World Free EX USA Index, and the MSCI EAFE
International Index. Comparative performance may also be expressed by reference
to a ranking prepared by a mutual fund monitoring service or by one or more
newspapers, newsletters or financial periodicals. Each Fund may also
occasionally cite statistics to reflect its volatility and risk. Each Fund may
also compare its performance to other published reports of the performance of
unmanaged portfolios of companies. The performance of such unmanaged portfolios
generally does not reflect the effects of dividends or dividend reinvestment. Of
course, there can be no assurance that any Fund will experience the same
results. Performance comparisons may be useful to investors who wish to compare
a Fund's past performance to that of other mutual funds and investment products.
Of course, past performance is not a guarantee of future results.
Each Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, each Fund may advertise its performance
compared to similar funds or portfolios using certain indices, reporting
services, and financial publications. These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific period
of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Funds' Prospectus to obtain a
more complete view of each Fund's performance before investing. Of course, when
comparing a Fund's performance to any index, factors such as composition of the
index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for each Fund may quote total returns that are calculated
on nonstandardized base periods. The total returns represent the historic change
in the value of an investment in the Fund based on monthly reinvestment of
dividends over a specified period of time.
From time to time each Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the reflects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. Each Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). Each Fund may also depict the historical performance
of the securities in which the Fund may invest over periods reflecting a variety
of market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
Each Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
FINANCIAL STATEMENTS
The audited financial statements for the fiscal year ended March 31, 2000,
including the financial highlights appearing in the Annual Report to
shareholders, are incorporated by reference and made a part of this document.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Funds may acquire from time to time fixed income securities that meet the
following minimum rating criteria ("Investment-Grade Debt Securities") or, if
unrated, are in the Advisor's opinion comparable in quality to Investment Grade
Debt Securities. The various ratings used by the nationally recognized
securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Funds may invest should be continuously reviewed and
that individual analysts give different weightings to the various factors
involved in credit analysis. A rating is not a recommendation to purchase, sell
or hold a security, because it does not take into account market value or
suitability for a particular investor. When a security has received a rating
from more than one service, each rating is evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation
is very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
Investment-Grade Debt Securities and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-I+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment
attributes and is to be considered as an upper medium grade obligation.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa - Debt which is rated Baa is considered as a medium grade
obligation, i.e., it is neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such debt
lacks outstanding investment characteristics and in fact has
speculative characteristics as well.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered "Investment-Grade Debt Securities" by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-1; VMIG-1 - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be Investment-Grade Debt Securities by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The
risk factors are more variable and greater in periods of economic
stress.
BBB - Bonds rated BBB have below-average protection factors but are
still considered sufficient for prudent investment. There is
considerable variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff 1 is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff 1+, Duff 1 and
Duff 1- within the highest rating category. Duff 1+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff l- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
Investment-Grade Debt Securities by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated
AAA. Because bonds rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term
debt of these issuers is generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds
with higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
Bonds rated BB, B and CCC by Fitch are not considered Investment-Grade Debt
Securities and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-l+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
<PAGE>
Annual Report 2000
Balanced Fund
Equity Fund
Small Company Fund
International Equity Fund
March 31, 2000
[LOGO]
BROWN CAPITAL MANAGEMENT
<PAGE>
Table of Contents
Balanced Fund............................................................ 1
Equity Fund.............................................................. 16
Small Company Fund....................................................... 32
International Equity Fund................................................ 47
For More Information on Your Brown Capital Management (BCM) Mutual Funds:
See Our Web site @ www.browncapital.com
or
Call Our Shareholder Services Group Toll-Free at 1-877-892-4BCM,
(1-877-892-4226)
This report has been prepared for shareholders and may be distributed to others
only if preceded or accompanied by a prospectus.
<PAGE>
Balanced Fund
Market Environment
The stock market delivered its fifth consecutive year of returns in excess of
20% as reflected by the S&P 500. This unprecedented historical performance
continues to attract many investors who, might not otherwise participate in the
stock market. Considering your Brown Capital Management (BCM) Balanced Fund
retains 25% of its assets in fixed income securities and 75% in equities, such
fantastic stock market performance should likely yield above average performance
over the past twelve months, ending March 31, 2000, in your portfolio.
Conversely, given our propensity to invest in superior GARP (Growth at a
Reasonable Price) investment approach, meaning, we invest in superior growth
companies without paying too much, the 75% of your portfolio invested in
equities adversely affected the 25% invested in high quality, short to
intermediate term debt securities. As a result of this weighting, your Fund
under performed the S&P 500 Index, Lipper Balanced Universe, Lipper Flex
Universe and, our internal blended benchmark comprised of 75% S&P 500 Index and
25% Lehman Government/Corporate.
Periods Ended 3/31/00 Year to One Three Five
Date Year Years Years
BCM Balanced Fund 1.01% 8.22% 17.12% 16.91%
Standard and Poors 500 2.29% 17.94% 27.40% 26.76%
75% S&P 500 25% Lehman Corporate / Gov 2.50% 13.90% 22.30% 21.80%
Lipper Balanced Index Fund 2.98% 10.45% 15.64% 15.65%
Lipper Flex Portfolio Fund Index 2.47% 10.78% 15.88% 15.60%
Performance since 08/11/92 inception 14.00%
Performance and Benchmark Insights
We are somewhat concerned by your Fund's placement in Lipper's Flex universe.
This universe is made up of products defined, by Lipper, an independent mutual
fund rating agency, as those that allocate investments across various asset
classes, including domestic common stocks, bonds, and money market instruments
with a focus on total return. While this definition is partially correct, it is
not indicative of our true "peer" group since, historically, the Balanced Fund
invests 25% of your assets in short to intermediate term fixed income securities
and 75% in the BCM Equity Fund, comprised of medium and large (decidedly large)
capitalization equity securities. Meaning, there is always the possibility that
other asset classes and styles of management will be pitted against your
portfolio that do not resemble the aforementioned historical portfolio
characteristics.
Portfolio Review
What is accurate about Lipper's definition is that your Fund focuses on
delivering a competitive total return with a reduced level of risk.
Interestingly, this "Balanced" asset class is rarely used by investors today due
to the introduction and popularity of further diversified asset allocation or
"manager of manager" products. These funds attempt to boost diversification by
investing in numerous mutual funds representing the underlying segments of the
equity and fixed income universes. For example, a "typical" balanced fund
portfolio with 60% of the fund's assets in equities and 40% in fixed income
would find the 60% portion of the portfolio invested in, small, medium and large
equity securities from both domestic and international companies. The remaining
40% in fixed income would include short, medium and long-term debt securities,
of various qualities, and, typically, a small portion in money markets.
<PAGE>
Last year, many products in Lipper's Balanced Universe were favorably affected
by an equity component that reflected the S&P 500 Index. Your portfolio was not
as successful as its "peers" because the securities driving the market's out
performance in 1999 were not attractive given BCM's GARP approach to, unearth
superior growth companies, without paying too much (for important details on the
BCM Equity Fund, please see our fund report).
Investment Outlook
As stated in the Equity Fund report, Balanced Fund investors can expect that the
portfolio will be managed in 2000 as it has been managed historically. We
believe your Fund is favorably positioned to capitalize on an increasing
interest rate environment, geared to slowing a robust economy, while
successfully weathering volatile equity markets.
Sincerely,
Brown Capital Management
Balanced Team
/s/ Theodore M. Alexander, III
Theodore M. Alexander, III
Vice President
/s/ Eddie C. Brown
Eddie C. Brown
President
/s/ Maurice Haywood
Maurice Haywood
Vice President
/s/ Stephon A. Jackson
Stephon A. Jackson
Vice President
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
Performance Update - $10,000 Investment For the period from
September 30, 1992 to March 31, 2000
[Line graph here]:
--------------------------------------------------------------------------------
BCM 75% S&P 500
Balanced 25% Lehman Corp/Gov Bond Index
--------------------------------------------------------------------------------
09/30/1992 10000 10000
12/31/1992 10579 10380
03/31/1993 10774 10840
06/30/1993 10779 10959
09/30/1993 11208 11262
12/31/1993 11611 11450
03/31/1994 11297 11034
06/30/1994 11168 11036
09/30/1994 11644 11459
12/31/1994 11468 11467
03/31/1995 12195 12456
06/30/1995 13417 13559
09/30/1995 14593 14456
12/31/1995 14880 15285
03/31/1996 15493 15859
06/30/1996 15887 16445
09/30/1996 16339 16912
12/31/1996 16938 18159
03/31/1997 16579 18529
06/30/1997 18557 21312
09/30/1997 20114 22773
12/31/1997 20136 23439
03/31/1998 22582 26259
06/30/1998 23352 27101
09/30/1998 20940 24966
12/31/1998 25050 29446
03/31/1999 24611 30669
06/30/1999 25871 32512
09/30/1999 23986 30744
12/31/1999 26369 34724
03/31/2000 26635 35311
This graph depicts the performance of The Brown Capital Management Balanced Fund
versus a combined index of 75% S&P 500 Total Return Index and 25% Lehman
Government/Corporate Bond Index. It is important to note that The Brown Capital
Management Balanced Fund is a professionally managed mutual fund while the
indexes are not available for investment and are unmanaged. The comparison is
shown for illustrative purposes only. Average Annual Total Returns
Average Annual Total Returns
-------------------------------------------------------
One Year Five Years Since Inception
-------------------------------------------------------
8.22% 16.89% 13.95%
-------------------------------------------------------
The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
At March 31, 2000, The Brown Capital Management Balanced Fund would have grown
to $26,635 - total investment return of 166.35% since September 30, 1992.
At March 31, 2000, a similar investment in a combined index of 75% S&P 500 Total
Return Index and 25% Lehman Government/Corporate Bond Index would have grown to
$35,311 - total investment return of 253.11% since September 30, 1992.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 68.55%
Commercial Services - 1.68%
Equifax Inc. ............................................................. 9,525 $240,506
--------
Computer Software & Services - 6.56%
(a)Compuware Corporation .................................................... 8,900 187,456
(a)Fiserv, Inc. ............................................................. 4,880 181,475
(a)Microsoft Corporation .................................................... 2,200 233,750
(a)Network Associates, Inc. ................................................. 4,650 149,962
(a)Sterling Software, Inc. .................................................. 5,600 184,450
--------
937,093
--------
Computers - 5.92%
(a)Dell Computer Corporation ................................................ 2,800 151,025
(a)EMC Corporation .......................................................... 2,150 268,750
International Business Machines Corporation .............................. 3,600 424,800
--------
844,575
--------
Cosmetics & Personal Care - 0.77%
The Dial Corporation ..................................................... 8,100 109,856
--------
Diversified Operations - 1.22%
Corning Incorporated ..................................................... 900 174,600
--------
Electronics - 5.33%
(a)Altera Corporation ....................................................... 2,700 240,975
General Electric Company ................................................. 1,955 303,392
(a)Solectron Corporation .................................................... 5,400 216,337
--------
760,704
--------
Electronics - Semiconductor - 3.30%
Intel Corporation ........................................................ 2,000 263,875
(a)Xilinx, Inc. ............................................................. 2,500 207,031
--------
470,906
--------
Entertainment - 1.73%
Carnival Corporation ..................................................... 9,975 246,881
--------
Financial - Banks, Money Center - 3.72%
Citigroup Inc. ........................................................... 2,850 169,041
Mellon Financial Corporation ............................................. 5,450 160,775
The Chase Manhattan Corporation .......................................... 2,313 201,665
--------
531,481
--------
Financial Services - 3.56%
SLM Holding Corporation .................................................. 5,475 183,755
T. Rowe Price Associates, Inc. ........................................... 8,225 324,887
--------
508,642
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Securities Brokers - 0.94%
Franklin Resources, Inc. ................................................. 4,000 $133,750
--------
Hand & Machine Tools - 1.34%
Danaher Corporation ...................................................... 3,750 191,250
--------
Industrial Materials - Specialty - 1.76%
Fastenal Company ......................................................... 5,250 251,344
--------
Insurance - Life & Health - 2.08%
AFLAC INCORPORATED ....................................................... 6,510 297,019
--------
Leisure Time - 2.08%
Harley-Davidson, Inc. .................................................... 3,675 296,756
--------
Manufacturing - 0.89%
Illinois Tool Works Inc. ................................................. 2,225 126,825
--------
Medical - Biotechnology - 1.08%
PE Corp-PE Biosystems Group .............................................. 1,600 154,400
--------
Medical - Hospital Management & Services - 1.46%
(a)Health Management Associates, Inc. ....................................... 14,600 208,050
--------
Medical Supplies - 0.85%
Johnson & Johnson ........................................................ 1,725 120,966
--------
Oil & Gas - Equipment & Services - 1.14%
Schlumberger Limited ..................................................... 2,100 163,275
--------
Pharmaceuticals - 3.40%
Cardinal Health, Inc. .................................................... 7,058 323,786
Merck & Co., Inc. ........................................................ 2,600 162,175
--------
485,961
--------
Retail - Apparel - 1.57%
The TJX Companies, Inc. .................................................. 10,100 224,725
--------
Retail - Department Stores - 1.52%
Dollar General Corporation ............................................... 8,091 217,446
--------
Retail - General Merchandise - 1.62%
(a)Staples, Inc. ............................................................ 11,575 231,500
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - Specialty Lines - 2.47%
(a)AutoZone, Inc. ....................................................... 825 $ 23,100
The Home Depot, Inc. ................................................. 5,062 329,030
----------
352,130
----------
Telecommunications Equipment - 8.03%
(a)ADC Telecommunications, Inc. ......................................... 6,800 366,350
Lucent Technologies Inc. ............................................. 2,600 157,950
(a)MCI WorldCom, Inc. ................................................... 7,200 326,250
(a)Tellabs, Inc. ........................................................ 4,700 296,027
----------
1,146,577
----------
Utilities - Telecommunications - 2.53%
AT&T Corp. ........................................................... 4,300 242,681
(a)The AES Corporation .................................................. 1,500 118,125
----------
360,806
----------
Total Common Stocks (Cost $7,836,068) ................................ 9,788,024
----------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Interest Maturity
Principal Rate Date
------------ --------------- ----------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 1.84%
United States Treasury Note........................ $20,000 6.250% 08/15/23 20,297
United States Treasury Note........................ 20,000 8.000% 11/15/21 24,366
United States Treasury Note........................ 90,000 6.375% 08/15/02 89,831
United States Treasury Note........................ 100,000 7.500% 02/15/05 104,656
Federal Home Loan Bank Strip....................... 100,000 0.000% 07/14/17 23,719
--------------
Total U.S. Government and Agency Obligations (Cost $254,256) 262,869
--------------
CORPORATE OBLIGATIONS - 8.02%
Alabama Power Company.............................. 35,000 7.750% 02/01/23 33,609
AMR Corporation.................................... 10,000 10.000% 02/01/01 10,166
AT&T Corporation................................... 75,000 5.625% 03/15/04 70,875
Boston Edison Company.............................. 60,000 7.800% 05/15/10 60,308
Chase Manhattan Corporation........................ 45,000 6.500% 08/01/05 42,637
Chesapeake & Potomac Telephone of Virginia......... 90,000 7.250% 06/01/12 84,150
Citicorp........................................... 25,000 7.125% 06/01/03 24,775
Dow Chemical Capital Debentures.................... 15,000 9.200% 06/01/10 16,643
Ford Motor Credit.................................. 55,000 7.250% 09/01/10 54,952
ITT Corporation.................................... 95,000 7.375% 11/15/15 80,410
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
Interest Maturity Value
Principal Rate Date (note 1)
------------ --------------- ---------------- --------------
CORPORATE OBLIGATIONS - (Continued)
Merrill Lynch.................................. $160,000 7.150% 07/30/12 $ 151,247
Monsanto Company............................... 95,000 6.210% 02/05/08 88,563
Nalco Chemical................................. 50,000 6.250% 05/15/08 46,345
Nationsbank Corporation........................ 15,000 6.875% 02/15/05 14,605
RJ Reynolds Tobacco Corp....................... 30,000 8.750% 04/15/04 21,075
The Rouse Company.............................. 35,000 8.500% 01/15/03 35,079
The Walt Disney Company........................ 100,000 7.750% 09/30/11 100,516
Time Warner, Inc............................... 35,000 9.150% 02/01/23 37,844
U. S. F. & G. Corporation...................... 90,000 7.125% 06/01/05 86,998
Wal-Mart Stores................................ 80,000 8.070% 12/21/12 84,751
--------------
Total Corporate Obligations (Cost $1,204,562) 1,145,548
--------------
INVESTMENT COMPANIES - 8.93%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares 637,411 637,411
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Shares 637,411 637,411
--------------
Total Investment Companies (Cost $1,274,822) 1,274,822
--------------
Total Value of Investments (Cost $10,569,708 (b)) 87.34% $ 12,471,263
Other Assets Less Liabilities 12.66% 1,807,209
---------------- --------------
Net Assets 100.00% $ 14,278,472
================ ==============
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $ 2,344,764
Unrealized depreciation (443,209)
--------------
Net unrealized appreciation $ 1,901,555
==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $10,569,708) ........................................................ $12,471,263
Cash ............................................................................................ 1,818,748
Income receivable ............................................................................... 37,661
Receivable for investments sold ................................................................. 45,572
-----------
Total assets ............................................................................... 14,373,244
-----------
LIABILITIES
Accrued expenses ................................................................................ 6,957
Payable for investment purchases ................................................................ 87,815
-----------
Total liabilities .......................................................................... 94,772
-----------
NET ASSETS
(applicable to 784,739 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ......................................... $14,278,472
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($14,278,472 / 784,739 shares) .................................................................. $ 18.20
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $11,997,350
Undistributed net investment oincome ............................................................ 1,967
Accumulated net realized ogain on investments ................................................... 377,600
Net unrealized oappreciation on investments ..................................................... 1,901,555
-----------
$14,278,472
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENT OF OPERATIONS
Year ended March 31, 2000
INVESTMENT INCOME
Income
Interest ..................................................................................... $ 103,435
Dividends .................................................................................... 106,478
-----------
Total income ........................................................................... 209,913
-----------
Expenses
Investment advisory fees (note 2) ............................................................ 75,855
Fund administration fees (note 2) ............................................................ 20,479
Custody fees ................................................................................. 4,204
Registration and filing administration fees (note 2) ......................................... 4,652
Fund accounting fees (note 2) ................................................................ 24,000
Audit fees ................................................................................... 10,707
Legal fees ................................................................................... 5,003
Securities pricing fees ...................................................................... 5,991
Shareholder recordkeeping fees ............................................................... 9,000
Other accounting fees (note 2) ............................................................... 3,553
Shareholder servicing expenses ............................................................... 2,637
Registration and filing expenses ............................................................. 8,517
Printing expenses ............................................................................ 3,112
Trustee fees and meeting expenses ............................................................ 3,916
Other operating expenses ..................................................................... 3,496
-----------
Total expenses ......................................................................... 185,122
-----------
Less investment advisory fees waived (note 2) .......................................... (44,989)
-----------
Net expenses ........................................................................... 140,133
-----------
Net investment income ............................................................. 69,780
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realizedo gain from investment transactions ................................................... 853,186
Increase in unrealized appreciation on investments ................................................ 192,375
-----------
Net realized and unrealized gain on investments .............................................. 1,045,561
-----------
Net oincrease in net assets resulting from operations .................................. $ 1,115,341
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment income ................................................... $ 69,780 $ 50,874
Net realized gain from investment transactions .......................... 853,186 338,978
Increase in unrealized appreciation on investments ..................... 192,375 195,131
------------ ------------
Net increase in net assets resulting from operations ............... 1,115,341 584,983
------------ ------------
Distributions to shareholders from
Net investment income ................................................... (67,826) (50,801)
Net realized gain from investment transactions .......................... (670,268) (161,031)
------------ ------------
Decrease in net assets resulting from distributions ................ (738,094) (211,832)
------------ ------------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .... 4,298,321 3,152,016
------------ ------------
Total increase in net assets .................................. 4,675,568 3,525,167
NET ASSETS
Beginning of year ........................................................... 9,602,904 6,077,737
------------ ------------
End of year ................................................................. $ 14,278,472 $ 9,602,904
============ ============
(including undistributed net investment income of $1,967 in 2000 and $13 in 1999)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(a) A summary of capital share activity follows:
Year ended Year ended
March 31, 2000 March 31, 1999
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold 273,858 $ 4,834,949 220,097 $ 3,825,498
Shares issued for reinvestment
of distributions 41,152 737,421 11,926 210,991
------------- ------------- ------------- -------------
315,010 5,572,370 232,023 4,036,489
Shares redeemed (70,482) (1,274,049) (52,851) (884,473)
------------- ------------- ------------- -------------
Net increase 244,528 $ 4,298,321 179,172 $ 3,152,016
============= ============= ============= =============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
------------ ----------- ----------- ------------ -----------
Net asset value, beginning of year $17.78 $16.83 $13.60 $13.76 $11.56
Income from investment operations
Net investment income 0.10 0.13 0.17 0.21 0.12
Net realized and unrealized gain on investments 1.34 1.39 4.65 0.76 2.98
------------ ----------- ----------- ------------ -----------
Total from investment operations 1.44 1.52 4.82 0.97 3.10
------------ ----------- ----------- ------------ -----------
Distributions to shareholders from
Net investment income (0.10) (0.13) (0.17) (0.21) (0.12)
Net realized gain from investment transactions (0.92) (0.44) (1.42) (0.92) (0.78)
------------ ----------- ----------- ------------ -----------
Total distributions (1.02) (0.57) (1.59) (1.13) (0.90)
------------ ----------- ----------- ------------ -----------
Net asset value, end of year $18.20 $17.78 $16.83 $13.60 $13.76
============ =========== =========== ============ ===========
Total return 8.22 % 8.99 % 36.19 % 7.01 % 27.04 %
============ =========== =========== ============ ===========
Ratios/supplemental data
Net assets, end of year $14,278,472 $9,602,904 $6,077,737 $3,874,653 $3,319,314
============ =========== =========== ============ ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.59 % 2.11 % 2.22 % 2.85 % 3.50 %
After expense reimbursements and waived fees 1.20 % 1.20 % 1.20 % 1.20 % 1.59 %
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees 0.21 % (0.17)% 0.05 % (0.13)% (0.97)%
After expense reimbursements and waived fees 0.60 % 0.74 % 1.08 % 1.51 % 0.94 %
Portfolio turnover rate 45.01 % 58.38 % 33.54 % 45.58 % 43.59 %
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management Balanced Fund (the "Fund") is a
diversified series of shares of beneficial interest of The
Nottingham Investment Trust II (the "Trust"). The Trust, an
open-ended investment company, was organized on October 18, 1990
as a Massachusetts Business Trust and is registered under the
Investment Company Act of 1940, as amended. The investment
objective of the Fund is to provide its shareholders with a
maximum total return consisting of any combination of capital
appreciation by investing in a flexible portfolio of equity
securities, fixed income securities and money market instruments.
The Fund began operations on August 11, 1992.
Pursuant to a plan approved by the Board of Trustees of the Trust,
the existing single class of shares of the Fund was redesignated
as the Institutional Class shares of the Fund on June 15, 1995 and
an additional class of shares, the Investor Class shares, was
authorized. To date, only Institutional Class shares have been
issued by the Fund. The Institutional Class shares are sold
without a sales charge and bear no distribution and service fees.
The Investor Class shares will be subject to a maximum 3.50% sales
charge and will bear distribution and service fees which may not
exceed 0.50% of the Investor Class shares' average net assets
annually. The following is a summary of significant accounting
policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities
are carried at value. Securities listed on an exchange or
quoted on a national market system are valued at the last
sales price as of 4:00 p.m. New York time on the day of
valuation. Other securities traded in the over-the-counter
market and listed securities for which no sale was reported
on that date are valued at the most recent bid price.
Securities for which market quotations are not readily
available, if any, are valued by using an independent
pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost
which approximates value.
B. Federal Income Taxes - The Fund is considered a personal
holding company as defined under Section 542 of the Internal
Revenue Code since 50% of the value of the Fund's shares
were owned directly or indirectly by five or fewer
individuals at certain times during the last half of the
year. As a personal holding company, the Fund is subject to
federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No
provision has been made for federal income taxes since
substantially all taxable income has been distributed to
shareholders. It is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all
federal income taxes.
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October
31, which are deferred for income tax purposes. The
character of distributions made during the year from net
investment income or net realized gains may differ from
their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ
from the year that the income or realized gains were
recorded by the Fund.
C. Investment Transactions - Investment transactions are
recorded on the trade date. Realized gains and losses are
determined using the specific identification cost method.
Interest income is recorded on an accrual basis. Dividend
income is recorded on the ex-dividend date.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
D. Distributions to Shareholders - The Fund may declare
dividends quarterly, payable in March, June, September and
December, on a date selected by the Trust's Trustees. In
addition, distributions may be made annually in December out
of net realized gains through October 31 of that year.
Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental
distribution subsequent to the end of its fiscal year ending
March 31.
E. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual
results could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Brown Capital
Management, Inc. (the "Advisor") provides the Fund with a
continuous program of supervision of the Fund's assets, including
the composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies
and the purchase and sale of securities. As compensation for its
services, the Advisor receives a fee at the annual rate of 0.65%
of the Fund's first $25 million of average daily net assets and
0.50% of average daily net assets over $25 million.
The Advisor intends to voluntarily waive all or a portion of its
fee and reimburse expenses of the Fund to limit total Fund
operating expenses to 1.20% of the average daily net assets of the
Fund. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has
voluntarily waived a portion of its fee amounting to $44,989
($0.06 per share) for the year ended March 31, 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 received a fee at the annual rate of
0.175% of the Fund's first $50 million of average daily net
assets, 0.15% of the next $50 million of average daily net assets,
0.125% of the next $50 million of average daily net assets, and
0.10% of average daily net assets over $150 million. The
Administrator also receives a monthly fee of $2,000 for accounting
and recordkeeping services. The contract with the Administrator
provides that the aggregate fees for the aforementioned
administration, accounting and recordkeeping services shall not be
less than $4,000 per month. The Administrator also charges the
Fund for certain expenses involved with the daily valuation of
portfolio securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent")
serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of the Fund shares,
acts as dividend and distribution disbursing agent, and performs
other shareholder servicing functions.
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT BALANCED FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $6,167,939 and $4,273,754, respectively,
for the year ended March 31, 2000.
NOTE 4 - DISTRIBUTIONS TO SHAREHOLDERS
For federal income tax purposes, the Fund must report
distributions from net realized gain from investment transactions
that represent long-term capital gain to its shareholders. The
fund paid a total amount of $1.00 per share distributions for the
year ended March 31, 2000, including $0.92 that is classified as
long term gain. Shareholders should consult a tax advisor on how
to report distributions for state and local income tax purposes.
<PAGE>
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
The Brown Capital Management Balanced Fund:
We have audited the accompanying statement of assets and liabilities of The
Brown Capital Management Balanced Fund, including the portfolio of investments,
as of March 31, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended March 31,
2000 and 1999, and financial highlights for each of the years presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brown Capital Management Balanced Fund as of March 31, 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 years, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
Equity Fund
Market Environment
On the heels of a 5th consecutive year of unprecedented performance for the U.S
Stock market, the S&P 500 Stock Index, returning over 20% in 1999, is beginning
2000 with more conservative returns. For many money managers, this large
capitalization index is, and continues to be, difficult to outpace or duplicate
given its sizeable weighting in technology and even greater weighting in a
select group of companies that dominate the index's performance.
Periods Ended 3/31/00 Year to One Three Five
Date Year Years Years
BCM Equity Fund 2.32% 13.41% 21.51% 20.54%
Standard and Poors 500 2.29% 17.94% 27.40% 26.76%
Russell 1000 3.91% 19.55% 26.06% 24.56%
Russell 1000 Growth 7.13% 34.12% 36.94% 31.83%
Lipper Large-Cap Growth Fund Index 1.30% 35.07% 36.67% 30.95%
Lipper Large-Cap Core Fund Index 4.27% 19.27% 26.50% 24.47%
Lipper Multicap Growth Fund Index 14.36% 57.39% 38.51% 30.39%
Performance since 08/14/92 inception 16.90%
The Brown Capital Management (BCM) Equity Fund was no different, experiencing
one of its most challenging years in recent history. At the Fund's year-end,
March 31, 2000, the Equity Fund trailed the unmanaged S&P 500 Index,
capitalization and style indexes, the Russell 1000 and Russell 1000 Growth, and
the Fund's new Lipper peer group, the Multi-Cap Growth Fund Index. Despite
respectable performance in the first quarter of 2000, the challenges faced in
1999 are reflected most in critical, long-term, performance periods.
Benchmarking Insights
Unfortunately, an absolute number does not adequately explain the leading
contributors to your Fund's under performance. In reality, there were two: 1)
your fund's historical propensity to unearth superior medium and large
companies, resulting in a portfolio of both types of stocks, and 2) our
commitment to GARP (Growth at a Reasonable Price) investing, defined as, in over
simplified terms, an approach that seeks to invest in superior growth companies,
without paying too much.
This unique combination of variables ensures that BCM remains a prudent,
long-term investment manager, but it makes your Equity Fund difficult to compare
to any particular benchmark and to categorize in a growing world of mutual fund
products. Considering its weighted average market capitalization of nearly $89
billion (large capitalization stocks are typically defined as those with market
capitalization greater than $10 billion, it appears the fund is decidedly
large-cap. Conversely, Lipper Inc., a mutual fund rating agency, recently
instituted new categories based on major characteristics of each fund's
portfolio holdings such as market capitalization, price/earnings ratios and
other valuation measures. The most pertinent component of the new guideline
states: "Multi-Cap Growth Funds [are] Funds that, by portfolio practice, invest
in a variety of market capitalization ranges, without concentrating 75% of their
equity assets in any one market capitalization range over an extended period of
time." Your fund's inclusion of nine medium sized companies, with weighting of
18% in the portfolio prevents the fund from being compared to other large-cap
products in the Lipper universe. As seen in the table, the Equity Fund is
clearly more competitive when compared to traditional large-cap benchmarks and
peer groups, but that still does not explain the balance of its under
performance.
<PAGE>
Portfolio Review
Last year, stocks with historically traditional valuations, delivering superior
performance were difficult to find. We observed three critical variables in the
market that resulted in this trend: 1) a clear preference for mega market cap,
very liquid stocks; 2) investors were not very discriminating as to how much
they were willing to pay for these companies; and 3) there was an extreme
penalty being accessed if a company reported earnings that fell short of
expectations. In short, overall market performance in 1999 was driven by a very
narrow group of companies that satisfied these criteria. During that period, the
top 5% of companies in the S&P 500 Index at year-end accounted for 69% of the
index's return. Talk about the tail wagging the dog! For example, from June 30,
1999 to August 31, 1999, the top 5% of that same index advanced 0.4% while the
other 475 stocks declined more than 4%. Though you might expect a return below
4%, the return for the quarter was only -3.6%. Clearly, this select group of
securities supported the Index as a whole. Our real dilemma surfaced when
considering the valuation metrics (how much investors are willing to pay for a
stock) of these companies. During the same period, that same group of
"performers'" weighted P/E on twelve months forward estimated earnings was
39.1x. Your Equity Fund for the same time period (June 30, 1999 to August 31,
1999), consistent with our GARP approach, had a weighted P/E of 29.6x twelve
months forward estimated earnings. We understand conceptually the need to "pay
to play," but we do not believe in purchasing these securities to capture
performance during what, we consider to be, a temporary condition in the market.
Your portfolio is best suited for long-term investors with, at the very least, a
three to five year investment horizon. Paying such a premium for these
securities exposes investors to a great deal of risk when, in the words of the
Federal Reserve Chairman, Mr. Allan Greenspan, we might be experiencing a period
of "irrational exuberance" in the stock market.
During this turbulent year, instead of "changing our stripes" and chasing
performance, we remained committed to the GARP approach that earned past
success. Throughout the year, we redoubled our efforts in your portfolio to
update and revisit the fundamentals of each holding to ensure our conviction
level remained strong. Companies that are an indication of this conviction are
long-term positions such as Fastenal, ADC Technologies, Citicorp and Home Depot.
In addition, newer ideas such as, Corning, Oracle and Lucent were unearthed as a
result of this process.
Investment Outlook
What should be most evident since our last report is that little in your
portfolio changed. Certainly, we are concerned about the implications of last
year's significant under performance on the long-term results of your Fund, but
our unwavering commitment to the fundamental research that earned us past
success remains intact. As you know, markets are cyclical, some might say that
your Fund has already been vindicated considering the volatility of the first
four months of 2000. Importantly, we remain constructive on equities and the
market overall, long term, for several reasons. The economy and supporting
productivity gains remain strong, as does the level of consumer sentiment. We
view the current lack of market breadth and the associated investor focus on a
narrow group of stocks, as an opportunity. Most of all, experience suggests that
investors always come back to fundamentals. When they do, the market's breadth
should increase substantially. At some point, the valuations in these "Old
Economy" or otherwise "ignored" stocks, relative to their solid fundamentals,
will be too attractive, even for "New Economy" investors. In preparation for
this day, we remain focused on unearthing attractive GARP securities. Through a
consistent, disciplined investment approach in this very risky and volatile
environment.
<PAGE>
Sincerely,
Brown Capital Management
Mid/Large Team
/s/ Theodore M. Alexander, III
Theodore M. Alexander, III
Vice President
/s/ Eddie C. Brown
Eddie C. Brown
President
/s/ Maurice Haywood
Maurice Haywood
Vice President
/s/ Stephon A. Jackson
Stephon A. Jackson
Vice President
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
Performance Update - $10,000 Investment For the period from
September 30, 1992 to March 31, 2000
[LINE GRAPH HERE]:
--------------------------------------------------------------------------------
BCM
Equity S&P 500
Fund w/Income
--------------------------------------------------------------------------------
09/30/1992 $10000 $10000
12/31/1992 11063 10504
03/31/1993 11122 10962
06/30/1993 10962 11016
09/30/1993 11427 11300
12/31/1993 11817 11562
03/31/1994 11623 11124
06/30/1994 11445 11171
09/30/1994 11972 11717
12/31/1994 11727 11715
03/31/1995 12657 12855
06/30/1995 13988 14083
09/30/1995 15374 15202
12/31/1995 15485 16117
03/31/1996 16486 16982
06/30/1996 17018 17744
09/30/1996 17591 18293
12/31/1996 18433 19818
03/31/1997 17955 20349
06/30/1997 20615 23901
09/30/1997 22658 25692
12/31/1997 22608 26429
03/31/1998 25978 30116
06/30/1998 26988 31111
09/30/1998 23056 28016
12/31/1998 29198 33983
03/31/1999 28404 35676
06/30/1999 30433 38190
09/30/1999 27572 35806
12/31/1999 31482 41133
03/31/2000 32212 42076
This graph depicts the performance of The Brown Capital Management Equity Fund
versus the S&P 500 Total Return Index. It is important to note that The Brown
Capital Management Equity Fund is a professionally managed mutual fund while the
index is not available for investment and is unmanaged. The comparison is shown
for illustrative purposes only.
Average Annual Total Returns
-------------------------------------------------------
One Year Five Years Since Inception
-------------------------------------------------------
13.41% 20.52% 16.87%
-------------------------------------------------------
The graph assumes an initial $10,000 investment at September 30, 1992. All
dividends and distributions are reinvested.
At March 31, 2000, The Brown Capital Management Equity Fund would have grown to
$32,212 - total investment return of 222.12% since September 30, 1992.
At March 31, 2000, a similar investment in the S&P 500 Total Return Index would
have grown to $42,076 - total investment return of 320.76% since September 30,
1992.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 97.46%
Biopharmaceuticals - 1.39%
PE Corp-PE Biosystems Group .............................................. 1,500 $144,750
--------
Building Materials - 1.32%
Illinois Tool Works Inc. ................................................. 2,400 136,800
--------
Computer Software & Services - 7.41%
(a)Fiserv, Inc. ............................................................. 4,500 167,344
(a)Microsoft Corporation .................................................... 2,600 276,250
(a)Network Associates, Inc. ................................................. 4,600 148,350
(a)Sterling Software, Inc. .................................................. 5,400 177,863
--------
769,807
--------
Computers - 8.27%
(a)Dell Computer Corporation ................................................ 2,700 145,631
(a)EMC Corporation .......................................................... 2,500 312,500
International Business Machines Corporation .............................. 3,400 401,200
--------
859,331
--------
Cosmetics & Personal Care - 0.56%
The Dial Corporation ..................................................... 4,300 58,319
--------
Diversified Manufacturing - 1.68%
Corning Incorporated ..................................................... 900 174,600
--------
Electric - Generation - 1.14%
The AES Corporation ...................................................... 1,500 118,125
--------
Electronic Components - Semiconductor - 6.63%
(a)Altera Corporation ....................................................... 3,000 267,750
Intel Corporation ........................................................ 2,000 263,875
(a)Xilinx, Inc. ............................................................. 1,900 157,344
--------
688,969
--------
Electronics - 4.09%
General Electric Company ................................................. 1,400 217,262
(a)Solectron Corporation .................................................... 5,200 208,325
--------
425,587
--------
Enterprise Software & Services - 1.68%
(a)Compuware Corporation .................................................... 8,300 174,819
--------
Entertainment - 2.22%
Carnival Corporation ..................................................... 9,320 230,670
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Banks, Money Center - 4.36%
Citigroup Inc. ........................................................... 4,050 $240,216
The Chase Manhattan Corporation .......................................... 2,440 212,737
--------
452,953
--------
Financial - Savings/Loans/Thrifts - 1.99%
Mellon Financial Corporation ............................................. 7,000 206,500
--------
Financial - Securities Brokers - 2.23%
SLM Holding Corporation .................................................. 6,900 231,581
--------
Financial Services - 5.52%
Equifax Inc. ............................................................. 9,250 233,562
T. Rowe Price Associates, Inc. ........................................... 8,600 339,700
--------
573,262
--------
Hand & Machine Tools - 0.83%
Danaher Corporation ...................................................... 1,700 86,700
--------
Household Products & Housewares - 0.84%
Newell Rubbermaid Inc. ................................................... 3,500 87,063
--------
Human Resources - 1.74%
Robert Half International Inc. ........................................... 3,800 180,500
--------
Insurance - Life & Health - 2.91%
AFLAC INCORPORATED ....................................................... 6,624 302,220
--------
Investment Management & Advisory Services - 1.25%
Franklin Resources, Inc. ................................................. 3,900 130,406
--------
Leisure Time - 2.49%
Harley-Davidson, Inc. .................................................... 3,200 258,400
--------
Medical - Biotechnology - 1.50%
Merck & Co., Inc. ........................................................ 2,500 155,938
--------
Medical - Hospital Management & Services - 3.63%
(a)Guidant Corporation ...................................................... 2,000 117,625
(a)Health Management Associates, Inc. ....................................... 18,200 259,350
--------
376,975
--------
Medical Supplies - 1.35%
Johnson & Johnson ........................................................ 2,000 140,250
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Oil & Gas - Equipment & Services - 1.57%
Schlumberger Limited ................................................. 2,100 $ 163,275
----------
Pharmaceuticals - 3.43%
Cardinal Health, Inc. ................................................ 7,762 356,082
----------
Retail - Building Products - 2.35%
Fastenal Company ..................................................... 5,100 244,162
----------
Retail - Department Stores - 2.86%
Dollar General Corporation ........................................... 11,078 297,720
----------
Retail - Discount - 1.41%
The TJX Companies, Inc. .............................................. 6,600 146,850
----------
Retail - General Merchandise - 2.46%
(a)Staples, Inc. ........................................................ 12,800 256,000
----------
Retail - Specialty - 3.00%
The Home Depot, Inc. ................................................. 4,800 312,000
----------
Telecommunications Equipment - 8.27%
(a)ADC Telecommunications, Inc. ......................................... 6,400 344,800
Lucent Technologies Inc. ............................................. 3,600 218,700
(a)Tellabs, Inc. ........................................................ 4,700 296,027
----------
859,527
----------
Utilities - Telecommunications - 5.08%
AT&T Corp. ........................................................... 4,200 237,037
(a)MCI WorldCom, Inc. ................................................... 6,450 292,266
----------
529,303
----------
Total Common Stocks (Cost $7,681,712) ................................ 10,129,444
----------
INVESTMENT COMPANY - 2.53%
Evergreen Money Market Institutional Money
Market Fund Institutional Service Shares ............................. 263,921 263,921
----------
(Cost $263,921)
(Continued)
<PAGE>
</TABLE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
Total Value of Investments (Cost $7,945,633 (b)) 99.99 % $ 10,393,365
Other Assets Less Liabilities 0.01 % 828
------------ --------------
Net Assets 100.00 % $ 10,394,193
============ ==============
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $ 2,822,332
Unrealized depreciation (374,600)
--------------
Net unrealized appreciation $ 2,447,732
==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $7,945,633) ......................................................... $10,393,365
Cash ............................................................................................ 1,388
Income receivable ............................................................................... 7,392
Receivable for investments sold ................................................................. 39,502
-----------
Total assets ............................................................................... 10,441,647
-----------
LIABILITIES
Accrued expenses ................................................................................ 7,540
Payable for investment purchases ................................................................ 39,914
-----------
Total liabilities .......................................................................... 47,454
-----------
NET ASSETS
(applicable to 428,439 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ......................................... $10,394,193
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($10,394,193 / 428,439 shares) ................................................................. $ 24.26
===========
0
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $ 7,130,261
Undistributed net realized gain on investments .................................................. 816,200
Net unrealized appreciation on investments ...................................................... 2,447,732
-----------
$10,394,193
==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 2000
INVESTMENT LOSS
Income
Dividends .................................................................................... $ 78,780
-----------
Expenses
Investment advisory fees (note 2) ............................................................ 64,007
Fund administration fees (note 2) ............................................................ 17,233
Custody fees ................................................................................. 3,916
Registration and filing administration fees (note 2) ......................................... 4,813
Fund accounting fees (note 2) ................................................................ 24,000
Audit fees ................................................................................... 10,716
Legal fees ................................................................................... 5,007
Securities pricing fees ...................................................................... 3,271
Shareholder recordkeeping fees ............................................................... 9,000
Other accounting fees (note 2) ............................................................... 6,625
Shareholder servicing expenses ............................................................... 3,705
Registration and filing expenses ............................................................. 7,015
Printing expenses ............................................................................ 5,236
Trustee fees and meeting expenses ............................................................ 3,911
Other operating expenses ..................................................................... 3,794
-----------
Total expenses ......................................................................... 172,249
-----------
Less investment advisory fees waived (note 2) .......................................... (54,071)
-----------
Net expenses ........................................................................... 118,178
-----------
Net investment loss ............................................................... (39,398)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions .................................................... 1,393,611
Decrease in unrealized appreciation on investments ................................................ (80,452)
-----------
Net realized and unrealized gain on investments .............................................. 1,313,159
-----------
Net increase in net assets resulting from operations ................................... $ 1,273,761
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ....................................................... $ (39,398) $ (32,585)
Net realized gain from investment transactions ............................ 1,393,611 528,673
(Decrease) increase in unrealized appreciation on investments ............. (80,452) 343,908
------------ ------------
Net increase in net assets resulting from operations ................. 1,273,761 839,996
------------ ------------
Distributions to shareholders from
Net realized gain from investment transactions ............................ (830,681) (261,668)
------------ ------------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ...... 128,944 1,094,071
------------ ------------
Total increase in net assets .................................... 572,024 1,672,399
NET ASSETS
Beginning of year ............................................................. 9,822,169 8,149,770
------------ ------------
End of year ................................................................... $ 10,394,193 $ 9,822,169
============ ============
</TABLE>
(a) A summary of capital share activity follows:
<TABLE>
<S> <C> <C> <C> <C>
Year ended Year ended
March 31, 2000 March 31, 1999
Shares Value Shares Value
------------- ------------- ------------- -------------
Shares sold 52,085 $ 1,201,520 83,530 $ 1,844,436
Shares issued for reinvestment
of distributions 35,138 825,028 11,017 259,788
------------- ------------- ------------- -------------
87,223 2,026,548 94,547 2,104,224
Shares redeemed (81,386) (1,897,604) (44,515) (1,010,153)
------------- ------------- ------------- -------------
Net increase 5,837 $ 128,944 50,032 $ 1,094,071
============= ============= ============= =============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $23.24 $21.87 $16.61 $15.81 $12.36
Income from investment operations
Net investment (loss) gain (0.09) (0.08) (0.03) 0.05 0.00
Net realized and unrealized gain on investments 3.13 2.14 7.31 1.36 3.72
------------- ----------- ----------- ----------- ------------
Total from investment operations 3.04 2.06 7.28 1.41 3.72
------------- ----------- ----------- ----------- ------------
Distributions to shareholders from
Net investment income (0.00) 0.00 0.00 (0.05) 0.00
Net realized gain from investment transactions (2.02) (0.69) (1.98) (0.56) (0.27)
Distributions in excess of net realized gains 0.00 0.00 (0.04) 0.00 0.00
------------- ----------- ----------- ----------- ------------
Total distributions (2.02) (0.69) (2.02) (0.61) (0.27)
------------- ----------- ----------- ----------- ------------
Net asset value, end of year $24.26 $23.24 $21.87 $16.61 $15.81
============= =========== =========== =========== ============
Total return 13.41 % 9.34 % 44.68 % 8.91 % 30.25%
============= =========== =========== =========== ============
Ratios/supplemental data
Net assets, end of year $10,394,193 $9,822,169 $8,149,770 $4,405,020 $1,965,862
============= =========== =========== =========== ============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.75 % 1.88 % 1.98 % 3.37 % 5.58 %
After expense reimbursements and waived fees 1.20 % 1.20 % 1.20 % 1.20 % 1.56 %
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (0.95)% (1.07)% (0.94)% (1.85)% (4.20)%
After expense reimbursements and waived fees (0.40)% (0.39)% (0.16)% (0.32)% (0.01)%
Portfolio turnover rate 52.09 % 67.43 % 38.42 % 34.21 % 48.06 %
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management Equity Fund (the "Fund") is a diversified
series of shares of beneficial interest of The Nottingham Investment Trust
II (the "Trust"). The Trust, an open-ended investment company, was
organized on October 18, 1990 as a Massachusetts Business Trust and is
registered under the Investment Company Act of 1940, as amended. The
investment objective of the Fund is to seek capital appreciation
principally through investments in equity securities, such as common and
preferred stocks and securities convertible into common stocks. The Fund
began operations on August 11, 1992.
Pursuant to a plan approved by the Board of Trustees of the Trust, the
existing single class of shares of the Fund was redesignated as the
Institutional Class shares of the Fund on June 15, 1995 and an additional
class of shares, the Investor Class shares, was authorized. To date, only
Institutional Class shares have been issued by the Fund. The Institutional
Class shares are sold without a sales charge and bear no distribution and
service fees. The Investor Class shares will be subject to a maximum 3.50%
sales charge and will bear distribution and service fees which may not
exceed 0.50% of the Investor Class shares' average net assets annually. The
following is a summary of significant accounting policies followed by the
Fund.
A. Security Valuation - The Fund's investments in securities are carried
at value. Securities listed on an exchange or quoted on a national
market system are valued at the last sales price as of 4:00 p.m. New
York time on the day of valuation. Other securities traded in the
over-the-counter market and listed securities for which no sale was
reported on that date are valued at the most recent bid price.
Securities for which market quotations are not readily available, if
any, are valued by using an independent pricing service or by
following procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - The Fund is considered a personal holding
company as defined under Section 542 of the Internal Revenue Code
since 50% of the value of the Fund's shares were owned directly or
indirectly by five or fewer individuals at certain times during the
last half of the year. As a personal holding company, the Fund is
subject to federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No provision
has been made for federal income taxes since substantially all taxable
income has been distributed to shareholders. It is the policy of the
Fund to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal income
taxes.
As a result of the Fund's operating net investment loss, a
reclassification adjustment of $39,398 has been made on the statement
of assets and liabilities to decrease accumulated net investment loss,
bringing it to zero, and decrease paid-in capital.
C. Investment Transactions - Investment transactions are recorded on the
trade date. Realized gains and losses are determined using the
specific identification cost method. Interest income is recorded daily
on an accrual basis. Dividend income is recorded on the ex-dividend
date.
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, payable in March, June, September and December, on a date
selected by the Trust's Trustees. In addition, distributions may be
made annually in December out of net realized gains through October 31
of that year. Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental distribution
subsequent to the end of its fiscal year ending March 31.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those
estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Brown Capital Management,
Inc. (the "Advisor") provides the Fund with a continuous program of
supervision of the Fund's assets, including the composition of its
portfolio, and furnishes advice and recommendations with respect to
investments, investment policies and the purchase and sale of securities.
As compensation for its services, the Advisor receives a fee at the annual
rate of 0.65% of the Fund's first $25 million of average daily net assets
and 0.50% of average daily net assets over $25 million.
The Advisor intends to voluntarily waive all or a portion of its fee and
reimburse expenses of the Fund to limit total Fund operating expenses to
1.20% of the average daily net assets of the Fund. There can be no
assurance that the foregoing voluntary fee waivers or reimbursements will
continue. The Advisor has voluntarily waived a portion of its fee amounting
to $54,071 ($0.13 per share) for the year ended March 31, 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 of average daily net assets, 0.125% of the next $50 million of
average daily net assets, and 0.10% of average daily net assets over $150
million. The Administrator also receives a monthly fee of $2,000 for
accounting and recordkeeping services. 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.
NC Shareholder Services, LLC (the "Transfer Agent") serves as the Funds'
transfer, dividend paying, and shareholder servicing agent. The Transfer
Agent maintains the records of each shareholder's account, answers
shareholder inquiries concerning accounts, processes purchases and
redemptions of the Fund shares, acts as dividend and distribution
disbursing agent, and performs other shareholder servicing functions.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the distributor or the Administrator.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $4,969,066 and $5,495,503, respectively, for the year ended
March 31, 2000.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 4 - DISTRIBUTIONS TO SHAREHOLDERS
For federal income tax purposes, the Fund must report distributions from
net realized gain from investment transactions that represent long-term
capital gain to its shareholders. The total amount of $2.02 per share
distributions for the year ended March 31, 2000, was classified as
long-term gain. Shareholders should consult a tax advisor on how to report
distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
The Brown Capital Management Equity Fund:
We have audited the accompanying statement of assets and liabilities of The
Brown Capital Management Equity Fund, including the portfolio of investments, as
of March 31, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended March 31,
2000 and 1999, and financial highlights for the years presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brown Capital Management Equity Fund as of March 31, 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 years, in conformity with
accounting principles generally accepted in the United States of America.
/S/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
Small Company Fund
Market Environment
The broad market, represented by the S&P 500, posted its 5th consecutive year of
record, 20%+ returns in 1999. While this incredible trend continues, we, once
again, still opine that investment performance in the broad market indexes will
return to historical levels of 10%-12%.
Periods Ended 3/31/00 Year to One Three Five
Date Year Years Years
BCM Small Company Fund 13.00% 78.85% 33.44% 26.25%
Standard and Poors 500 2.29% 17.94% 27.40% 26.76%
Russell 2000 6.80% 35.57% 16.32% 15.63%
Russell 2000 Growth 9.28% 59.04% 25.94% 19.83%
Lipper Small-Cap Growth Fund Indax 17.91% 96.42% 34.31% 26.33%
Performance since 12/31/92 inception 20.54%
Your Brown Capital Management Small Company Fund delivered strong performance
over the past year despite small companies, in general, being out of favor. Mega
large capitalization stocks, and/or technology oriented companies accounted for
the vast majority of growth indexe returns last year. As of March 31, 2000, your
Fund's year-end, the Small Company Fund outperformed the S&P 500 Index, Russell
2000 and Russell 2000 Growth, but underperformed its new Lipper peer group,
Small Capitalization Growth Funds. Both over and under performance can be best
explained when considering the make up of these indexes.
Benchmark Insights
While your Small Company Fund is pitted against many different benchmarks, we
believe the most appropriate performance comparisons are with the Russell 2000
and Russell 2000 Growth Indices. The overall long-term portfolio characteristics
of these two indices are more closely aligned with the portfolio characteristics
of your Fund. The Russell 2000 Index is comprised of the bottom 2000 companies,
based on capitalization (shares outstanding multiplied by stock price), in the
Russell 3000 Index. The Russell 2000 Growth Index, a sub-set of the Russell 2000
Index, comprised of "growth oriented" companies, or those companies exhibiting
faster than average gains in revenues and earnings. Historically, the returns of
these two indices converge over the long-term. However, the Russell 2000 Growth
Index displayed phenomenal performance during 1999, outpacing the Russell 2000
Index by 15 percentage points. This variance in performance is explained
primarily by the difference in weightings of Technology, Biotechnology, and
Internet-related companies.
Portfolio Review
We remain committed to our unique approach to small company investing. We
continue to unearth and invest in exceptional small companies that have the
wherewithal of becoming exceptional large companies. We seek to latch on to
value creating engines, companies that save lives, time, money and headaches. As
you are aware, we define smallness in terms of operating revenues of $250
million or less at the time of initial investment. This definition differs from
the more traditional view of small cap investing, which is determined by the
capitalization of a company, generally defined as $1.5 billion or less, but our
definition, we believe, provides a better indicator of an organization's stage
in the corporate life cycle. For example, the rapid rise in stock price of many
Internet-related companies prevent many "small-cap" managers from investing in
these companies, although most of these companies do not have any earnings and
do not generate revenues. Our approach also differs in that we do not use the
traditional Russell sectors that are reflected in the report section labeled
Portfolio of Investments. Instead, we think of small companies in six broad
sectors: Business Services, Consumer Related, Information/Knowledge Management,
Medical/Health Care, and the all encompassing Miscellaneous.
<PAGE>
With regards to your Fund, not much changed since our last communication this
time last year. The Fund's superior performance is the result of a sustained
commitment to those companies that provide solutions to institutions and
individuals problems. Many of the names in your Fund are familiar to you, since
your Fund's turnover for the year was only 29%. The average and median turnover
among all small capitalization funds in the Lipper Universe was 123% and 108%,
respectively, for the same time period.
Indeed the Fund benefited from our strong company selection across the board,
but company holdings in Information/Knowledge Management and Medical/Health Care
contributed significantly to your Fund's performance. Within the Medical/Health
Care sector, our holdings in genomics based companies such as Affymetrix, Human
Genome Sciences, and Incyte Pharmaceuticals provide the bulk of returns in this
sector. These three companies provide a good illustration of our process of
identifying companies early and in this case the early identification of a new
industry. All of these companies have been in your Fund for several years. While
we early identified and understood the importance of human genome mapping, we
did not know how, or the direction in which the industry would evolve. As such,
we purposely sought companies that we thought could do well, regardless of how
the industry developed. We identified these three companies, and invested a
small amount in each. By utilizing this basket approach, we gained significant
representation in a new, dynamic area without relying upon the success of one
company or direction.
Investment Outlook
The genomics area, in our opinion, represents enormous potential, and these
companies have bright futures, but we do not expect them to realize this
potential without faltering along the way. Similarly, we think that our approach
to small company investing remains quite appealing, and continue to find
attractively valued companies, but we also expect the markets to remain
volatile. Therefore, stock prices in the short-term, may not accurately reflect
the inherent values of these companies. With these factors in mind, you can
expect that we will remain committed to our unique approach to small company
investing to ensure your Fund invests in exceptional small companies with the
wherewithal to become exceptional large companies.
<PAGE>
Sincerely,
Brown Capital Management
Small Company Team
/s/ Eddie C. Brown
Eddie C. Brown
President
/s/ Robert E. Hall
Robert E. Hall
Senior Vice President
/s/ Keith A. Lee
Keith A. Lee
Senior Vice President
<PAGE>
THE BROWN CAPITAL MANAGEMENT
SMALL COMPANY FUND
Performance Update - $10,000 Investment For the period from
December 31, 1992 to March 31, 2000
[LINE GRAPH HERE]:
--------------------------------------------------------------------------------
BCM Small Russell Russell
Company 2000 2000
Fund Index Growth Index
--------------------------------------------------------------------------------
12/31/1992 $10000 $10000 $10000
12/31/1992 10000 10000 10000
03/31/1993 9877 10371 9821
06/30/1993 9855 10558 10104
09/30/1993 10325 11445 11047
12/31/1993 10574 11700 11337
03/31/1994 10311 11340 10875
06/30/1994 9680 10872 10190
09/30/1994 10307 11589 11142
12/31/1994 11077 11328 11062
03/31/1995 12066 11816 11669
06/30/1995 13037 12882 12826
09/30/1995 14266 14164 14285
12/31/1995 14839 14453 14496
03/31/1996 16048 15188 15329
06/30/1996 16706 15968 16224
09/30/1996 17098 16020 16086
12/31/1996 17374 16838 16129
03/31/1997 16299 15973 14437
06/30/1997 18742 18550 16971
09/30/1997 20860 21300 19843
12/31/1997 20116 20577 18216
03/31/1998 23119 22695 20381
06/30/1998 23306 21658 19210
09/30/1998 19841 17275 14915
12/31/1998 23816 20112 18440
03/31/1999 21670 19020 18131
06/30/1999 26240 21970 20804
09/30/1999 25539 20579 19781
12/31/1999 34299 24406 26387
03/31/2000 38757 26137 28836
This graph depicts the performance of The Brown Capital Management Small Company
Fund versus the Russell 2000 Index and the Russell 2000 Growth Index. It is
important to note that The Brown Capital Management Small Company Fund is a
professionally managed mutual fund while the indexes are not available for
investment and are unmanaged. The comparison is shown for illustrative purposes
only.
Average Annual Total Returns
-------------------------------------------------------
One Year Five Years Since Inception
-------------------------------------------------------
78.85% 26.25% 20.54%
-------------------------------------------------------
The graph assumes an initial $10,000 investment at December 31, 1992. All
dividends and distributions are reinvested.
At March 31, 2000, The Brown Capital Management Small Company Fund would have
grown to $38,757 - total investment return of 287.57% since December 31, 1992.
At March 31, 2000, a similar investment in the Russell 2000 Index would have
grown to $26,137 - total investment return of 161.37%; and the similar
investment in the Russell 2000 Growth Index would have grown to $28,836 - total
investment return of 188.36% since December 31, 1992. The Russell 2000 Growth
Index is used in the graph above because the Investment Advisor feels that the
Russell 2000 Growth Index is a more accurate comparison to The Brown Captital
Management Small Company Fund's investment strategy than the NASDAQ Industrials
Index. The Russell 2000 Growth Index replaces the NASDAQ Industrials Index used
for illustrative purposes in prior annual reports. For the fiscal year ended
March 31, 2000, the investment in The Brown Capital Management Small Company
Fund would have increased in value by $17,123; the similar investment in the
Russell 2000 Growth Index would have increased in value by $10,705; while the
similar investment in the NASDAQ Industrials Index would have increased in value
by $14,630.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 80.65%
Biopharmaceuticals - 0.28%
(a)Gene Logic Inc. ...................................................... 4,100 $ 172,456
-----------
Chemicals - 0.31%
(a)Synthetech, Inc. ..................................................... 44,700 187,181
-----------
Commercial Services - 15.56%
(a)Acxiom Corporation ................................................... 36,700 1,220,275
(a)Dendrite International, Inc. ......................................... 51,150 1,070,953
Fair, Isaac and Company, Incorporated ................................ 38,900 1,514,668
(a)Harbinger Corporation ................................................ 50,300 1,464,987
(a)infoUSA Inc. ......................................................... 70,100 639,663
(a)Manugistics Group, Inc. .............................................. 40,900 2,055,225
(a)NetScout Systems, Inc. ............................................... 26,300 440,525
(a)QRS Corporation ...................................................... 13,050 982,013
(a)Quintiles Transnational Corp. ........................................ 6,200 105,788
-----------
9,494,097
-----------
Computers - 2.93%
(a)Landmark Systems Corporation ......................................... 44,181 220,905
(a)RadiSys Corporation .................................................. 26,100 1,569,262
-----------
1,790,167
-----------
Computer Software & Services - 18.83%
(a)Advent Software, Inc. ................................................ 27,800 1,275,325
(a)American Software, Inc. .............................................. 150,300 2,104,200
(a)Concord Communications, Inc. ......................................... 29,100 1,034,869
(a)Datastream Systems, Inc. ............................................. 80,100 2,322,900
(a)Engineering Animation, Inc. .......................................... 44,500 586,844
(a)Hyperion Solutions Corporation ....................................... 13,710 445,575
(a)Network Associates, Inc. ............................................. 7,287 235,006
(a)SPSS Inc. ............................................................ 48,100 1,527,175
(a)Structural Dynamics Research Corporation ............................. 73,200 988,200
(a)Transaction Systems Architects, Inc. ................................. 33,600 970,200
-----------
11,490,294
-----------
Electronics - Semiconductor - 0.81%
(a)Medialink Worldwide Incorporated ..................................... 76,400 496,600
-----------
Financial Services - 3.04%
(a)BISYS Group, Inc. (the) .............................................. 17,100 1,137,150
(a)CFI ProServices, Inc. ................................................ 44,900 305,881
T. Rowe Price Associates, Inc. ....................................... 10,400 410,800
-----------
1,853,831
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Foreign Securities - 0.97%
Cordiant Communications Group plc .................................... 91,843 $ 594,222
-----------
Hand & Machine Tools - 1.33%
(a)Flow International Corporation ....................................... 69,000 810,750
-----------
Machine - Diversified - 1.62%
(a)Cognex Corporation ................................................... 17,100 986,456
-----------
Medical - Biotechnology - 13.10%
(a)Affymetrix, Inc. ..................................................... 6,600 979,687
(a)BioReliance Corporation .............................................. 51,100 274,663
(a)Cerner Corporation ................................................... 32,200 869,400
(a)ChiRex Inc. .......................................................... 62,913 1,211,075
(a)Human Genome Sciences, Inc. .......................................... 8,200 681,113
(a)Incyte Pharmaceuticals, Inc. ......................................... 5,800 504,600
(a)Pharmacopeia, Inc. ................................................... 48,600 2,381,400
(a)Synbiotics Corporation ............................................... 12,400 43,400
(a)Tripos, Inc. ......................................................... 39,800 1,049,725
-----------
7,995,063
-----------
Medical Supplies - 7.69%
Diagnostic Products Corporation ...................................... 67,900 1,659,307
(a)Eclipse Surgical Technologies, Inc. .................................. 85,827 638,338
(a)Techne Corporation ................................................... 34,700 2,394,300
-----------
4,691,945
-----------
Pharmaceuticals - 7.25%
(a)Albany Molecular Research, Inc. ...................................... 23,100 1,348,462
(a)Applied Analytical Industries, Inc. .................................. 89,900 938,331
Jones Pharma Incorporated ............................................ 12,750 387,281
(a)Kendle International Inc. ............................................ 73,400 798,225
(a)King Pharmaceuticals, Inc. ........................................... 8,400 264,600
(a)Lynx Therapeutics, Inc. .............................................. 81 2,410
(a)Professional Detailing, Inc. ......................................... 27,400 685,000
-----------
4,424,309
-----------
Real Estate Investment Trust - 0.25%
Post Properties, Inc. ................................................ 3,800 153,188
-----------
Restaurants & Food Services - 5.01%
(a)Panera Bread Company ................................................. 115,200 864,000
(a)The Cheesecake Factory Incorporated .................................. 52,400 2,181,150
-----------
3,045,150
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - General Merchandise - 0.55%
(a)Restoration Hardware, Inc. ........................................... 64,500 $ 338,625
-----------
Retail - Specialty Line - 1.12%
Fastenal Company ..................................................... 14,300 684,612
-----------
Total Common Stocks (Cost $32,387,480) ........................................................ 49,208,946
-----------
INVESTMENT COMPANIES - 8.95%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ............................. 2,730,946 2,730,946
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares ....................... 2,730,946 2,730,946
-----------
Total Investment Companies (Cost $5,461,892) .................................................. 5,461,892
-----------
Total Value of Investments (Cost $37,849,372 (b)) ................................ 89.60 % $54,670,838
Other Assets Less Liabilities .................................................... 10.40 % 6,348,795
------ -----------
Net Assets ................................................................ 100.00 % $61,019,633
====== ===========
(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 ....................................................................... $19,433,510
Unrealized depreciation ....................................................................... (2,612,043)
-----------
Net unrealized appreciation ................................................... $16,821,466
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $37,849,372) ......................................................... $54,670,838
Cash ............................................................................................. 8,031,387
Income receivable ................................................................................ 32,266
-----------
Total assets ................................................................................ 62,734,491
-----------
LIABILITIES
Accrued expenses ................................................................................. 15,154
Payable for investment purchases ................................................................. 1,696,411
Other liabilities ................................................................................ 3,293
-----------
Total liabilities ........................................................................... 1,714,858
-----------
NET ASSETS
(applicable to 1,881,760 shares outstanding; unlimited
shares of no par value beneficial interest authorized) .......................................... $61,019,633
===========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE
PER INSTITUTIONAL CLASS SHARE
($61,019,633 / 1,881,760 shares) ................................................................. $32.43
===========
NET ASSETS CONSIST OF
Paid-in capital .................................................................................. $41,177,987
Undistributed net realized gain on investments ................................................... 3,020,180
Net unrealized appreciation on investments ....................................................... 16,821,466
-----------
$61,019,633
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENT OF OPERATIONS
Year ended March 31, 2000
INVESTMENT LOSS
Income
Dividends .................................................................................... $ 173,327
------------
Expenses
Investment advisory fees (note 2) ............................................................ 351,173
Fund administration fees (note 2) ............................................................ 61,455
Custody fees ................................................................................. 5,731
Registration and filing administration fees (note 2) ......................................... 8,262
Fund accounting fees (note 2) ................................................................ 24,000
Audit fees ................................................................................... 10,413
Legal fees ................................................................................... 5,297
Securities pricing fees ...................................................................... 3,815
Shareholder recordkeeping fees ............................................................... 9,000
Shareholder servicing expenses ............................................................... 5,016
Registration and filing expenses ............................................................. 18,586
Printing expenses ............................................................................ 9,388
Trustee fees and meeting expenses ............................................................ 3,911
Other operating expenses ..................................................................... 4,972
------------
Total expenses ......................................................................... 521,019
------------
Less investment advisory fees waived (note 2) .......................................... (18,220)
------------
Net expenses ........................................................................... 502,799
------------
Net investment loss ............................................................... (329,472)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions .................................................... 4,978,403
Increase in unrealized appreciation on investments ................................................ 15,894,471
------------
Net realized and unrealized gain on investments .............................................. 20,872,874
------------
Net increase in net assets resulting from operations ................................... $ 20,543,402
============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
March 31, March 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ....................................................... $ (329,472) $ (148,904)
Net realized gain from investment transactions ............................ 4,978,403 1,615,338
Increase (decrease) in unrealized appreciation on investments ............. 15,894,471 (3,101,684)
----------- -----------
Net increase (decrease) in net assets resulting from operations ...... 20,543,402 (1,635,250)
----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions ............................ (3,150,167) (170,496)
----------- -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ...... 19,548,813 14,317,387
----------- -----------
Total increase in net assets .................................... 36,942,048 12,511,641
NET ASSETS
Beginning of year ............................................................. 24,077,585 11,565,944
----------- -----------
End of year ................................................................... $61,019,633 $24,077,585
=========== ===========
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------------------------
Year ended Year ended
March 31, 2000 March 31, 1999
Shares Value Shares Value
-----------------------------------------------------------------------------------------
Shares sold .............................. 938,827 $27,362,789 805,203 $16,718,958
Shares issued for reinvestment
of distributions .................... 89,749 2,538,093 8,148 169,715
----------- ----------- ----------- -----------
1,028,576 29,900,882 813,351 16,888,673
Shares redeemed .......................... (382,550) (10,352,069) (127,744) (2,571,286)
----------- ----------- ----------- -----------
Net increase ........................ 646,026 $19,548,813 685,607 $14,317,387
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Year)
------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
March 31, March 31, March 31, March 31, March 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ....................... $19.48 $21.02 $15.01 $15.13 $12.24
Income (loss) from investment operations
Net investment loss ........................... (0.18) (0.12) (0.11) (0.03) (0.06)
Net realized and unrealized gain (loss)
on investments .............................. 15.25 (1.19) 6.36 0.27 4.00
----------- ----------- ----------- ----------- -----------
Total from investment operations ......... 15.07 (1.31) 6.25 0.24 3.94
----------- ----------- ----------- ----------- -----------
Distributions to shareholders from
Net realized gain from investment transactions (2.12) (0.23) (0.24) (0.36) (1.05)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ............................. $32.43 $19.48 $21.02 $15.01 $15.13
=========== =========== =========== =========== ===========
Total return ............................................. 78.85 % (6.27)% 41.84 % 1.56 % 33.00 %
=========== =========== =========== =========== ===========
Ratios/supplemental data
Net assets, end of year ............................ $61,019,633 $24,077,585 $11,565,944 $ 6,518,687 $ 3,740,208
=========== =========== =========== =========== ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees . 1.48 % 1.85 % 2.05 % 2.70 % 3.49 %
After expense reimbursements and waived fees .. 1.43 % 1.50 % 1.50 % 1.50 % 1.69 %
Ratio of net investment income to average net assets
Before expense reimbursements and waived fees . (0.99)% (1.33)% (1.23)% (1.50)% (2.29)%
After expense reimbursements and waived fees .. (0.94)% (0.98)% (0.68)% (0.30)% (0.50)%
Portfolio turnover rate ............................ 28.26 % 29.45 % 11.64 % 13.39 % 23.43 %
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management Small Company Fund (the "Fund") is a
diversified series of shares of beneficial interest of The
Nottingham Investment Trust II (the "Trust"). The Trust, an
open-ended investment company, was organized on October 18, 1990
as a Massachusetts Business Trust and is registered under the
Investment Company Act of 1940, as amended. The investment
objective of the Fund is to seek capital appreciation principally
through investments in equity securities of those companies with
operating revenues of $250 million or less at the time of initial
investment. The Fund began operations on July 23, 1992.
Pursuant to a plan approved by the Board of Trustees of the Trust,
the existing single class of shares of the Fund was redesignated
as the Institutional Class shares of the Fund on June 15, 1995 and
an additional class of shares, the Investor Class shares, was
authorized. To date, only Institutional Class shares have been
issued by the Fund. The Institutional Class shares are sold
without a sales charge and bear no distribution and service fees.
The Investor Class shares will be subject to a maximum 3.50% sales
charge and will bear distribution and service fees which may not
exceed 0.50% of the Investor Class shares' average net assets
annually. The following is a summary of significant accounting
policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities
are carried at value. Securities listed on an exchange or
quoted on a national market system are valued at the last
sales price as of 4:00 p.m. New York time on the day of
valuation. Other securities traded in the over-the-counter
market and listed securities for which no sale was reported
on that date are valued at the most recent bid price.
Securities for which market quotations are not readily
available, if any, are valued by using an independent
pricing service or by following procedures approved by the
Board of Trustees. Short-term investments are valued at cost
which approximates value.
B. Federal Income Taxes - The Fund is considered a personal
holding company as defined under Section 542 of the Internal
Revenue Code since 50% of the value of the Fund's shares
were owned directly or indirectly by five or fewer
individuals at certain times during the last half of the
year. As a personal holding company, the Fund is subject to
federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No
provision has been made for federal income taxes since
substantially all taxable income has been distributed to
shareholders. It is the policy of the Fund to comply with
the provisions of the Internal Revenue Code applicable to
regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all
federal income taxes.
Net investment income (loss) and net realized gains (losses)
may differ for financial statement and income tax purposes
primarily because of losses incurred subsequent to October
31, which are deferred for income tax purposes. The
character of distributions made during the year from net
investment income or net realized gains may differ from
their ultimate characterization for federal income tax
purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ
from the year that the income or realized gains were
recorded by the Fund.
As a result of the Fund's operating net investment loss, a
reclassification adjustment of $329,472 has been made on the
statement of assets and liabilities to decrease accumulated
net investment loss, bringing it to zero, and decrease net
short-term realized gains.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
C. Investment Transactions - Investment transactions are
recorded on the trade date. Realized gains and losses are
determined using the specific identification cost method.
Interest income is recorded daily on an accrual basis.
Dividend income is recorded on the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare
dividends quarterly, payable in March, June, September and
December, on a date selected by the Trust's Trustees. In
addition, distributions may be made annually in December out
of net realized gains through October 31 of that year.
Distributions to shareholders are recorded on the
ex-dividend date. The Fund may make a supplemental
distribution subsequent to the end of its fiscal year ending
March 31.
E. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual
results could differ from those estimates.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Brown Capital
Management, Inc. (the "Advisor") provides the Fund with a
continuous program of supervision of the Fund's assets, including
the composition of its portfolio, and furnishes advice and
recommendations with respect to investments, investment policies
and the purchase and sale of securities. As compensation for its
services, the Advisor receives a fee at the annual rate of 1.00%
of the Fund's average daily net assets.
The Advisor intends to voluntarily waive all or a portion of its
fee and reimburse expenses of the Fund to limit total Fund
operating expenses to 1.50% of the average daily net assets of the
Fund. There can be no assurance that the foregoing voluntary fee
waivers or reimbursements will continue. The Advisor has
voluntarily waived a portion of its fee amounting to $18,220,
($.01 per share) for the year ended March 31, 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 theFund pursuant to a fund accounting and compliance
agreement with the Trust. As compensation for its services, the
Administrator receives a fee at the annual rate of 0.175% of the
Fund's first $50 million of average daily net assets, 0.15% of the
next $50 million of average daily net assets, 0.125% of the next
$50 million of average daily net assets, and 0.10% of average
daily net assets over $150 million. The Administrator also
receives a monthly fee of $2,000 for accounting and recordkeeping
services. 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 investment
securities.
North Carolina Shareholder Services, LLC (the "Transfer Agent")
serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of the Fund shares,
acts as dividend and distribution disbursing agent, and performs
other shareholder servicing functions.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT SMALL COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
Certain Trustees and officers of the Trust are also officers of
the Advisor, the distributor or the Administrator.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term
investments, aggregated $15,808,025 and $8,885,003, respectively,
for the year ended March 31, 2000.
NOTE 4 - DISTRIBUTIONS TO SHAREHOLDERS
For federal income tax purposes, the Fund must report
distributions from net realized gain from investment transactions
that represent long-term capital gain to its shareholders. The
Fund paid a total amount of $2.12 per share distributions for the
year ended March 31, 2000, including $1.88 that is classified as
long term gain. Shareholders should consult a tax advisor on how
to report distributions for state and local income tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
The Brown Capital Management Small Company Fund:
We have audited the accompanying statement of assets and liabilities of The
Brown Capital Management Small Company Fund, including the portfolio of
investments, as of March 31, 2000, and the related statement of operations for
the year then ended, the statements of changes in net assets for the years ended
March 31, 2000 and 1999, and financial highlights for the years presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Brown Capital Management Small Company Fund as of March 31, 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 years, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
International Equity Fund
Market Environment
While US investors and the media are enthralled with the tribulations and
reverberations of the US market, it seems significant gains overseas are
increasingly overlooked. In fact, after four consecutive years where the broad
US market outperformed those overseas, the tide changed in the twelve months
ending March 31, 2000. International markets performed better than those in the
U.S. over that period rising 23.5% as reflected by the Morgan Stanley EAFE index
versus 16.5% for the S&P 500. The biggest contributors to this solid performance
came from Hong Kong, Japan and Switzerland, which rose 58%, 49% and 78%
respectively. Additionally, outstanding performances in emerging markets were
evident as the Morgan Stanley Emerging Markets Free Index roared upward with a
49% gain in the last twelve months.
Periods Ended 3/31/00 Year to One Three Five
Date Year Years Years
Brown International Equity Fund 5.43%
Standard and Poors 500 2.29% 17.94% 27.40% 26.76%
MSCI* EAFE* -0.39% 23.50% 14.66% 10.74%
MSCI* All Country World Ex-US 0.27% 25.04% 15.01% 11.13%
Lipper International Fund Index 0.62% 36.93% 17.81% 16.99%
Performance since 05/28/99 inception 18.56%
Although most of these gains were rather widespread, benefiting many overseas
sectors, the international markets are far from immune to worldwide technology
prosperity. Without question, the most successful investment strategy over the
past year was an overweight stance at the "hyper-growth" end of the market,
particularly in the technology, media and telecommunication sectors (now
commonly referred to as "TMT"). In fact, this collection of stocks in Europe
outperformed the rest of the market by an average of 18% in each of the last
four months alone, for a compounded premium of over 90%! These "new economy
stocks" accounted for all of the market returns in three developed regions of
the world in the first quarter of this year. However, this performance is not
necessarily correlated with improving short-term earnings expectations. Unlike
the US, "old economy" stocks overseas experienced superior earnings revision
trends for most of the past year. Despite that fact, valuation factors in the
first quarter this year suffered their worst performance in over 30 years, as
price trend-following factors registered favorably. Although the global
technology phenomena currently appears to be the driving force in the world
economy for the 21st century, it overshadows profitable investments with an
exposure to the recovering global business cycle, such as global commodities,
European and Asian cyclicals and the overall Japanese market. Your Fund keeps
these variables in mind when investing.
At Brown Capital Management (BCM), we feel that the last 12 months are not
anomalous and that overseas markets should be capable of sustaining attractive
gains. Since inception, your Fund trails the, commonly used, broad international
MSCI EAFE Index, its preferred benchmark, MSCI All Country World Free Ex-USA
Index and, peer group, the Lipper International Funds. Like many, we believe
rating performance against established indexes with only a 10 month track record
is not necessarily an "apples to apples" comparison. With that in mind, your
Fund is off to a great start year-to-date, outperforming all the aforementioned
indexes and the domestic S&P 500 Index.
<PAGE>
Benchmark Insights
While the MSCI EAFE Index and Lipper International Fund Universe are more
popular, we prefer the MSCI All Country World Ex-USA Index due to its exposure
to emerging markets (your portfolio's exposure to these economies can reside
from 0% to 15%, at cost, as stated in your prospectus). Unfortunately, the MSCI
EAFE Index represents only developed countries in the Western Hemisphere with
sizable weightings in European and Japanese economies. We believe fantastic
opportunities exist beyond these borders in less developed emerging markets.
Historically, these markets experience greater growth than more mature
economies. Since so little attention is dedicated to these markets, when strong
fundamental research is applied, there is a greater chance that a manager can
unearth superior, "undiscovered" companies. Consistent with those outcomes and
our firm-wide commitment to identify superior GARP securities (Growth at a
Reasonable Price - superior growth companies without paying too much), emerging
markets are uniquely suited for your Fund's needs and improves its
diversification characteristics while providing strong upside potential.
Portfolio Insights
While the US economy seems poised to register more moderate gains after five
consecutive years of prosperity, overseas economies in Europe, Japan and
emerging Asia & Latin America will continue their upward trajectories. As an
additional kicker, such a relative movement would also see an attractive
strengthening of foreign currencies versus the U.S. dollar to boost returns.
The same GARP approach of selecting stocks triumphed for BCM over the course of
the last 17 years is diligently being applied to the international arena.
Geographically, this bottom-up approach leads us to a 62% weighting in developed
Europe, a 15% position in developed Asia, and a reasonable 13% weighting in the
emerging markets.
Many of the European companies held in your Fund will benefit from the region's
low absolute interest rates, low real yields and inexpensive currency. We
believe these characteristics drive economic growth for an upside surprise in
2000. Financial services companies, such as Skandinaviska Enskilda Banken and
ABN-AMRO will benefit short term from the lower yields and long term from the
region's move toward more equity investing. Technology equipment and
telecommunications providers, such as Alcatel, Philips Electronics and Portugal
Telecom, will continue accelerating their growth trajectories both domestically
and internationally.
In the Asian region, most of the companies that are held in the portfolio will
grow rather handsomely with the continued economic recovery. Relative to the
MSCI EAFE Index however, the Fund's 5% weighting in Japan is low versus the
index's 28% weighting. Using BCM's GARP approach to investing, it is very
difficult to encounter attractive valuations in this recovering market. As of
the end of the quarter, Japan's Nikkei 225 Index was trading at 69.3x its
prospective earnings (for comparison purposes, the S&P 500 Index was trading at
28.6x). While we undoubtedly believe that the Japanese economy is in a recovery
mode, we also feel just as strongly that the stock market roared upward at an
accelerated pace prematurely. A full recovery in this part of the world is very
much dependent on improved consumer spending, and with relatively higher
unemployment rates, layoffs and corporate bankruptcies taking place in corporate
Japan, a full path to recovery is not a foregone conclusion. Any sustained
pullback in the Japanese market may provide us the opportunity to increase our
exposure to this part of Asia.
<PAGE>
Recently, the emerging markets stopped appearing in the financial headlines,
which is probably a good thing. As US investors, we often hear about the
disasters that take place in the emerging markets, such as the Mexican tequila
crisis, the Asian financial crisis, the Brazilian real devaluation, or the
Russian collapse. Lately however, these same markets are benefiting from a
global economic recovery along with improved domestic financial disciplines. The
powerful, inevitable long-term demographic trends that are invariably taking
place in these markets make it a very difficult investment proposition to
ignore. Although the companies in these exciting markets do provide some
individual stock risk, because of their lower correlation to developed markets,
they also tend to lower your overall portfolio risk while providing excess
returns. Leading Latin American telecommunications providers in the fund such as
Telefonica del Peru and Telecomunicacoes de Sao Paulo are being bought out by
Spain's Telefonica, S.A. Cementos de Mexico evolved into the world's 3rd largest
cement company. Teva Pharmaceuticals, the Israeli generic drug manufacturer, is
now the 2nd largest generic prescriptions company in the United States.
Portfolio Outlook
As a general rule, despite the US market's stellar performance in the last five
years, international markets still offer diversification and performance,
assuming you retain a long-term investment horizon (defined as at least 3-5
years at BCM). The more recent sector rotation that is taking place in the
global markets brought with it some rationality into the market. At BCM, we feel
we properly position your international portfolio to take advantage of those
global growth opportunities that will provide attractive returns while paying
what, we feel, is a reasonable price.
Later this month, your Fund will celebrate its first anniversary. We remain
confident that the Fund is well positioned to capitalize on geographical and
economic trends that favor fundamentally strong companies capable of delivering
superior value to clients and prospective clients. Importantly, given the
increasing volatility in US markets, we anticipate a renewed attention to
markets abroad. We are working diligently to ensure as investors look beyond US
boundaries, that your Fund remains a superior diversification tool with a
consistent investment approach.
Sincerely,
Brown Capital Management
International Team
/s/ Eddie C. Brown
Eddie C. Brown
President
/s/ Eddie Ramos
Eddie Ramos
Vice President
<PAGE>
THE BROWN CAPITAL MANAGEMENT
INTERNATIONAL EQUITY FUND
Performance Update - $10,000 Investment
For the period from May 28, 1999 (Commencement of Operations)
to March 31, 2000
[LINE GRAPH HERE]:
--------------------------------------------------------------------------------
BCM MSCI MSCI EAFE
International All Country International
Equity World Free Index
Fund EX USA Index
--------------------------------------------------------------------------------
05/28/1999 $10000 $10000 $10000
06/30/1999 10040 10394 10323
07/31/1999 9950 10623 10617
08/31/1999 9930 10646 10644
09/30/1999 9840 10704 10739
10/31/1999 9970 11088 11129
11/30/1999 10440 11518 11504
12/31/1999 11245 12603 12525
01/31/2000 10834 11904 11718
02/29/2000 11465 12213 12022
03/31/2000 11856 12657 12476
This graph depicts the performance of The Brown Capital Management International
Equity Fund versus the MSCI All Country World Free EX USA Index and the MSCI
EAFE International Index. It is important to note that The Brown Capital
Management International Equity Fund is a professionally managed mutual fund
while the indexes are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
Cumulative Total Return
-------------------
Since Inception
-------------------
18.56%
-------------------
The graph assumes an initial $10,000 investment at May 28, 1999. All dividends
and distributions are reinvested.
At March 31, 2000, The Brown Capital Management International Equity Fund would
have grown to $11,856 - total investment return of 18.56% since May 28, 1999.
At March 31, 2000, a similar investment in the MSCI All Country World Free EX
USA Index would have grown to $12,657 - total investment return of 26.57%; and
the similar investment in the MSCI EAFE International Index would have grown to
$12,476 - total investment return of 24.76% since May 28, 1999.
Past performance is not a guarantee of future performance. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value in US$
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 96.26%
Austrian Equity - 0.93%
OMV AG ............................................................... 200 $ 15,275
--------
Australian Equities - 3.79%
Goodman Fielder Limited .............................................. 16,100 11,745
National Australia Bank Limited ...................................... 1,400 18,027
Pioneer International Limited ........................................ 6,700 18,289
Westpac Banking Corporation Limited .................................. 2,300 14,420
--------
62,481
--------
Belgium Equity - 1.70%
Dexia ................................................................ 203 28,060
--------
British Equities - 16.24%
Allied Zurich Plc .................................................... 2,700 29,650
Amvescap Plc ......................................................... 4,000 54,389
J Sainsbury plc ...................................................... 4,400 19,861
Man (E D & F) Group plc .............................................. 3,000 25,193
Morgan Crucible Company plc .......................................... 3,500 13,705
PowerGen plc ......................................................... 1,400 8,190
Rolls-Royce plc ...................................................... 7,100 23,017
(a)Shire Pharmaceuticals Group PLC ...................................... 1,500 25,623
Unigate plc .......................................................... 5,400 27,605
United News & Media plc .............................................. 1,800 23,671
United Utilities plc ................................................. 1,600 16,716
--------
267,620
--------
Canadian Equity - 0.57%
Noranda, Inc. ........................................................ 900 9,378
--------
Danish Equities - 2.05%
Den Danske Bank Group ................................................ 200 20,921
Unidanmark A/S ....................................................... 200 12,810
--------
33,731
--------
French Equities - 6.55%
Alcatel .............................................................. 100 21,913
Alstom ............................................................... 1,100 30,485
Aventis S. A ......................................................... 400 21,866
Pechiney SA .......................................................... 400 19,591
Scor ................................................................. 300 14,068
--------
107,923
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value in US$
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (Continued)
German Equities - 6.42%
Adidas-Salomon AG ........................................................ 500 $ 27,714
DaimlerChrysler AG ....................................................... 300 19,561
ProSieben Media AG ....................................................... 300 34,404
Rhoen-Klinikum AG ........................................................ 600 24,083
--------
105,762
--------
Hong Kong Equities - 1.38%
CLP Holdings Limited ..................................................... 2,000 8,964
Esprit Holdings Limited .................................................. 14,000 13,665
--------
22,629
--------
Japanese Equities - 5.31%
Coca-Cola West Japan Company Limited ..................................... 900 23,647
Daito Trust Construction Co., Ltd. ....................................... 2,000 34,196
House Foods Corporation .................................................. 2,000 29,584
--------
87,427
--------
Luxembourg Equity - 1.11%
Societe Europeene des Satellites ......................................... 100 18,253
--------
Mexican Equities - 2.19%
Cemex SA de CV ........................................................... 2,800 12,830
(a)Wal-Mart de Mexico SA de CV .............................................. 9,300 23,268
--------
36,098
--------
Netherlands Equities - 7.70%
ABN AMRO Holding NV ...................................................... 700 15,580
Akzo Nobel N.V ........................................................... 500 21,311
Buhrmann NV .............................................................. 800 20,260
DSM NV ................................................................... 600 21,388
Koninklijke (Royal) Philips Electronics N.V .............................. 200 33,563
Vendex KBB N. V .......................................................... 900 14,793
--------
126,895
--------
New Zealand Equity - 1.40%
Telecom Corporation of New Zealand Limited ............................... 5,100 23,066
--------
Norwegian Equity - 0.81%
(a)Storebrand ASA ........................................................... 2,200 13,379
--------
Portugal Equity - 1.94%
Portugal Telecom SA - rights attached .................................... 2,500 32,015
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value in US$
Shares (note 1)
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (Continued)
Spanish Equities - 4.58%
Endesa S.A ................................................................. 1,100 $ 25,198
Repsol-YPF, S.A ............................................................ 800 17,515
Union Electrica Fenosa, S.A ................................................ 1,600 32,813
---------
75,526
---------
Swedish Equities - 3.61%
Holmen AB - B Shares ....................................................... 600 17,382
Skandinaviska Enskilda Banken .............................................. 1,920 20,610
Volvo AB ................................................................... 800 21,515
---------
59,507
---------
Swiss Equities - 5.77%
ABB Ltd. ................................................................... 178 20,430
(a)Distefora Holding AG ....................................................... 110 55,526
Swisscom AG ................................................................ 50 19,169
---------
95,125
---------
U. S. Domestic Equities - 22.21%
Ace Limited ................................................................ 600 13,725
(a)Asia Pulp & Paper Company Ltd. - ADR ....................................... 1,800 13,275
CNH Global N.V ............................................................. 1,510 14,911
Creative Technology Limited ................................................ 1,400 44,404
Dairy Farm International Holdings Limited .................................. 27,700 17,728
Fomento Economico Mexicano, S.A. de C.V. - ADR ............................. 500 22,531
Industrie Natuzzi SpA - ADR ................................................ 1,200 14,100
Korea Telecom Corporation - ADR ............................................ 400 17,525
Magyar Tavkozlesi Rt - ADR ................................................. 400 17,850
Partners Communications Company Ltd. - ADR ................................. 900 14,963
Petroleo Brasileiro S.A. - ADR ............................................. 600 15,975
Royal Bank of Canada ....................................................... 800 38,450
Telefonica del Peru S.A.A. - ADR ........................................... 1,500 25,500
Teva Pharmaceutical Industries Ltd. ........................................ 600 22,388
The Toronto-Dominion Bank .................................................. 1,200 32,025
Videsh Sanchar Nigam Ltd. - GDR ............................................ 900 23,805
XL Capital Ltd. - Class A .................................................. 300 16,613
---------
365,768
---------
Total Common Stocks (Cost $1,382,812) ............................. 1,585,918
---------
INVESTMENT COMPANY - 3.08%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares .......................... 50,810 50,810
(Cost $50,810) ---------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS
March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Value in US$
(note 1)
------------------------------------------------------------------------------------------------------------------------------------
Total Value of Investments (Cost $1,433,622 (b)) 99.34 % $ 1,636,728
Other Assets less Liabilities 0.66 % 10,809
--------------- ----------------
Net Assets 100.00 % $ 1,647,537
=============== ================
(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 $ 296,753
Unrealized depreciation (93,647)
----------------
Net unrealized appreciation $ 203,106
================
The following acronyms are used in this portfolio:
AB - Aktiebolag (Swedish)
ADR - American Depository Receipt
AG - Aktiengesellschaft (German)
NV - Naamloze Vennootschap (Dutch)
PLC - Public Limited Company (British)
SA - Socieded Anonima (Spanish)
SA - Societe Anonyme (French)
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2000
ASSETS
Investments, at value (cost $1,433,622) ................................................................ $1,636,728
Income receivable ...................................................................................... 4,912
Receivable for investments sold ........................................................................ 54,437
Due from advisor (note 2) .............................................................................. 11,877
----------
Total assets ...................................................................................... 1,707,954
----------
LIABILITIES
Accrued expenses ....................................................................................... 15,873
Payable for investment purchases ....................................................................... 34,324
Other liabilities ...................................................................................... 117
Disbursements in excess of cash on demand deposit ...................................................... 10,103
----------
Total liabilities ................................................................................. 60,417
----------
NET ASSETS
(applicable to 139,288 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ................................................ $1,647,537
==========
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($1,647,537 / 139,288 shares) .......................................................................... $ 11.83
==========
NET ASSETS CONSIST OF
Paid-in capital ........................................................................................ $1,399,869
Accumulated net realized gain from investments and foreign currency transactions ....................... 44,546
Net unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies ............................................................. 203,122
----------
$1,647,537
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS
For the period from May 28, 1999
(commencement of operations) to
March 31, 2000
INVESTMENT INCOME
Income
Dividends (net of withholding taxes of $2,040) ................................................... $ 23,533
---------
Expenses
Investment advisory fees (note 2) ................................................................ 11,074
Fund administration fees (note 2) ................................................................ 1,938
Custody fees ..................................................................................... 5,993
Registration and filing administration fees (note 2) ............................................. 414
Fund accounting fees (note 2) .................................................................... 20,000
Audit fees ....................................................................................... 11,208
Legal fees ....................................................................................... 5,004
Securities pricing fees .......................................................................... 10,043
Shareholder recordkeeping fees ................................................................... 7,500
Other accounting fees (note 2) ................................................................... 18,066
Shareholder servicing expenses ................................................................... 1,707
Registration and filing expenses ................................................................. 3,025
Printing expenses ................................................................................ 1,400
Trustee fees and meeting expenses ................................................................ 3,908
Other operating expenses ......................................................................... 986
---------
Total expenses ............................................................................. 102,266
---------
Less:
Expense reimbursements (note 2) ....................................................... (65,007)
Investment advisory fees waived (note 2) .............................................. (11,074)
Fund administration fees waived (note 2) .............................................. (304)
Other accounting fees waived (note 2) ................................................. (3,687)
---------
Net expenses ............................................................................... 22,194
---------
Net investment income ................................................................. 1,339
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investments and foreign currency transactions .................................. 45,215
Increase in unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies ............................................................ 203,122
---------
Net realized and unrealized gain on investments .................................................. 248,337
---------
Net increase in net assets resulting from operations ....................................... $ 249,676
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period from May 28, 1999
(commencement of operations) to
March 31, 2000
INCREASE IN NET ASSETS
Operations
Net investment income .............................................................................. $ 1,339
Net realized gain from investments and foreign currency transactions ............................... 45,215
Increase in unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies ......................................................... 203,122
-----------
Net increase in net assets resulting from operations .......................................... 249,676
-----------
Distributions to shareholders from
Net investment income .............................................................................. (1,339)
Tax distribution in excess of net investment income ................................................ (669)
-----------
Decrease in net assets resulting from distributions ........................................... (2,008)
-----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............................... 1,399,869
-----------
Total increase in net assets ............................................................. 1,647,537
NET ASSETS
Beginning of period .................................................................................... 0
-----------
End of period .......................................................................................... $ 1,647,537
===========
(a) A summary of capital share activity follows:
</TABLE>
<TABLE>
<S> <C> <C>
Shares Value
------------ -------------
Shares sold 139,161 $ 1,398,376
Shares issued for reinvestment of distributions 179 2,008
------------ -------------
139,340 1,400,384
Shares redeemed (52) (515)
------------ -------------
Net increase 139,288 $ 1,399,869
============ =============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
For the period from May 28, 1999
(commencement of operations) to
March 31, 2000
Net asset value, beginning of period $10.00
Income from investment operations
Net investment income 0.02
Net realized and unrealized gain on investments and translation of
assets and liabilities in foreign currencies 1.83
--------------
Total from investment operations 1.85
--------------
Distributions to shareholders from
Net investment income (0.02)
--------------
Net asset value, end of period $11.83
==============
Total return 18.56 %
==============
Ratios/supplemental data
Net assets, end of period $1,647,537
==============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 9.23 % (a)
After expense reimbursements and waived fees 2.00 % (a)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (7.11)% (a)
After expense reimbursements and waived fees 0.12 % (a)
Portfolio turnover rate 23.61 %
(a) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Brown Capital Management International Equity Fund (the "Fund") is a
diversified series of shares of beneficial interest of the Nottingham
Investment Trust II (the "Trust"). The Trust, an open-ended investment
company, was organized on October 18, 1990 as a Massachusetts Business
Trust and is registered under the Investment Company Act of 1940, as
amended. The investment objective of the Fund is to provide its
shareholders with long-term capital growth, consisting of both realized and
unrealized capital gains, through investment in a diversified international
portfolio of marketable securities, primarily equity securities, including
common stock, preferred stocks and debt securities convertible into common
stocks. The Fund invests on a worldwide basis in equity securities of
companies which are incorporated in foreign countries. The Fund began
operations on May 28, 1999. The following is a summary of significant
accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are carried
at value. Securities listed on an exchange or quoted on a national
market system are valued at the last sales price as of 4:00 p.m. New
York time on the day of valuation. Other securities traded in the
over-the-counter market and listed securities for which no sale was
reported on that date are valued at the most recent bid price.
Securities for which market quotations are not readily available, if
any, are valued by using an independent pricing service or by
following procedures approved by the Board of Trustees. Short-term
investments are valued at cost which approximates value.
B. Federal Income Taxes - The Fund is considered a personal holding
company as defined under Section 542 of the Internal Revenue Code
since 50% of the value of the Fund's shares were owned directly or
indirectly by five or fewer individuals at certain times during the
last half of the year. As a personal holding company, the Fund is
subject to federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No provision
has been made for federal income taxes since substantially all taxable
income has been distributed to shareholders. It is the policy of the
Fund to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and to make sufficient
distributions of taxable income to relieve it from all federal income
taxes.
C. Investment Transactions - Investment transactions are recorded on the
trade date. Realized gains and losses are determined using the
specific identification cost method. Interest income is recorded daily
on the accrual basis. Dividend income is recorded on the ex-dividend
date.
D. Distributions to Shareholders - The Fund will made a determination
each year as to the distribution of its net investment income, if any,
and of its realized capital gains, if any, based upon tax
considerations both at the Fund level, and the tax considerations of
its shareholders. There is no fixed dividend rate, and there can be no
assurance as to the payment of any dividends or the realization of any
gains.
E. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amount of
assets, liabilities, expenses and revenues reported in the financial
statements. Actual results could differ from those estimates.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
F. Foreign Currency Translation - Portfolio securities and other assets
and liabilities denominated in foreign currencies are translated into
U.S. dollars based on the exchange rate of such currencies against
U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the
transaction date.
The Fund does not separately report the effect of changes in foreign
exchange rates from changes in market prices on securities held. Such
changes are included in net realized and unrealized gain or loss from
investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between
the recorded amounts of dividends, interest, and foreign withholding
taxes, and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from
changes in foreign exchange rates on foreign denominated assets and
liabilities other than investments in securities held at the end of
the reporting period.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Brown Capital
Management, Inc. (the "Advisor") provides the Fund with a continuous
program of supervision of the Fund's assets, including the composition
of its portfolio, and furnishes advice and recommendations with
respect to investments, investment policies and the purchase and sale
of securities. As compensation for its services, the Advisor receives
a fee at the annual rate of 1.00% on the first $100 million of the
average daily net assets of the Fund and 0.75% of the average daily
net assets over $100 million.
The Advisor intends to voluntarily waive all or a portion of its fee
and reimburse expenses of the Fund to limit total Fund operating
expenses to 2.00% of the average daily net assets of the Fund. There
can be no assurance that the foregoing voluntary fee waivers or
reimbursements will continue. The Advisor has voluntarily waived its
fee amounting to $11,074 ($0.09 per share) and has voluntarily agreed
to reimburse $65,007 of the Fund's operating expenses for the year
ended March 31, 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 an accounting and administrative agreement with
the Trust. As compensation for its services, the Administrator
receives a fee at the annual rate of 0.175% of the Fund's first $50
million of average daily net assets, 0.15% of the next $50 million of
average daily net assets, 0.125% of the next $50 million of average
daily net assets, and 0.10% of average daily net assets over $150
million. The Administrator also received a monthly fee of $2,000 for
accounting and recordkeeping services during this time period. The
contract with the Administrator provides that the aggregate fees for
the aforementioned administration fees 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.
For the year ended March 31, 2000, the administrator has voluntarily
waived a portion of its fees totaling $3,991 ($0.03 per share).
North Carolina Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing
agent. The Transfer Agent maintains the records of each shareholder's
account, answers shareholder inquiries concerning accounts, processes
purchases and redemptions of the Fund shares, acts as dividend and
distribution disbursing agent, and performs other shareholder
servicing functions.
(Continued)
<PAGE>
THE BROWN CAPITAL MANAGEMENT INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
Capital Investment Group, Inc. (the "Distributor"), an affiliate of
the Advisor, serves as the Fund's principal underwriter and
distributor. The Distributor receives any sales charges imposed on
purchases of shares and re-allocates a portion of such charges to
dealers through whom the sale was made, if any.
Certain Trustees and officers of the Trust are also officers of the
Advisor, the Distributor or the Administrator.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, other than short-term investments,
aggregated $1,639,233 and $301,384, respectively, for the year ended March
31, 2000.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Nottingham Investment Trust II and Shareholders of
The Brown Capital Management International Equity Fund:
We have audited the accompanying statement of assets and liabilities of The
Brown Capital Management International Equity Fund, including the portfolio of
investments, as of March 31, 2000, and the related statements of operations,
changes in net assets and financial highlights for the period May 28, 1999
(commencement of operations) to March 31, 2000. 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.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
the securities owned as of March 31, 2000, 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
Brown Capital Management International Equity Fund as of March 31, 2000, the
results of its operations, changes in its net assets and the financial
highlights for the above stated period, in conformity with accounting principles
generally accepted in the United States of America.
/S/ Deloitte & Touche LLP
Princeton, New Jersey
April 20, 2000
<PAGE>
The Brown Capital Management
Mutual Funds are a series of
The Nottingham Investment Trust II
For Shareholder Service Inquiries: For Investment Advisor Inquiries:
Documented: Documented:
The Nottingham Company Brown Capital Management
105 North Washington Street 1201 North Calvert Street
Post Office Drawer 69 Baltimore, Maryland 21202
Rocky Mount, North Carolina 27802-0069
Toll-Free Telephone: Toll-Free Telephone:
1-800-525-3863 1-877-892-4BCM, 1-877-892-4226
World Wide Web @: World Wide Web @:
ncfunds.com browncapital.com
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BROWN CAPITAL MANAGEMENT
