<PAGE>
CHESAPEAKE INVESTORS, INC
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
MARCH 31, 1996
<PAGE>
Dear Shareholder:
The financial report, contained herein, shows results for the six month period
ended March 31, 1996. Net investment income totalled $412,384 or $.11 per share
compared to $503,567 or $.13 per share for the six month period ended March 31,
1995. During the fiscal year ended September 30, 1995 and the six month period
ended March 31, 1996, bonds acquired in 1985, with a total par value of
$4,550,000 and $500,000, respectively were called. Interest rates of these
bonds ranged from 9.2% to 10.5%. Replacement of these bonds at currently
available interest rates which are significantly lower produced a decrease in
the net investment income compared with prior periods. The net asset value at
March 31, 1996 and September 30, 1995 was $4.19 per share.
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,
Albert W. Turner, Warren W. Pearce, Jr.,
Chairman of the Board President
May 17, 1996
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<PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in Securities, at Value (Amortized
Cost $12,309,251) $13,430,763
Temporary Investments in Short-Term Securities
(at cost which approximates market) 2,168,452
Receivables:
Interest 274,337
------------
Total Assets 15,873,552
------------
LIABILITIES:
Payables:
Expenses 20,201
------------
Total Liabilities 20,201
------------
NET ASSETS:
Net Assets (Equivalent to $4.19 per share based on
3,783,960 shares of capital stock outstanding) $15,853,351
============
</TABLE>
See Notes to Financial Statements
- 2 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES
MARCH 31, 1996
(UNAUDITED)
<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 $ 685,389 $ 657,104
-------------- ------------- ----------------
Arkansas:
Jefferson County, Arkansas
Single Family Mortgage
7.25%, due 12/1/10 ............ Aaa 365,000 322,715 415,607
Little Rock, Arkansas
Single Family Mortgage,
7.3%:
due 9/1/00 ................ AAA 25,000 24,345 29,290
due 9/1/01 ................ AAA 25,000 24,229 29,290
due 9/1/02 ................ AAA 30,000 28,947 35,148
due 9/1/03 ................ AAA 35,000 33,635 41,006
due 9/1/04 ................ AAA 35,000 33,508 41,006
due 9/1/05 ................ AAA 40,000 38,161 46,864
due 9/1/06 ................ AAA 35,000 33,283 41,006
due 9/1/07 ................ AAA 45,000 42,662 52,722
due 9/1/08 ................ AAA 50,000 47,267 58,580
due 9/1/09 ................ AAA 50,000 47,142 58,580
due 9/1/10 ................ AAA 30,000 28,214 35,148
-------------- ------------- -----------------
Total Arkansas ............ 765,000 704,108 884,247
-------------- ------------- -----------------
California:
Los Angeles, California
Electric Revenue
5.875%, due 9/1/30 ........... AA 300,000 276,229 291,360
-------------- ------------- -----------------
</TABLE>
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<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
<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 500,000 499,735 504,620
Mesa County, Colorado
Sales Tax Revenue Refunding
9.2%, due 6/1/96 ......... AAA 250,000 250,000 251,893
Mesa County, Colorado
Sales Tax Revenue Refunding
9.2%, due 12/1/96 ......... AAA 400,000 400,000 406,992
-------------- --------------- ------------------
Total Colorado ......... 1,150,000 1,149,735 1,163,505
-------------- --------------- ------------------
District of Columbia:
Georgetown University
Revenue Bond
7.4%, due 4/1/18 ......... AA- 750,000 730,866 810,885
-------------- --------------- ------------------
Florida:
City of Gainesville, Florida,
Utility System Revenue,
9.125%, due 10/1/05 ....... AAA 500,000 500,000 655,460
Florida State Board
of Education - Cap Outlay
7.25%, due 6/1/23 ......... AA 200,000 198,769 223,398
-------------- --------------- ------------------
Total Florida ....... 700,000 698,769 878,858
-------------- --------------- ------------------
</TABLE>
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<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
-------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Illinois:
Chicago, Illinois
UTGO Public Library
6.6%, due 1/1/04 ............ AAA 700,000 720,663 769,517
-------------- ------------- -------------
Louisiana:
Shreveport, Louisiana,
Single Family Mortgage,
6.75%, due 9/1/10 ............ Aaa 405,000 344,662 454,507
-------------- ------------- -------------
Massachusetts:
Massachusetts State Utility
Government Bond,
7.625%, due 6/1/08 ........... A+ 500,000 560,673 576,690
-------------- ------------- -------------
New York:
New York State
Local Revenue
5.375%, due 4/1/16 ........... A+ 200,000 185,741 188,434
Triborough Bridge and -------------- ------------- -------------
Tunnel Authority -
New York Rev Series
7.875%, due 1/1/18 ........... AAA 400,000 402,538 431,020
-------------- ------------- -------------
Total New York ........... 600,000 588,279 619,454
-------------- ------------- -------------
</TABLE>
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<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
<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 400,000 438,064 453,096
Charlotte, North Carolina
Utility General Obligation
5.5%, due 7/1/07 ............ AAA 700,000 730,744 733,068
---------------- -------------- ----------------
Total North Carolina ..... 1,100,000 1,168,808 1,186,164
---------------- -------------- ----------------
Oklahoma:
Oklahoma State Turnpike
Authority
Turnpike Revenue
6.125%, due 1/1/20 .......... A+ 360,000 355,659 371,592
---------------- -------------- ----------------
Pennsylvania:
Allegheny County, Pennsylvania
Hospital Development Authority
6.0%, due 11/1/23 ........... AAA 700,000 670,443 707,903
Pennsylvania State Higher
Educational Facility
Authority
7.15%, due 6/15/15 .......... AAA 500,000 503,892 549,895
Pennsylvania State
Utility General Obligation
6.3%, due 11/1/02 ........... AAA 700,000 718,350 763,224
Pennsylvania Intergovernmental
Coop Authority Special
Tax Revenue
7.0%, due 6/15/04 ........... AAA 500,000 521,890 566,640
---------------- -------------- ----------------
Total Pennsylvania ....... 2,400,000 2,414,575 2,587,662
---------------- -------------- ----------------
</TABLE>
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<PAGE>
CHESAPEAKE INVESTORS, INC.
PORTFOLIO OF INVESTMENTS IN SECURITIES (CONTINUED)
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
-------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
South Carolina:
South Carolina State Public
Service Authority
7.3%, due 7/1/21 ........... A+ 800,000 709,733 823,295
-------------- -------------- ----------------
Utah:
Salt Lake City, Utah
Hospital Revenue
8.125%, due 5/15/15 .......... AA 700,000 710,876 846,993
-------------- -------------- ----------------
Washington:
Washington State Motor
Vehicle Fuel 86
8.0%, due 9/1/09 ............ AAA 500,000 490,227 508,930
-------------- -------------- ----------------
Total Investments in
Long-Term
Securities ............. $ 12,430,000 $ 12,309,251 $ 13,430,763
============== ============== ================
</TABLE>
* Ratings - Standard & Poor's or Moody's
Unaudited
<TABLE>
<CAPTION>
Face
Amount Cost
-------------- -----------------
<S> <C> <C>
Temporary Investments in
Short-Term Securities:
Seven Seas Tax Free
Money Market Funds, 2.4% .................... $ 2,168,452 $ 2,168,452
-------------- -----------------
Total Temporary Investments
in Short-Term Securities ................. $ 2,168,452 $ 2,168,452
============== =================
</TABLE>
See Notes to Financial Statements
- 7 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest Income $ 476,931
-----------------
EXPENSES:
Investment Advisory Fee 27,384
Custodian Fees 4,234
Transfer Agent and Dividend
Disbursing Agent Fees 4,920
Legal and Auditing Services 13,392
Administrative Services 9,000
Compensation of Directors not
Members of the Investment Adviser's Organization 3,000
Printing Costs 1,669
Miscellaneous 948
-----------------
Total Expenses 64,547
-----------------
Net Investment Income 412,384
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized Gain From Investment
Transactions (Excluding Short-Term Securities):
Proceeds from Sales 1,249,403
Cost of Investments Sold 1,205,758
-----------------
Net Realized Gain on Investments 43,645
-----------------
Unrealized Gain on Investments:
Unrealized Appreciation of Investments
at Beginning of Period 1,092,374
Unrealized Appreciation of Investments
at End of Period 1,121,513
-----------------
Net Unrealized Gain on Investments 29,139
-----------------
Net Realized and Unrealized Gain on
Investments 72,784
-----------------
Net Increase in Net Assets Resulting
from Operations $ 485,168
=================
</TABLE>
See Notes to Financial Statements
- 8 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Six Month Period Year Ended
Ended March 31, September 30,
1996 1995
(Unaudited) (Audited)
--------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net Investment Income $ 412,384 $ 977,339
Net Realized Gain on
Investments 43,645 56,326
Net Unrealized Gain
on Investments 29,139 143,024
-------------- ---------------
Net Increase in Net Assets
Resulting from Operations 485,168 1,176,689
Dividends to Shareholders from:
Net Investment Income (435,589) (1,045,545)
Net Realized Gain on Investments (56,326) (23,398)
-------------- ---------------
Total Increase (Decrease)
in Net Assets (6,747) 107,746
NET ASSETS:
Beginning of Period 15,860,098 15,752,352
-------------- ---------------
End of Period (Including Undistributed
Net Investment Income of $770,223
and $793,428, respectively, and
Undistributed Net Realized Gains
of $43,645 and $56,326, respectively) $ 15,853,351 $ 15,860,098
============== ==============
</TABLE>
See Notes to Financial Statements
- 9 -
<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.
- 10 -
<PAGE>
(2) - CAPITAL STOCK
At March 31, 1996, there were 6,000,000 shares of $.50 par value capital
stock authorized. Shares issued and outstanding at March 31, 1996 totalled
3,783,960.
(3) - PURCHASES AND SALES OF SECURITIES
Sales of securities during the six month period ended March 31, 1996,
other than short-term securities, aggregated $1,249,403.
Purchases of long-term securities during the six month period ended March
31, 1996 aggregated $730,744.
For Federal income tax purposes, the identified cost of investments
owned, excluding short-term securities, at March 31, 1996, was $12,119,206.
(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 the six month period ended March 31, 1996 totalled $27,384.
For the six month period ended March 31, 1996, fees of $9,000 for
administrative services were paid to Carrollton Enterprises Limited Partnership.
The Chairman of the Board is a partner in that firm.
(5) - DIVIDENDS
During the six month period ended March 31, 1996, the Company distributed
dividends of $491,915 to its shareholders. On March 19, 1996, the Company
declared a $.05 per share dividend payable April 16, 1996, to shareholders of
record April 2, 1996.
- 11 -
<PAGE>
CHESAPEAKE INVESTORS, INC.
SUPPLEMENTARY INFORMATION
SELECTED PER SHARE DATA AND RATIOS
<TABLE>
<CAPTION>
Six-Months Fiscal Fiscal Fiscal Fiscal
March 31, Year Year Year Year
1996 1995 1994 1993 1992
--------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:*
Investment Income $ .13 $ .29 $ .32 $ .33 $ .34
Expenses .02 .03 .03 .03 .03
--------- --------- ---------- -------- ---------
Net Investment Income .11 .26 .29 .30 .31
Dividends from:
Net Investment Income (.12) (.28) (.27) (.30) (.32)
Net Realized Gain
on Investments (.01) - (.03) - -
Net Realized and Unreal-
ized Gain (Loss) on
Investments .02 .05 (.32) .08 .06
--------- --------- ---------- -------- ---------
Net Increase (Decrease)
in Net Asset Value - .03 (.33) .08 .05
Net Asset Value:
Beginning of Year 4.19 4.16 4.49 4.41 4.36
--------- --------- ---------- -------- ---------
End of Year $ 4.19 $ 4.19 $ 4.16 $ 4.49 $ 4.41
========= ========= ========== ======== =========
RATIOS:
Ratio of Expenses to
Average Net Assets .41% .74% .74% .70% .73%
Ratio of Net Investment
Income to Average Net
Assets 2.60% 6.18% 6.81% 6.82% 7.14%
</TABLE>
*Selected data for a share of capital stock outstanding throughout the year.
- 12 -
<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
OFFICERS TRANSFER AGENT
Albert W. Turner, Registrar and Transfer Company
Chairman of the Board Cranford, New Jersey
Warren W. Pearce, Jr.,
President
Herndon G. Kilby,
Secretary-Treasurer
OFFICES
11785 Beltsville Drive
Beltsville, Maryland
- 13 -