THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
(Unaudited)
Value
Shares (note 1)
------ --------
COMMON STOCKS - 98.08%
Building Materials - 2.93%
Carlisle Companies, Inc. 59,500 $3,064,250
(a)Dal-Tile International, Inc. 192,400 2,813,850
----------
5,878,100
----------
Computers - 11.69%
(a)3Com Corporation 92,000 4,301,000
(a)Compaq Computer Corporation 84,200 4,767,825
(a)Dell Computer Corporation 49,300 3,303,100
(a)EMC Corporation 161,600 3,110,800
(a)Komag, Inc. 109,900 2,335,375
(a)Lexmark International Group 152,300 2,703,325
(a)Sun Microsystems, Inc. 54,100 2,941,687
----------
23,463,112
----------
Computer Software & Services - 12.69%
(a)BMC Software, Inc. 56,900 4,239,050
(a)Cadence Design Systems, Inc. 66,100 1,958,212
Computer Associates International, I 28,200 1,484,025
(a)Computervision Corporation 265,800 1,893,825
(a)DecisionOne Corporation 49,500 829,125
(a)Fiserv, Inc. 105,000 3,556,875
(a)Mentor Graphics Corporation 205,600 2,814,150
(a)Network General Corporation 143,200 2,434,400
(a)Parametric Technology Company 68,100 3,083,656
System Software Associates, Inc. 302,900 3,180,450
----------
25,473,768
Electrical Equipment - 1.22% ----------
(a)Cable Design Technologies 69,000 2,449,500
----------
Electronics - 1.81%
(a)Symbol Technologies, Inc. 81,400 3,632,475
----------
Electronics - Semiconductor - 5.71%
(a)Adaptec, Inc. 79,800 3,980,025
Intel Corporation 67,600 5,391,100
(a)S3, Incorporated 140,800 2,076,800
----------
11,447,925
----------
Environmental Control - 1.97%
(a)USA Waste Services, Inc. 143,600 3,949,000
----------
Hand & Machine Tools - 0.75%
Black & Decker Corporation 38,300 1,512,850
----------
Lodging - 0.73%
(a)Prime Hospitality Corp. 76,800 1,459,200
----------
(Continued)
<PAGE>
THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
(Unaudited)
Value
Shares (note 1)
------ --------
COMMON STOCKS - (Continued)
Machine - Diversified - 1.28%
(a)Global Industrial Technologies, Inc. 52,200 $1,011,375
(a)Novellus Systems, Inc. 41,300 1,559,075
----------
2,570,450
----------
Manufactured Housing - 1.21%
Clayton Homes, Inc. 120,300 2,421,038
----------
Medical Supplies - 3.84%
Ballard Medical Products 119,500 1,971,750
(a)Sofamor Danek Group, Inc. 72,300 2,078,625
US Surgical Corporation 100,000 3,650,000
----------
7,700,375
----------
Medical - Hospital Management & Services - 9.41%
Columbia/HCA Healthcare Corporation 54,732 3,085,516
(a)HEALTHSOUTH Corporation 96,600 3,139,500
(a)Lincare Holdings, Inc. 82,200 3,067,088
(a)Mariner Health Group Inc. 109,800 1,976,400
(a)MedPartners/Mullikin, Inc. 50,500 1,047,875
(a)Ornda HealthCorp 171,900 4,426,425
(a)Vivra, Inc. 70,850 2,134,356
----------
18,877,160
----------
Oil & Gas - Equipment & Services - 2.45%
(a)Petroleum GeoServices A/S 107,000 2,915,750
(a)Reading & Bates Corporation 81,600 1,999,200
----------
4,914,950
----------
Oil & Gas- Exploration - 1.61%
Sonat Offshore Drilling Company 59,000 3,222,875
----------
Pharmaceuticals - 0.74%
(a)Watson Pharmaceuticals, Inc 51,200 1,484,800
----------
Restaurants & Food Service - 0.51%
(a)Boston Chicken, Inc. 29,500 1,021,438
----------
Retail - Apparel - 3.87%
Gap, Inc. 84,100 2,943,500
(a)Gymboree 92,900 2,682,488
Ross Stores, Inc. 55,500 2,136,750
----------
7,762,738
----------
Retail - Department Stores - 5.95%
(a)Consolidated Stores Corporation 56,800 2,158,400
(a)Federated Department Stores,Inc. 93,900 3,251,287
(a)Proffitt's, Inc. 88,100 3,612,100
Sears, Roebuck and Company 66,400 2,921,600
----------
11,943,387
----------
(Continued)
<PAGE>
THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
(Unaudited)
Value
Shares (note 1)
------ --------
COMMON STOCKS - (Continued)
Retail - General Merchandise - 1.28%
(a)Waban, Inc. 121,300 $2,577,625
----------
Retail - Specialty Line - 7.89%
(a)Barnes & Noble 88,200 2,899,575
(a)Borders Group, Inc. 90,000 2,925,000
(a)Hollywood Entertainment Corp 119,700 2,124,675
Lowe's Companies, Inc. 93,500 3,377,688
(a)Office Depot, Inc. 72,000 1,143,000
(a)Sunglass Hut International, Inc. 120,300 1,894,725
(a)Toys "R" Us, Inc. 49,600 1,463,200
----------
15,827,863
Shoes - Leather - 3.70% ----------
(a)Nine West Group, Inc 82,500 4,248,750
(a)Payless ShoeSource, Inc. 90,200 3,168,275
----------
7,417,025
----------
Telecommunications - 2.35%
ECI Telecommunications Limited 135,400 2,792,625
(a)Tel-Save Holdings, Inc. 83,400 1,918,200
----------
4,710,825
----------
Textiles - 5.50%
(a)Jones Apparel Group, Inc. 85,300 4,723,487
Liz Cliborne, Inc. 88,000 3,047,000
Warnaco Group, Inc. 131,800 3,262,050
----------
11,032,537
----------
Telecommunications Equipment - 3.30%
(a)DSC Communications Corporation 68,500 2,037,875
(a)Newbridge Networks Corporation 79,600 4,586,950
----------
6,624,825
----------
Utilities - Electric - 1.73%
(a)Calenergy, Inc. 114,100 3,465,788
----------
Utilities - Telecommunications - 1.96%
(a)WorldCom, Inc. 187,400 3,935,400
----------
Total Common Stocks (Cost $194,114,866) 196,777,029
-----------
Principal
Amount
---------
REPURCHASE AGREEMENT (b) - 1.89%
Wachovia Bank $3,787,382 3,787,382
5.28%, due September 3, 1996 -----------
(Cost $3,787,382)
(Continued)
<PAGE>
THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
(Unaudited)
Total Value of Investments (Cost $197,902,248) 99.97% $200,564,411
Other Assets Less Liabilities 0.03% 66,490
------ ------------
Net Assets 100.00% $200,630,901
====== ============
(a) Non-income producing investment.
(b) The repurchase agreement is fully collateralized by U. S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other funds administered by the
Nottingham Company.
(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 $16,062,945
Unrealized depreciation (13,400,782)
----------
Net unrealized appreciation $2,662,163
==========
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (cost $197,902,248) $200,564,411
Interest receivable 51,944
Dividends receivable 42,618
Receivable for investments sold 5,359,369
Receivable for fund shares sold 24,252
Prepaid expenses 19,447
Deferred organization expenses, net (note 4) 25,756
Due from administrator (note 2) 4,302
Other assets 12,081
-------------------
Total assets 206,104,180
-------------------
LIABILITIES
Accrued expenses 37,453
Payable for investment purchases 1,818,541
Payable for fund shares redeemed 1,000
Due to investment advisor 1,741
Disbursements in excess of cash on demand deposit 3,614,544
-------------------
Total liabilities 5,473,279
-------------------
NET ASSETS $200,630,901
===================
NET ASSETS CONSIST OF
Paid-in capital $206,781,640
Undistributed net investment loss (738,816)
Undistributed net realized loss on investments (8,074,087)
Net unrealized appreciation on investements 2,662,164
-------------------
$200,630,901
===================
INSTITUTIONAL SHARES
Net asset value and offering price per share ($73,114,519 / 5,254,687 shares outstanding) $13.91
===================
SERIES A INVESTOR SHARES
Net asset value and offering price per share ($36,729,322 / 2,648,551 shares outstanding) $13.87
===================
Maximum offering price per share (100 / 97 of $13.87) $14.30
===================
SERIES C INVESTOR SHARES
Net asset value and offering price per share ($8,120,909 / 591,047 shares outstanding) $13.74
===================
SERIES D INVESTOR SHARES
Net asset value and offering price per share ($10,941,566 / 791,581 shares outstanding) $13.82
===================
Maximum offering price per share (100 / 98.5 of $13.82) $14.03
===================
SUPER INSTITUTIONAL SHARES
Net asset value and offering price per share ($71,724,585 / 5,151,320 shares outstanding) $13.92
===================
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE FUND
STATEMENT OF OPERATIONS
For the period ending August 31, 1996
(Unaudited)
INVESTMENT LOSS
Income
Interest $282,968
Dividends 122,363
---------
Total income 405,331
---------
Expenses
Investment advisory fees (note 2) 822,353
Distribution fees - Series A shares (note 3) 50,700
Fund administration fees (note 2) 50,109
Fund accounting fees (note 2) 42,344
Distribution fees - Series D shares (note 3) 39,767
Distribution fees - Series C shares (note 3) 36,458
Professional fees 17,641
Custody fees 11,682
Registration and filing administration fees 9,238
Shareholder administration fees (note 2) 9,085
Shareholder recordkeeping fees 5,137
Securities pricing fees 2,460
Registration and filing expenses 28,180
Printing expenses 8,158
Shareholder servicing expenses 5,048
Amortization of deferred organization expenses (note 4) 4,004
Operating expenses 3,099
Trustee fees and meeting expenses 2,986
---------
Total expenses 1,148,449
---------
Less:
Expense reimbursements - Super Institutional shares (note 2) (4,302)
---------
Net expenses 1,144,147
---------
Net investment loss (738,816)
---------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from investment transactions (2,900,832)
Decrease in unrealized appreciation on investments (9,786,829)
-----------
Net realized and unrealized loss on investments (12,687,661)
-----------
Net decrease in net assets resulting from operations ($13,426,477)
===========
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE FUND
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
Period ended Year ended
August 31, February 29,
1996 1996
<S> <C> ------------ ------------
INCREASE IN NET ASSETS
Operations
Net investment loss ($738,816) ($590,626)
Net realized loss from investment transactions (2,900,832) (3,843,955)
Increase (decrease) in unrealized appreciation on investments (9,786,829) 11,158,332
----------- -----------
Net increase (decrease) in net assets resulting from operations (13,426,477) 6,723,751
Distributions to shareholders from ----------- -----------
Net realized gain from investment transactions 0 (579,228)
Tax return of capital 0 (391,310)
----------- -----------
Decrease in net assets resulting from distributions 0 (970,538)
Capital share transactions ----------- -----------
Increase in net assets resulting from capital share transactions (a) 81,419,323 111,796,492
----------- -----------
Total increase in net assets 67,992,846 117,549,705
NET ASSETS
Beginning of period 132,638,055 15,088,350
----------- -----------
End of period $200,630,901 $132,638,055
=========== ===========
</TABLE>
(a) A summary of capital share activity follows:
<TABLE>
<CAPTION>
Period ended Year ended
August 31, 1996 February 29, 1996
Shares Value Shares Value
------------------- ---------------------
<S> <C>
Institutional Shares
- --------------------
Shares sold 1,085,286 $15,838,914 4,380,621 $64,300,633
Shares issued for reinvestment of distribution 0 0 32,117 481,428
---------- ----------- --------- ----------
Total Shares sold 1,085,286 15,838,914 4,412,738 64,782,061
Shares redeemed (1,385,285) (20,306,751) (191,923) (2,739,490)
---------- ----------- --------- -----------
Net increase (decrease) (299,999) ($4,467,837) 4,220,815 $62,042,571
========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Period ended For the period from April 7, 1995
August 31, 1996 to February 29, 1996
Shares Value Shares Value
------------------- ---------------------------------
<S> <C>
Series A Shares
- ---------------
Shares sold 662,635 $9,687,559 2,375,405 $33,628,982
Shares issued for reinvestment of distribution 0 0 16,639 249,093
------- --------- --------- ----------
Total Shares sold 662,635 9,687,559 2,392,044 33,878,075
Shares redeemed (272,045) (3,970,377) (134,083) (1,836,410)
------- --------- --------- ----------
Net increase 390,590 $5,717,182 2,257,961 $32,041,665
- --------------- ======= ========= ========= ==========
Series C Shares
- ---------------
Shares sold 45,733 $668,820 556,093 $7,112,526
Shares issued for reinvestment of distribution 0 0 3,810 56,850
------- ------- ------- ---------
Total Shares sold 45,733 668,820 559,903 7,169,376
Shares redeemed (6,071) (89,449) (8,518) (107,907)
------- ------- ------- ---------
Net increase 39,662 $579,371 551,385 $7,061,469
- --------------- ======= ======= ======= =========
Series D Shares
- ---------------
Shares sold 61,415 $895,052 990,621 $12,876,680
Shares issued for reinvestment of distribution 0 0 8,302 124,284
------ ------- ------- ----------
Total Shares sold 61,415 895,052 998,923 13,000,964
Shares redeemed (97,943) (1,304,445) (170,814) (2,350,177)
------- --------- ------- ----------
Net increase (decrease) (36,528) ($409,393) 828,109 $10,650,787
======= ========= ======= ==========
</TABLE>
For the period from June 12, 1996
to August 31, 1996
Shares Value
Super Institutional Shares ---------------------------------
- --------------------------
Shares sold 5,151,320 $80,000,000
Shares issued for reinvestment of distribution 0 0
--------- ----------
Total Shares sold 5,151,320 80,000,000
Shares redeemed 0 0
--------- ----------
Net increase 5,151,320 $80,000,000
========= ==========
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Unaudited)
<TABLE>
<CAPTION>
Institutional
For the
period from
April 6, 1994
(commencement
Period ended Year ended of operations) to
August 31, February 29, February 28,
1996 1996 1995
------------ ------------ -----------------
<S> <C>
Net asset value, beginning of period $14.45 $11.31 $10.00
Loss from investment operations
Net investment loss (0.05) (0.05) (0.04)
Net realized and unrealized gain (loss) on investments: (0.49) 3.38 1.35
------------ ------------ -----------------
Total from investment operations (0.54) 3.33 1.31
------------ ------------ -----------------
Distributions to shareholders from
Net investment income 0.00 (0.11) 0.00
Net realized gain from investment transactions 0.00 (0.08) 0.00
------------ ------------ -----------------
Total distributions 0.00 (0.19) 0.00
------------ ------------ -----------------
Net asset value, end of period $13.91 $14.45 $11.31
============ ============ =================
Total return (a) (1.77%) 29.66% 13.12%
============ ============ =================
Ratios/supplemental data
Net assets, end of period (000's) $73,115 $80,252 $15,088
============ ============ =================
Ratio of expenses to average net assets
Before expense reimbursements 1.24% (c) 1.65% 2.75% (c)
After expense reimbursements 1.24% (c) 1.49% 1.73% (c)
Ratio of net investment loss to average net assets
Before expense reimbursements (0.75%) (c) (0.98%) (1.80%)(c)
After expense reimbursements (0.75%) (c) (0.82%) (0.78%)(c)
Portfolio turnover rate 62.93% 99.33% 64.92%
</TABLE>
THE CHESAPEAKE FUND
FINANCIAL HIGHLIGHTS
(continued)
(For a Share Outstanding Throughout the Period)
(Unaudited)
<TABLE>
<CAPTION>
Series A Series C
For the For the
period from period from
April 7, 1995 April 7, 1995
(commencement (commencement
Period ended of operations) to Period ended of operations) to
August 31, February 29, August 31, February 29,
1996 1996 1996 1996
------------ ----------------- ------------ -----------------
<S> <C>
Net asset value, beginning of period $14.42 $11.79 $14.34 $11.79
Loss from investment operations
Net investment loss (0.07) (0.06) (0.13) (0.12)
Net realized and unrealized gain (loss) on investments: (0.48) 2.88 (0.47) 2.86
------------ ----------------- ------------ -----------------
Total from investment operations (0.55) 2.82 (0.60) 2.74
------------ ----------------- ------------ -----------------
Distributions to shareholders from
Net investment income 0.00 (0.11) 0.00 (0.11)
Net realized gain from investment transactions 0.00 (0.08) 0.00 (0.08)
------------ ----------------- ------------ -----------------
Total distributions 0.00 (0.19) 0.00 (0.19)
------------ ----------------- ------------ -----------------
Net asset value, end of period $13.87 $14.42 $13.74 $14.34
============ ================= ============ =================
Total return (a) (1.84%)(b) 23.86%)(b) (2.28%)(b) 23.18%(b)
============ ================= ============ =================
Ratios/supplemental data
Net assets, end of period (000's) $36,729 $32,549 $8,121 $7,908
============ ================= ============ =================
Ratio of expenses to average net assets
Before expense reimbursements 1.54% (c) 1.88% (c) 2.34% (c) 2.38% (c)
After expense reimbursements 1.54% (c) 1.71% (c) 2.34% (c) 2.18% (c)
Ratio of net investment loss to average net assets
Before expense reimbursements (1.06%)(c) (1.20%)(c) (1.85%)(c) (1.77%)(c)
After expense reimbursements (1.06%)(c) (1.04%)(c) (1.85%)(c) (1.57%)(c)
Portfolio turnover rate 62.93% 99.33% 62.93% 99.33%
</TABLE>
THE CHESAPEAKE FUND
FINANCIAL HIGHLIGHTS
(continued)
(For a Share Outstanding Throughout the Period)
(Unaudited)
<TABLE>
<CAPTION>
Super
Series D Institutional
For the For the
period from period from
April 7, 1995 June 12, 1996
(commencement (commencement
Period ended of operations) to of operations) to
August 31, February 29, August 31,
1996 1996 1996
------------ ----------------- -----------------
<S> <C>
Net asset value, beginning of period $14.41 $11.79 $15.53
Loss from investment operations
Net investment loss (0.36) (0.11) (0.02)
Net realized and unrealized gain (loss) on investments: (0.23) 2.92 (1.59)
------------ ----------------- -----------------
Total from investment operations (0.59) 2.81 (1.61)
------------ ----------------- -----------------
Distributions to shareholders from
Net investment income 0.00 (0.11) 0.00
Net realized gain from investment transactions 0.00 (0.08) 0.00
------------ ----------------- -----------------
Total distributions 0.00 (0.19) 0.00
------------ ----------------- -----------------
Net asset value, end of period $13.82 $14.41 $13.92
============ ================= =================
Total return (a) (2.12%)(b) 23.77%(b) (10.37%)
============ ================= =================
Ratios/supplemental data
Net assets, end of period (000's) $10,942 $11,929 $71,725
============ ================= =================
Ratio of expenses to average net assets
Before expense reimbursements 2.02% (c) 2.13% (c) 1.07% (c)
After expense reimbursements 2.02% (c) 1.73% (c) 1.04% (c)
Ratio of net investment loss to average net assets
Before expense reimbursements (1.54%)(c) (1.54%)(c) (0.57%)(c)
After expense reimbursements (1.54%)(c) (1.14%)(c) (0.54%)(c)
Portfolio turnover rate 62.93% 99.33% 62.93%
</TABLE>
(a) Not annualized.
(b) Total return does not reflect payment of a sales charge.
(c) Annualized
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Chesapeake Fund (the "Fund") is a diversified series of shares of
beneficial interest of the Gardner Lewis Investment Trust (the
"Trust"). The Trust, an open-end investment company, was organized on
August 12, 1992 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940. The Fund began operations on
April 6, 1994. 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 Shares of the Fund on February 3,
1995, and three new classes of shares - Series A, Series C and Series D
Investor Shares (the "Investor Shares") - were authorized. On April 7,
1995, Series A, Series C and Series D Investor Shares became effective.
The Board of Trustees of the Trust approved on May 2, 1996 a plan to
authorize a new class of shares designated as the Super Institutional
Shares. On June 12, 1996, the Super Institutional Shares became
effective. The Institutional Shares and Super Institutional Shares are
offered to institutional investors without a sales charge and bear no
distribution and service fees. The Investor Shares are offered with a
sales charge (except for Series C Shares) at different levels and bear
distribution fees at different levels.
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, ongoing distribution and service fees, and various expenses
that can be attributed to specific class activity. Income, expenses
(other than distribution and service fees, which are attributable to
each class of Investor Shares based upon a set percentage of its net
assets, and other expenses which can be traced to specific class
activity), and realized and unrealized gains or losses on investments
are allocated to each class of shares based upon its relative net
assets. All classes have equal voting privileges since the Trust
shareholders vote in the aggregate, not by fund or class, 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 a particular
fund or 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 the last quoted
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 - 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.
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.
(Continued)
<PAGE>
THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
(Unaudited)
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
and distributions to shareholders are recorded on the
ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends
quarterly, generally payable in March, June, September and
December, on a date selected by the Trust's Trustees. In
addition, distributions may be made annually in November 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.
The Fund has elected to defer the recognition of $5,154,085 of
post-October capital losses for federal income tax purposes.
These capital losses will be recognized during the year ending
February 28, 1997. It is the intention of the Board of
Trustees of the Trust not to distribute any realized gains
until these capital losses have been offset.
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 estimated.
F. Repurchase Agreements - The Fund may acquire U. S. Government
Securities or corporate debt securities subject to repurchase
agreements. A repurchase agreement transaction occurs when
the Fund acquires a security and simultaneously resells it to
the vendor (normally a member bank of the Federal Reserve or a
registered Government Securities dealer) for delivery on an
agreed upon future date. The repurchase price exceeds the
purchase price by an amount which reflects an agreed upon
market interest rate earned by the Fund effective for the
period of time during which the repurchase agreement is in
effect. Delivery pursuant to the resale typically will occur
within one to five days of the purchase. The Fund will not
enter into a repurchase agreement which will cause more than
10% of its net assets to be invested in repurchase agreements
which extend beyond seven days. In the event of the bankruptcy
of the other party to a repurchase agreement, the Fund could
experience delays in recovering its cash or the securities
lent. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could
experience a loss. In all cases, the creditworthiness of the
other party to a transaction is reviewed and found
satisfactory by the Advisor. Repurchase agreements are, in
effect, loans of Fund assets. The Fund will not engage in
reverse repurchase transactions, which are considered to be
borrowings under the Investment Company Act of 1940.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Gardner Lewis Asset
Management (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.
(Continued)
<PAGE>
THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
(Unaudited)
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 0.075% of the average daily net assets for
the Institutional Shares and for Series A, Series C, and Series D
Investor Shares. The Administrator also receives a monthly fee of
$1,750 for each class of shares for accounting and recordkeeping
services. Additionally, the Administrator charges the Fund for
servicing of shareholder accounts and registration of the Fund's
shares. The contract with the Administrator provides that the aggregate
fees for the aforementioned administration, accounting and
recordkeeping services shall not be less than $3,000 per month. The
Administrator receives a fee at the annual rate of 0.015% of average
daily net assets for shareholder administration costs. The
Administrator also charges the Fund for certain expenses involved with
the daily valuation of portfolio securities.
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's
principal underwriter and distributor. The Distributor receives any
sales charges imposed on purchases of shares and re-allocates a portion
of such charges to dealers through whom the sale was made, if any. For
the period ended August 31, 1996, the Distributor retained sales
charges in the amount of $7,620.
Certain Trustees and officers of the Trust are also officers or
directors of the Advisor or the Administrator.
NOTE 3 - DEFERRED ORGANIZATION EXPENSES
Expenses totalling $66,799 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 4 - 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"), adopted a distribution plan with respect to
Investor Shares pursuant to Rule 12b-1 of the Act (the "Plan"). Rule
12b-1 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 0.25%, 0.75% and 0.50% per annum of the average daily net assets
of Series A, Series C and Series D Investor 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 of the Fund or support
servicing of shareholder accounts.
(Continued)
<PAGE>
THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
(Unaudited)
The Fund incurred $50,700, $36,458 and $39,767 in distribution and
service fees under the Plan with respect to Series A, Series C and
Series D Investor Shares, respectively, for the period ended August 31,
1996.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments other than short-term investments
aggregated $188,493,990 and $95,530,160, respectively, for the period
ended August 31, 1996.
<PAGE>
