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<PAGE>
CHESAPEAKE INVESTORS, INC.
ANNUAL REPORT
SEPTEMBER 30, 1998
<PAGE>
Dear Shareholder:
The financial report, contained herein, shows results for the fiscal year
ended September 30, 1998. Net investment income totalled $787,576 or
$.21 per share compared to $801,265 or $.21 per share for the previous year.
The net asset value increased to $4.29 per share from $4.22 per share as of
September 30, 1997.
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
November 20, 1998
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<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 schedule of investments in securities,
as of September 30, 1998, the related statement of operations for the year then
ended, the statements of changes in net assest for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 1998, 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 financial highlights referred to
above present fairly, in all material respects, the financial position of
Chesapeake Investors, Inc. as of September 30, 1998, 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 financial highlights for each of
the five years in the period then ended, in conformity with generally
accepted accounting principles.
STOY, MALONE & COMPANY,P.C.
Bethesda, Maryland
November 20, 1998
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<PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<S>
<C>
ASSETS:
Investments in Long-Term Securities, at Value
(Amortized Cost $14,246,955) $15,761,820
Investments in Short-Term Securities
(at cost which approximates market) 237,046
Accrued Interest Receivable 275,484
------------
Total Assets 16,274,350
------------
LIABILITIES:
Accounts Payable and Accrued Expenses 17,145
------------
Total Liabilities 17,145
------------
NET ASSETS:
Net Assets (Equivalent to $4.29 per share based on
3,783,960 shares of capital stock outstanding) $16,257,205
============
</TABLE>
See Notes to Financial Statements
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<PAGE>
CHESAPEAKE INVESTORS, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES
SEPTEMBER 30, 1998
<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 $ 686,540 $ 715,533
Maricopa County
Arizona School District
5.5%, due 7/1/05 AAA 650,000 663,932 710,255
------------ ------------- ------------
Total Arizona 1,350,000 1,350,472 1,425,788
------------ ------------- ------------
Arkansas:
Jefferson County, Arkansas
Single Family Mortgage
7.25%, due 12/1/10 Aaa 365,000 329,923 443,391
Little Rock, Arkansas
Single Family Mortgage,
7.3%:
due 9/1/00 AAA 25,000 24,716 29,355
due 9/1/01 AAA 25,000 24,585 29,355
due 9/1/02 AAA 30,000 29,357 35,225
due 9/1/03 AAA 35,000 34,095 41,097
due 9/1/04 AAA 35,000 33,951 41,097
due 9/1/05 AAA 40,000 38,649 46,967
due 9/1/06 AAA 35,000 33,695 41,097
due 9/1/07 AAA 45,000 43,174 52,839
due 9/1/08 AAA 50,000 47,818 58,709
due 9/1/09 AAA 50,000 47,674 58,709
due 9/1/10 AAA 30,000 28,524 35,226
------------ ------------- ------------
Total Arkansas 765,000 716,161 913,067
------------ ------------- ------------
</TABLE>
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<PAGE>
CHESAPEAKE INVESTORS, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
------ ------------ ------------- ------------
<C> <C> <C> <C>
<S>
California:
Los Angeles, California
Electric Revenue
5.875%, due 9/1/30 AA 300,000 277,956 322,272
------------ ------------- ------------
District of Columbia:
Georgetown University
Revenue Bond
7.4%, due 4/1/18 AA- 750,000 733,040 777,188
------------ ------------- ------------
Florida:
City of Gainesville, Florida,
Utility System Revenue,
9.125%, due 10/1/05 AAA 500,000 500,000 630,805
Florida State Board
of Education - Cap Outlay
7.25%, due 6/1/23 AA 200,000 198,882 214,986
------------ ------------- ------------
Total Florida 700,000 698,882 845,791
------------ ------------- ------------
Georgia:
Municipal Electric Authority
6%, due 1/1/05 AAA 700,000 730,127 776,923
------------ ------------- ------------
Illinois:
Chicago, Illinois
UTGO Public Library
6.60%, due 1/1/04 AAA 700,000 713,998 775,019
Chicago, Illinois
School Finance Authority
5%, due 6/1/09 AAA 650,000 619,156 683,007
------------ ------------- ------------
Total Illinois 1,350,000 1,333,154 1,458,026
------------ ------------- ------------
</TABLE>
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PAGE>
CHESAPEAKE INVESTORS, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
------ ------------ ------------- -----------
<C> <C> <C> <C>
<S>
Louisiana:
Shreveport, Louisiana,
Single Family Mortgage,
6.75%, due 9/1/10 Aaa 405,000 355,125 467,087
------------ ------------- ------------
Massachusetts:
Massachusetts State Utility
Government Bond,
7.625%, due 6/1/08 Aaa 500,000 548,206 558,915
------------ ------------- ------------
Minnesota:
Southern Minnesota Municipal
Power Agency, Serial A
5.7%, due 1/1/05 A+ 650,000 664,596 702,826
------------ ------------- ------------
New York:
New York State
Local Revenue
5.375%, due 4/1/16 A+ 200,000 187,523 206,546
New York State
Local Revenue
5.125%, due 4/1/10 AAA 400,000 392,607 424,960
------------ ------------- ------------
Total New York 600,000 580,130 631,506
------------ ------------- ------------
North Carolina:
North Carolina Municipal
Power Agency
7.25%, due 1/1/07 A- 400,000 429,211 476,008
Charlotte, NC Utility
General Obligation
5.5%, due 7/1/07 AAA 500,000 517,080 534,395
------------ ------------- ------------
Total North Carolina 900,000 946,291 1,010,403
------------ ------------- ------------
</TABLE>
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<PAGE>
CHESAPEAKE INVESTORS, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Oklahoma:
Oklahoma State Turnpike
Authority
Turnpike Revenue
6.125%, due 1/1/20 A+ 360,000 356,116 388,580
----------- ------------- ------------
Pennsylvania:
Allegheny County, Pennsylvania
Hospital Development Authority
6.0%, due 11/1/23 AAA 700,000 673,122 752,437
Commonwealth of Pennsylvania
Utility Government Obligation
6.3%, due 11/1/02 AAA 700,000 711,382 760,690
Pennsylvania State Higher
Educational Facility
Authority
7.15%, due 6/15/15 AAA 500,000 503,386 528,465
Pennsylvania Intergovernmental
Coop Authority Special
Tax Revenue
7%, due 6/15/04 AAA 500,000 515,188 578,430
------------ ------------- ------------
Total Pennsylvania 2,400,000 2,403,078 2,620,022
------------ ------------- ------------
Texas:
Cypress-Fairbanks, Texas
Independent School District
5.5%, due 2/15/10 AAA 700,000 700,000 732,179
Texas Water Development
Board Revenue
5.5%, due 7/15/10 AAA 750,000 752,360 810,548
------------ ------------- ------------
Total Texas 1,450,000 1,452,360 1,542,727
------------ ------------- ------------
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CHESAPEAKE INVESTORS, INC.
SCHEDULE OF INVESTMENTS IN SECURITIES (CONTINUED)
SEPTEMBER 30, 1998
</TABLE>
<TABLE>
<CAPTION>
Face Amortized
Rating* Amount Cost Value
------- ------------ ------------- ------------
<C> <C> <C> <C>
<S>
Utah:
Salt Lake City, Utah
Hospital Revenue
8.125%, due 5/15/15 AAA 700,000 709,458 913,115
------------ ------------- ------------
Washington:
Washington State Public Power
5.125%, due 7/1/17 AAA 400,000 391,803 407,584
------------ ------------- ------------
Total Investments in
Long-Term Securities $ 14,280,000 $ 14,246,955 $ 15,761,820
============ ============= ============
* Ratings - Standard & Poor's or Moody's
Unaudited
<CAPTION>
Face
Amount Cost
------------- --------------
<S>
Investments in Short-Term Securities:
State Street Global Advisor
Tax Free Money Market Fund, 2.39% $ 237,046 $ 237,046
Total Investments ------------- --------------
in Short-Term Securities $ 237,046 $ 237,046
============= ===============
</TABLE>
See Notes to Financial Statements
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PAGE>
CHESAPEAKE INVESTORS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
<C>
<S>
INVESTMENT INCOME:
Interest Income $ 903,896
------------
EXPENSES:
Investment Advisory Fee 55,338
Custodian Fees 8,941
Transfer Agent and Dividend
Disbursing Agent Fees 11,680
Legal and Auditing Services 13,060
Administrative Services 18,000
Compensation of Directors not
Members of the Investment Adviser's Organization 4,000
Printing Costs 3,050
Miscellaneous 2,251
------------
Total Expenses 116,320
------------
Net Investment Income 787,576
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized Gain From Investment
Transactions (Excluding Short-Term Securities):
Proceeds from Sales 406,000
Cost of Investments Sold 402,334
------------
Net Realized Gain on Investments 3,666
------------
Unrealized Gain on Investments:
Unrealized Appreciation of Investments
at Beginning of Period 1,248,756
Unrealized Appreciation of Investments
at End of Period 1,514,865
------------
Net Unrealized Gain on Investments 266,109
------------
Net Realized and Unrealized Gain on
Investments 269,775
------------
Net Increase in Net Assets Resulting
from Operations $ 1,057,351
============
</TABLE>
See Notes to Financial Statements
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CHESAPEAKE INVESTORS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<C> <C>
<S>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net Investment Income $ 787,576 $ 801,265
Net Realized Gain (Loss) on
Investments 3,666 (2,511)
Net Unrealized Gain
on Investments 266,109 252,500
------------- -------------
Net Increase in Net Assets
Resulting from Operations 1,057,351 1,051,254
Dividends to Shareholders from:
Net Investment Income
($.21 and $.19 per share,
respectively) (785,161) (730,476)
Net Realized Gain on Investments
($.00 and $.04 per share,
respectively) - (158,742)
------------- -------------
Total Increase
in Net Assets 272,190 162,036
NET ASSETS:
Beginning of Year 15,985,015 15,822,979
------------- -------------
End of Year (Including Undistributed
Net Investment Income of $823,215
and $820,800, respectively, and
undistributed net realized gains
of $1,155 at September 30, 1998 $ 16,257,205 $ 15,985,015
============= =============
</TABLE>
See Notes to Financial Statements
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<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 and invests solely in municipal obligations.
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 - The Company follows industry practice and records security
transactions on the trade date. 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. Certain securities have optional or mandatory
tender features which give them a shorter effective maturity date.
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<PAGE>
(2) - CAPITAL STOCK
At September 30, 1998, there were 6,000,000 shares of $.50 par value
capital stock authorized. Shares issued and outstanding at September 30, 1998
totalled 3,783,960.
(3) - PURCHASES AND SALES OF SECURITIES
Sales and maturities of securities during fiscal year 1998, other than
short-term securities, aggregated $406,000.
Purchases of long-term securities during fiscal year 1998, aggregated
$391,572.
For Federal income tax purposes, the identified cost of investments
owned, excluding short-term securities, at September 30, 1998, was $14,055,378.
Gross unrealized gains totalled $1,706,442 for Federal income tax purposes
at September 30, 1998.
(4) - INVESTMENT ADVISORY FEE AND 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 fiscal year 1998 totalled $55,338.
For fiscal year 1998, fees of $18,000 for administrative services were
paid to Carrollton Enterprises. The Chairman of the Board is the owner of
that firm.
(5) - DIVIDENDS
During fiscal year 1998, the Company distributed dividends of $785,161
to its shareholders. On October 6, 1998, the Company declared a $.06 per
share dividend aggregating $227,034 payable November 3, 1998, to shareholders of
record October 20, 1998.
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<PAGE>
CHESAPEAKE INVESTORS, INC.
SUPPLEMENTARY INFORMATION
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
<C> <C> <C> <C> <C>
<S>
PER SHARE DATA:*
Investment Income $ .24 $ .24 $ .25 $ .29 $ .32
Expenses .03 .03 .03 .03 .03
------ ------ ------ ------ ------
Net Investment Income .21 .21 .22 .26 .29
Dividends from:
Net Investment Income (.21) (.19) (.23) (.28) (.27)
Net Realized Gain
on Investments - (.04) (.01) - (.03)
Net Realized and
Unrealized Gain
(Loss) on Investments .07 .06 .01 .05 (.32)
------ ------ ------ ------ ------
Net Increase (Decrease)
in Net Asset Value .07 .04 (.01) .03 (.33)
Net Asset Value:
Beginning of Year 4.22 4.18 4.19 4.16 4.49
------ ------ ------ ------ ------
End of Year $ 4.29 $ 4.22 $ 4.18 $ 4.19 $ 4.16
====== ====== ====== ====== ======
RATIOS:
Ratio of Expenses to
Average Net Assets .72% .72% .72% .74% .74%
Ratio of Net Investment
Income to Average Net
Assets 4.90% 5.07% 5.22% 6.18% 6.81%
</TABLE>
*Selected data for a share of capital stock outstanding throughout the year.
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<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, INDEPENDENT AUDITORS
Secretary-Treasurer
Stoy, Malone & Company,P.C.
OFFICES Bethesda, Maryland
11785 Beltsville Drive
Beltsville, Maryland
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