<PAGE>
Dear Shareholder:
The financial report, contained herein, shows results for the fiscal year ended
September 30, 1995. Net investment income totalled $977,339 or $.26 per share
compared to $1,109,906 or $.29 per share for the previous year. During the
fiscal year ended September 30, 1995, bonds acquired in 1985, with a total par
value of $4,550,000 were called. Interest rates of these bonds ranged from 9.2%
to 10.5%. Replacement of these bonds at currently available interest rates
ranging from 6.3% to 7.625% produced a significant decrease in the net
investment income compared with the prior year. Net asset values increased to
$4.19 per share from $4.16 per share as of September 30, 1994.
It is the Company's intent to provide as high a level of income as possible,
consistent with sound investment policies. The market is constantly monitored
to achieve the objectives of a high level of income and the preservation of net
asset value.
Sincerely,
/s/ Albert W. Turner /s/ Warren W. Pearce
Albert W. Turner, Warren W. Pearce, Jr.,
Chairman of the Board President
November 20, 1995
- 1 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Chesapeake Investors, Inc.
We have audited the accompanying statement of assets and liabilities of
Chesapeake Investors, Inc., including the portfolio of investments in securities
schedule, as of September 30, 1995, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the selected per share data and ratios for
each of the five years in the period then ended. These financial statements and
per share data and ratios are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
per share data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1995, by correspondence with the custodian. 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 selected per share data and
ratios referred to above present fairly, in all material respects, the financial
position of Chesapeake Investors, Inc. as of September 30, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the selected per share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Stoy, Malone & Company, P.C.
STOY, MALONE & COMPANY, P.C.
Bethesda, Maryland
November 20, 1995
- 2 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in Securities, at Value (Amortized
Cost $12,784,630) $13,877,004
Temporary Investments in Short-Term Securities
(at cost which approximates market) 1,705,099
Accrued Interest Receivable 302,030
-----------
Total Assets 15,884,133
-----------
LIABILITIES:
Accounts Payable and Accrued Expenses 24,035
-----------
Total Liabilities 24,035
-----------
NET ASSETS:
Net Assets (Equivalent to $4.19 per share based on
3,783,960 shares of capital stock outstanding) $15,860,098
===========
</TABLE>
See Notes to Financial Statements
-3-
<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
-------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investments in Long-Term
Securities:
Arizona:
Salt River Project,
Arizona - Series C Revenue
5.5%, due 1/1/28.............. AA $ 700,000 $ 685,159 $ 644,665
----------- ----------- -----------
Arkansas:
Jefferson County, Arkansas
Single Family Mortgage
7.25%, due 12/1/10............. AAA 365,000 321,274 390,382
Little Rock, Arkansas
Single Family Mortgage,
7.3%:
due 9/1/00 ............. AAA 25,000 24,271 27,680
due 9/1/01 ............. AAA 25,000 24,158 28,057
due 9/1/02 ............. AAA 30,000 28,865 34,055
due 9/1/03 ............. AAA 35,000 33,543 40,108
due 9/1/04 ............. AAA 35,000 33,420 40,416
due 9/1/05 ............. AAA 40,000 38,064 46,432
due 9/1/06 ............. AAA 35,000 33,200 40,775
due 9/1/07 ............. AAA 45,000 42,559 52,535
due 9/1/08 ............. AAA 50,000 47,157 58,413
due 9/1/09 ............. AAA 50,000 47,035 58,380
due 9/1/10 ............. AAA 30,000 28,152 34,933
----------- ----------- ----------
Total Arkansas......... 765,000 701,698 852,166
----------- ----------- ----------
California:
Los Angeles, California
Electric Revenue
5.875%, due 9/1/30............. AA 300,000 275,884 285,708
----------- ----------- ----------
</TABLE>
- 4 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Colorado:
Platte River Power Authority
Colorado,
9.1%, due 6/1/00........... AAA 500,000 499,703 524,550
Mesa County, Colorado
Sales Tax Revenue Refunding
9.2%, due 6/1/96........... AAA 250,000 250,000 258,495
Mesa County, Colorado
Sales Tax Revenue Refunding
9.2%, due 12/1/96.......... AAA 400,000 400,000 423,500
------------ ------------ ------------
Total Colorado........ 1,150,000 1,149,703 1,206,545
------------ ------------ ------------
District of Columbia:
Georgetown University
Revenue Bond
7.4%, due 4/1/18........... A+ 750,000 730,431 811,800
------------ ------------ ------------
Florida:
City of Gainesville, Florida,
Utility System Revenue,
9.125%, due 10/1/05........ AAA 500,000 500,000 619,150
Jacksonville, Florida
Electric Authority '85
10.25%, due 10/1/20........ AAA 500,000 500,000 510,170
Florida State Board
of Education - Cap Outlay
7.25%, due 6/1/23.......... AA 200,000 198,746 225,774
------------ ------------ ------------
Total Florida......... 1,200,000 1,198,746 1,355,094
------------ ------------ ------------
</TABLE>
- 5 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
-------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Illinois:
Chicago, Illinois
UTGO Public Library
6.60%, due 1/1/04............ AAA 700,000 721,996 770,462
------------- ------------- -------------
Louisiana:
Shreveport, Louisiana,
Single Family Mortgage,
6.75%, due 9/1/10............ AAA 405,000 342,569 418,163
------------- ------------- -------------
Massachusetts:
Massachusetts State Utility
Government Bond,
7.625%, due 6/1/08........... AAA 500,000 563,166 582,165
------------- ------------- -------------
New Jersey:
New Jersey State Turnpike,
Revenue Bond,
6.50%, due 1/1/06............ A 700,000 706,053 746,011
------------- ------------- -------------
New York:
New York State
Local Revenue
5.375%, due 4/1/16........... A 200,000 185,385 183,596
Triborough Bridge and
Tunnel Authority -
New York Rev Series
7.875%, due 1/1/18........... AAA 400,000 402,596 436,832
------------- ------------- -------------
Total New York.......... 600,000 587,981 620,428
------------- ------------- -------------
</TABLE>
- 6 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
-------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
North Carolina:
North Carolina Municipal
Power Agency
7.25%, due 1/1/07............ A 400,000 439,834 448,460
------------- ------------- -------------
Oklahoma:
Oklahoma State Turnpike
Authority
Turnpike Revenue
6.125%, due 1/1/20........... A+ 360,000 355,568 364,208
------------- ------------- -------------
Pennsylvania:
Allegheny County, Pennsylvania
Hospital Development Authority
6.0%, due 11/1/23............ AAA 700,000 669,907 686,910
Commonwealth of Pennsylvania
Utility Government Obligation
6.3%, due 11/1/02............ AAA 700,000 719,744 765,023
Pennsylvania State Higher
Educational Facility
Authority
7.15%, due 6/15/15........... AAA 500,000 503,993 554,965
Pennsylvania Intergovernmental
Coop Authority Special
Tax Revenue
7%, due 6/15/04.............. AAA 500,000 523,230 568,355
------------- ------------- -------------
Total Pennsylvania...... 2,400,000 2,416,874 2,575,253
------------- ------------- -------------
South Carolina:
South Carolina State Public
Service Authority
7.3%, due 7/1/21............. AA- 800,000 707,945 832,640
------------- ------------- -------------
</TABLE>
- 7 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Utah:
Salt Lake City, Utah
Hospital Revenue
8.125%, due 5/15/15........... AAA 700,000 711,160 845,376
------------- ------------- -------------
Washington:
Washington State Motor
Vehicle Fuel 86
8.0%, due 9/1/09.............. AAA 500,000 489,863 517,860
------------- ------------- -------------
Total Investments in
Long-Term
Securities.............. $ 12,930,000 $ 12,784,630 $ 13,877,004
============= ============= ==============
* Ratings - Standard & Poor's or Moody's
Unaudited
</TABLE>
<TABLE>
<CAPTION>
Face
Amount Cost
------------- -------------
<S> <C> <C>
Temporary Investments in
Short-Term Securities:
Nations Tax-Exempt Fund
Trust B Shares, 3.737% ........................ $ 1,705,099 $ 1,705,099
------------- -------------
Total Temporary Investments
in Short-Term Securities ................ $ 1,705,099 $ 1,705,099
============= =============
</TABLE>
See Notes to Financial Statements
- 8 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest Income $ 1,095,003
---------------
EXPENSES:
Investment Advisory Fee 53,563
Custodian Fees 11,276
Transfer Agent and Dividend
Disbursing Agent Fees 10,759
Legal and Auditing Services 14,065
Administrative Services 18,000
Compensation of Directors not
Members of the Investment Adviser's Organization 4,000
Printing Costs 2,876
Miscellaneous 3,125
---------------
Total Expenses 117,664
---------------
Net Investment Income 977,339
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized Gain From Investment
Transactions (Excluding Short-Term Securities):
Proceeds from Sales 5,130,404
Cost of Investments Sold 5,074,078
---------------
Net Realized Gain on Investments 56,326
---------------
Unrealized Gain on Investments:
Unrealized Appreciation of Investments
at Beginning of Year 949,350
Unrealized Appreciation of Investments
at End of Year 1,092,374
---------------
Net Unrealized Gain on Investments 143,024
---------------
Net Realized and Unrealized Gain on
Investments 199,350
---------------
Net Increase in Net Assets Resulting
from Operations $ 1,176,689
===============
</TABLE>
See Notes to Financial Statements
- 9 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net Investment Income $ 977,339 $ 1,109,906
Net Realized Gain on
Investments 56,326 27,378
Net Unrealized Gain (Loss)
on Investments 143,024 (1,236,969)
--------------- ---------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,176,689 (99,685)
Dividends to Shareholders from:
Net Investment Income (1,045,545) (1,005,623)
Net Realized Gain on Investments (23,398) (120,105)
--------------- ---------------
Total Increase (Decrease)
in Net Assets 107,746 (1,225,413)
NET ASSETS:
Beginning of Year 15,752,352 16,977,765
--------------- ---------------
End of Year (Including Undistributed
Net Investment Income of $793,428
and $861,634, respectively, and
Undistributed Net Realized Gains
of $56,326 and $23,398, respectively) $ 15,860,098 $ 15,752,352
=============== ===============
</TABLE>
See Notes to Financial Statements
- 10 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) - SIGNIFICANT ACCOUNTING POLICIES
Chesapeake Investors, Inc. (the "Company") is registered under the
Investment Company Act of 1940, as amended, as a diversified closed-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Company in the preparation of
its financial statements. The policies are in conformity with generally accepted
accounting principles.
A. INVESTMENT SECURITY VALUATION - Securities are valued at the mean between
the latest bid and asked prices. Any securities for which market quotations are
not readily available are appraised at fair value as determined in good faith
under methods or procedures authorized by the Board of Directors.
B. FEDERAL INCOME TAXES - The Company intends to comply with the provisions of
the Internal Revenue Code available to investment companies and to distribute to
shareholders annually all of its net investment income. Accordingly, no
provision for Federal income tax is necessary. The Company, based on provisions
of the Internal Revenue Code, expects to distribute income from capital gains to
its shareholders. Accordingly, such gains will be taxable to the shareholders.
The character of dividends from net investment income or net realized gains on
investments may differ from their ultimate characterization for Federal income
tax purposes due to generally accepted accounting principles and tax differences
in the character of income and expense recognition.
C. OTHER - Investment security transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the accrual
basis. Bond premiums and discounts are amortized to income ratably over the
total number of months from date of purchase to date of maturity of the bonds.
-11-
<PAGE>
(2) - CAPITAL STOCK
At September 30, 1995, there were 6,000,000 shares of $.50 par value
capital stock authorized. Shares issued and outstanding at September 30, 1995
totalled 3,783,960.
(3) - PURCHASES AND SALES OF SECURITIES
Sales of securities during fiscal year 1995, other than short-term
securities, aggregated $5,130,404.
Purchases of long-term securities during fiscal year 1995 aggregated
$3,685,013.
For Federal income tax purposes, the identified cost of investments owned,
excluding short-term securities, at September 30, 1995, was $12,603,289.
(4) - INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Investment Counseling, Inc. is the investment adviser to the
Company. The advisory contract provides for an annual fee equal to .35 of 1% of
the weighted average managed assets of the Company. The investment advisory fee
for fiscal year 1995 totalled $53,563.
For fiscal year 1995, fees of $18,000 for administrative services were paid
to Carrollton Enterprises Limited Partnership. The Chairman of the Board is a
partner in that firm.
(5) - DIVIDENDS
During fiscal year 1995, the Company distributed dividends of $1,068,943 to
its shareholders. On October 3, 1995, the Company declared a $.07 per share
dividend payable October 31, 1995, to shareholders of record October 17, 1995.
- 12 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:*
Investment Income $ .29 $ .32 $ .33 $ .34 $ .35
Expenses .03 .03 .03 .03 .03
-------- -------- -------- -------- --------
Net Investment Income .26 .29 .30 .31 .32
Dividends from:
Net Investment Income (.28) (.27) (.30) (.32) (.31)
Net Realized Gain
on Investments - (.03) - - -
Net Realized and Unreal-
ized Gain (Loss) on
Investments .05 (.32) .08 .06 .13
-------- -------- -------- -------- --------
Net Increase (Decrease)
in Net Asset Value .03 (.33) .08 .05 .14
Net Asset Value:
Beginning of Year 4.16 4.49 4.41 4.36 4.22
-------- -------- -------- -------- --------
End of Year $ 4.19 $ 4.16 $ 4.49 $ 4.41 $ 4.36
======== ======== ======== ======== ========
RATIOS:
Ratio of Expenses to
Average Net Assets .74% .74% .70% .73% .72%
Ratio of Net Investment
Income to Average Net
Assets 6.18% 6.81% 6.82% 7.14% 7.46%
</TABLE>
*Selected data for a share of capital stock outstanding throughout the year.
- 13 -
<PAGE>
DIRECTORS INVESTMENT ADVISER
Albert W. Turner Federated Investment
Herndon G. Kilby Counseling, Inc.
Warren W. Pearce, Jr. Pittsburgh, Pennsylvania
John F. Ryon
Wilbert N. Sales
CUSTODIAN
State Street Bank and Trust Company
North Quincy, Massachusetts
TRANSFER AGENT
OFFICERS
Registrar and Transfer Company
Albert W. Turner, Cranford, New Jersey
Chairman of the Board
Warren W. Pearce, Jr., INDEPENDENT AUDITORS
President
Herndon G. Kilby, Stoy, Malone & Company, P.C.
Secretary-Treasurer Bethesda, Maryland
OFFICES
11785 Beltsville Drive
Beltsville, Maryland
- 14 -
