--------------------
THE CHESAPEAKE FUNDS
--------------------
October 1, 1996
Dear Shareholder:
The Chesapeake Growth Fund closed the September quarter with a gain
of 1.6% which compares to a gain of 3.1% for the S&P 500 and losses of 0.2%
and 0.1% for the Nasdaq Industrials and Russell 2000, respectively. Our
significant rebound from the mid-summer's 20% sell-off in the over-the-counter
market demonstrates that fundamentals are once again in the forefront of
investor thinking. For, despite having recovered from much of its decline, the
Nasdaq is still laden with serious casualties, casualties masked by the
seemingly neutral performance of the index which in no way illustrates the
change in leadership that has begun to emerge. With sustained price declines in
numerous cases exceeding 50%, many of the first half's speculative excesses,
best evidenced in the IPO market and in concept oriented stocks, have been wrung
out by a more rational investing public.
With the proceeds from these sales, investors are seeking solid
evidence of fundamental strength and more reasonable valuations. Additionally,
they appear more willing to differentiate among stocks in similar sectors. This
is a welcome change from the past year's blanket sectoral think which seemed
to culminate in a June/July sell-off. Since then, the environment for stock
pickers like us has improved. Although we always think individual stock
selection key to investment successes, it is currently viewed as critical
even by those who usually do not, because general economic good health
has been clouded by fear of inflation one day and recession the next, in turn
fueling volatility and causing investors to be less willing to make "top down"
or sectoral decisions. This has decreased their previously strong appetites
for areas we preclude from our process because of lack of earnings
predictability like financials and basic commodities, and refocused them
on individual company fundamentals.
Our companies' stock prices have benefitted from this focus, a benefit
we think soon furthered as contract awards, earnings announcements, and Wall
Street reports evidence their fundamental strength. Interestingly, investors
seem more content to wait for news than dig for it themselves. We currently
find ourselves in an environment characterized by decreased investor calls
to company managements, lack of investor attention in the abundance of
opportunity created by the recent sell-off, and thus far, fundamentally
driven price moves concentrated in more well recognized larger
capitalization stocks. Obviously, it is a good environment in which to kick
tires.
More important than our more optimist view relative to the market's
backdrop, is our excitement over our existent portfolio which includes
a significant number of new names purchased during the market's sell-off.
These names have further broadened our portfolio's diversification while
maintaining a better than 30% aggregate earnings growth rate with a price
earnings ratio of 15.
Contributing to our strong snap back in August and September was the
exposure we had to well positioned PC related companies whose strength
in product and service and innovative distribution methodologies drove both
sales and profits higher at the expense of inferior competitors. This all
occurred despite inaccurate rumors of broad based softness in PC sales
which were partly to blame for the sell-off's first phase. As is often
the case, weak competitors had weak result which in no way were related
to those of our companies, and as this differentiation was evidenced,
Wall Street took notice.
Fund Administration Investment Advisor
105 North Washington Street Gardner Lewis Asset Management
Post Office Drawer 69 285 Wilmington-West Chester Pike
Rocky Mount, North Carolina 27802-0069 Chadds Ford, Pennsylvania 19317
(800)430-3863 (610)558-2800
<PAGE>
We also benefitted from exposure to forward thinking retailers whose
strategies have allowed them to capitalize on everything from the work place
shift toward more casual attire to the customer's love of category killing
concepts. Sales trends within our portfolio's retail companies continue to
strengthen as we head into fall telling us that their product offerings are
right for the all important holiday season.
In addition to the aforementioned, the portfolio should also benefit
from new areas of opportunity uncovered through the hundreds of conversations
we have each month with companies at the forefront of change. For instance,
in our discussions with the company managements, we are hearing more and more
about logistical planning. Businesses are frustrated with problems ranging
from moving product to market to integrating on-line transaction processing
needs. And, as this issue grows in importance, so grow the profits of those
helping to address it. We have discovered and invested in a number of companies
whose businesses vary from software to transport that are helping to solve
today's significant bottlenecks. But so far, leading edge solutions are in
many cases just scratching the surface.
To understand how large this opportunity is, you need only extrapolate
from the following point. It now takes BMW just one day to manufacture a car,
but it takes 36 days to deliver it to one of its dealers. Imagine the positive
ripple effect on raw material, work in process, and inventory control that
would both drive higher profit margins, and, because of such amazing service,
higher sales, if this same delivery could be made within a week. Similar
problems potentially exist in almost any business, and so can solutions. In
fact, we have seen enormous benefit in this area in our own business as we have
implemented technological enhancements to both research and administrative
efforts. As companies as dissimilar as Gardner Lewis (the Fund's investment
advisor) and BMW continue, through both technology and innovation, to change the
way they manage their processes, the opportunities in this area will multiply.
Thus, given its far reaching applications, logistical planning is also a huge
opportunity for those investors that participate in its resolution.
With a strong current portfolio, an abundance of opportunity, and an
investor mindset refocused on fundamentals, we look forward to the future.
We welcome Ray Carabello and Melanie Strange to our staff. Have a pleasant fall.
Sincerely,
/s/ W. Whitfield Gardner /s/ John L. Lewis, IV
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
--------------------
THE CHESAPEAKE FUNDS
--------------------
a series of the Gardner Lewis Investment Trust
Annual Report 1996
FOR THE YEAR ENDED AUGUST 31
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
THE CHESAPEAKE GROWTH FUND
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
1-800-430-3863
<PAGE>
THE CHESAPEAKE GROWTH FUND
Performance Update - $25,000 Investment
For the period from January 4, 1993
(commencement of operations) to August 31, 1996
THE CHESAPEAKE GROWTH FUND
FISCAL YEAR - 1996
[GRAPH]
CHES GROWTH NASDAQ S&P 500
DATE FUND INDEX INDEX
01/04/93 24,250.00 24,250.00 24250
01/31/93 24,541.00 25,053.01 24461.25
02/28/93 24,065.70 23,503.63 24794.59
03/31/93 25,106.03 24,054.81 25317.75
04/30/93 24,916.88 22,894.80 24705.82
05/31/93 26,473.73 24,722.63 25366.72
06/30/93 27,213.35 24,593.18 25440.98
07/31/93 27,232.75 24,175.83 25338.67
08/31/93 28,765.35 25,510.47 26300.07
09/30/93 29,757.18 26,299.32 26098.41
10/31/93 29,929.35 26,879.83 26638.25
11/30/93 30,203.17 26,389.66 26384.34
12/31/93 32,341.68 27,166.38 26703.34
01/31/94 34,884.72 28,246.49 27611.17
02/28/94 35,797.35 28,136.25 26861.48
03/31/94 33,027.39 26,262.23 25690.67
04/30/94 33,098.92 25,768.70 26020.11
05/31/94 32,132.03 25,154.14 26447.12
06/30/94 30,109.44 24,078.41 25798.85
07/31/94 30,597.82 24,568.24 26646.01
08/31/94 33,488.64 25,999.96 27738.48
09/30/94 34,813.19 26,209.65 27060.19
10/31/94 36,105.67 26,557.55 27668.13
11/30/94 34,519.67 25,502.04 26660.29
12/31/94 34,603.53 25,412.03 27055.96
01/31/95 34,206.41 25,279.21 27757.61
02/28/95 36,044.01 26,192.12 28839.37
03/31/95 37,768.14 27,026.48 29690.33
04/30/95 38,739.97 27,355.50 30564.6
05/31/95 40,251.98 27,864.54 31786.22
06/30/95 44,474.75 29,835.65 32524.53
07/31/95 51,230.69 32,134.77 33603.14
08/31/95 51,058.03 32,389.97 33687.59
09/30/95 51,526.68 33,093.53 35109.27
10/31/95 49,134.10 31,715.74 34983.79
11/30/95 48,683.89 32,740.23 36519.54
12/31/95 45,070.84 32,520.77 37222.98
01/31/96 44,728.00 32,684.94 38489.9
02/29/96 46,152.12 33,921.48 38846.74
03/31/96 46,178.49 34,547.84 39220.69
04/30/96 51,321.16 37,717.73 39798.93
05/31/96 51,083.80 39,906.95 40825.33
06/30/96 47,022.42 37,433.88 40981.08
07/31/96 41,985.24 33,275.23 39170.5
08/31/96 44,517.01 35,428.05 39996.79
This graph depicts the performance of The Chesapeake Growth Fund versus
the NASDAQ Industrials Index and the S&P 500 Total Return Index. It is important
to note The Chesapeake Growth Fund is a professionally managed mutual fund
while the indices are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
AVERAGE ANNUAL TOTAL RETURN
Since Inception One Year Three Years
No Sales Load 18.07% -12.81% 15.67%
With 3% Sales Load 17.09% -15.43% 14.50%
o The graph assumes an initial $25,000 investment at January 4, 1993 ($24,250
after maximum sales load of 3%). All dividends and distributions are
reinvested.
o At August 31, 1996, the Fund would have grown to $44,517 - total investment
return of 78.07% since January 4, 1993. Without the deduction of the 3%
maximum sales load, the Fund would have grown to $45,894 - total investment
return of 83.58% since January 4, 1993. The sales load may be reduced or
eliminated for larger purchases.
o At August 31, 1996, a similar investment in the NASDAQ Industrials Index
would have been worth to $35,428 - total investment return of 41.71%
since January 4, 1993; while a similar investment in the S&P 500 Total
Return Index would have grown to $39,997 - total investment return of
59.99% since January 4, 1993.
o 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 total returns are historical in nature
and measure net investment income and capital gain or loss from portfolio
investments assuming reinvestment of dividends.
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
<TABLE>
<CAPTION>
Value
Shares (note 1)
------ --------
COMMON STOCKS - 95.16%
<S> <C>
Advertising - 0.83%
(a) National Media Corporation 237,400 $3,798,400
----------
Bicycles - 0.80%
(a) Cannondale Corporation 205,600 3,675,100
---------
Building Materials - 1.52%
Apogee Enterprises, Inc. 203,900 6,983,575
---------
Computers - 11.95%
(a) 3Com Corporation 217,900 10,186,825
(a) Applied Magnetics Corporation 144,100 2,107,462
(a) Auspex Systems, Inc. 375,500 5,914,125
(a) Compaq Computer Corporation 194,000 10,985,250
(a) Dell Computer Corporation 110,200 7,383,400
(a) EMC Corporation 102,100 1,965,425
(a) FileNet Corporation 77,900 1,869,600
(a) Komag, Inc. 202,700 4,307,375
Measurex Corporation 171,500 4,716,250
(a) Optical Data Systems, Inc. 163,600 3,200,425
(a) Radius, Inc. 113 205
(a) StorMedia, Inc. 214,350 2,357,850
----------
54,994,192
----------
Computer Software & Services - 10.16%
(a) Applix, Inc. 22,200 566,100
(a) BMC Software, Inc. 136,600 10,176,700
(a) BancTec, Inc. 252,500 4,923,750
(a) Cadence Design Systems, Inc. 179,550 5,319,169
Computer Associates International, Inc. 98,700 5,194,088
(a) Mentor Graphics Corporation 449,100 6,147,056
(a) Micrografx, Inc. 285,500 3,247,562
(a) Network General Corporation 244,500 4,156,500
(a) Ross Systems, Inc. 284 1,424
System Software Associates, Inc. 675,850 7,096,425
----------
46,828,774
----------
Electrical Equipment - 1.32%
(a) C.P. Clare Corporation 194,000 3,007,000
(a) Cable Design Technologies 87,000 3,088,500
---------
6,095,500
---------
</TABLE>
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
<TABLE>
<CAPTION>
Value
Shares (note 1)
------ --------
COMMON STOCKS - (Continued)
<S> <C>
Electronics - 3.57%
(a) Altron, Inc. 146,250 $2,614,219
(a) Symbol Technologies, Inc. 187,400 8,362,725
(a) Technitrol, Inc. 150,600 4,593,300
(a) Zygo Corporation 25,000 850,000
----------
16,420,244
----------
Electronics - Semiconductor - 3.74%
(a) Adaptec, Inc. 246,900 12,314,137
(a) S3, Inc. 331,600 4,891,100
----------
17,205,237
----------
Engineering & Construction - 0.53%
(a) American Buildings Company 94,000 2,455,750
----------
Environmental Control - 2.03%
(a) USA Waste Services, Inc. 339,400 9,333,500
----------
Lodging - 0.55%
(a) Prime Hospitality Corp. 133,900 2,544,100
----------
Machine - Diversified - 3.41%
(a) Advanced Semiconductor Materials Internationa 216,700 1,516,900
DT Industries, Inc. 251,000 6,588,750
(a) Novellus Systems, Inc. 98,000 3,699,500
(a) PRI Automation, Inc. 133,300 3,899,025
----------
15,704,175
----------
Manufactured Housing - 1.17%
Clayton Homes, Inc. 266,600 5,365,325
----------
Medical Supplies - 5.18%
(a) Coherent, Inc. 105,500 4,140,875
(a) OEC Medical Systems, Inc. 339,100 4,111,587
(a) Sofamor Danek Group, Inc. 176,700 5,080,125
(a) TECNOL Medical Products, Inc. 300,000 4,950,000
US Surgical Corporation 152,100 5,551,650
----------
23,834,237
----------
Medical - Hospital Management & Service - 6.26%
(a) HEALTHSOUTH Corporation 148,900 4,839,250
(a) Mariner Health Group, Inc. 260,100 4,681,800
(a) MedCath Incorporated 88,800 1,576,200
(a) MedPartners, Inc. 125,800 2,610,350
(a) Ornda HealthCorp 385,600 9,929,200
(a) Vivra, Inc. 171,950 5,179,994
----------
28,816,794
----------
</TABLE>
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
<TABLE>
<CAPTION>
Value
Shares (note 1)
------ --------
COMMON STOCKS - (Continued)
<S> <C>
Miscellaneous - Consumer Goods - 0.70%
(a) Day Runner, Inc. 122,200 $3,238,300
----------
Oil & Gas - Equipment & Services - 2.23%
(a) Petroleum Geo- Services A/S (ADR) 197,700 5,387,325
(a) Reading & Bates Corporation 199,200 4,880,400
----------
10,267,725
----------
Oil & Gas - Exploration - 1.64%
Sonat Offshore Drilling Company 137,800 7,527,325
----------
Pharmaceuticals - 1.75%
(a) MIM Corporation 360,000 4,725,000
(a) Watson Pharmaceuticals, Inc 114,000 3,306,000
----------
8,031,000
----------
Restaurants & Food Service - 2.36%
(a) Boston Chicken, Inc. 141,300 4,892,512
(a) Foodmaker, Inc. 326,100 3,016,425
(a) IHOP Corporation 119,600 2,960,100
----------
10,869,037
----------
Retail - Apparel - 2.12%
(a) AnnTaylor Stores Corporation 164,800 2,410,200
Ross Stores, Inc. 124,300 4,785,550
TJX Companies, Inc. 80,300 2,569,600
----------
9,765,350
----------
Retail - Department Stores - 2.31%
(a) Consolidated Stores Corporation 122,400 4,651,200
(a) Proffitt's, Inc. 146,400 6,002,400
----------
10,653,600
----------
Retail - Specialty Line - 8.48%
(a) Barnes & Noble 202,000 6,640,750
(a) Borders Group, Inc. 172,300 5,599,750
Claire's Stores, Inc. 224,300 7,429,937
(a) Discount Auto Parts, Inc. 189,100 4,443,850
(a) Hollywood Entertainment Corporation 352,800 6,262,200
(a) Movie Gallery, Inc. 160,900 2,453,725
(a) Office Depot, Inc. 108,000 1,714,500
(a) Sunglass Hut International, Inc. 286,400 4,510,800
----------
39,055,512
----------
Shoes - Leather - 1.38%
(a) Nine West Group, Inc 123,100 6,339,650
----------
</TABLE>
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
<TABLE>
<CAPTION>
Value
Shares (note 1)
------ -------
COMMON STOCKS - (Continued)
<S> <C>
Telecommunications - 3.99%
ECI Telecommunications Limited Designs 240,800 $4,966,500
(a) Mastec, Inc. 117,800 3,475,100
(a) Tel-Save Holdings, Inc. 199,600 4,590,800
(a) Telco Communications Group 355,800 5,337,000
-----------
18,369,400
-----------
Telecommunications Equipment - 3.24%
(a) Inter-Tel, Inc. 212,100 4,427,588
(a) Newbridge Networks Corporation 182,000 10,487,750
-----------
14,915,338
-----------
Textiles - 5.45%
(a) Jones Apparel Group, Inc. 196,500 10,881,188
Liz Claiborne, Inc. 203,700 7,053,112
Warnaco Group, Inc. 289,400 7,162,650
-----------
25,096,950
-----------
Transportation - Air - 2.66%
(a) AirNet Systems, Inc. 313,900 3,766,800
Comair Holdings, Inc. 194,825 4,675,800
(a) Mesa Airlines, Inc. 382,900 3,781,138
-----------
12,223,738
-----------
Utilities - Electric - 2.06%
(a) Calenergy, Inc. 311,700 9,467,888
-----------
Utilities - Telecommunications - 1.77%
(a) WorldCom, Inc. 388,800 8,164,800
-----------
Total Common Stocks (Cost $392,947,050) 438,040,516
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
---------
<S> <C>
REPURCHASE AGREEMENT (b) - 5.36%
Wachovia Bank $24,669,675 24,669,675
5.28%, due September 3, 1996 ----------
(Cost $24,669,675)
Total Value of Investments (Cost $417,616,725) 100.52 % 462,710,191
Liabilities In Excess of Other Assets (0.52)% (2,402,695)
-------- ------------
Net Assets 100.00 % $460,307,496
======== ============
</TABLE>
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1996
(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
Nottingham funds.
(c) Aggregate cost for financial reporting and federal income tax
purposes is the same. Unrealized appreciation (depreciation) of
securities for financial reporting and federal income tax
purposes is as follows:
Unrealized appreciation $75,933,164
Unrealized depreciation (30,839,698)
------------
Net unrealized appreciation $45,093,466
===========
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
ASSETS
Investments, at value (cost $417,616,725) $462,710,191
Interest receivable 146,503
Dividends receivable 28,320
Receivable for investments sold 5,781,190
Receivable for fund shares sold 49,492
Reserve premium 11,486
Deferred organization expenses, net (note 4) 11,498
--------------
Total assets 468,738,680
--------------
LIABILITIES
Accrued expenses 48,555
Payable for investment purchases 8,286,297
Due to investment advisor 10,127
Disbursements in excess of cash on demand deposit 86,205
--------------
Total liabilities 8,431,184
--------------
NET ASSETS
(Applicable to 27,265,604 shares outstanding; unlimited
shares of no par value beneficial interest authorized) $460,307,496
==============
NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE
($460,307,496 / 27,265,604 shares) $16.88
==============
OFFERING PRICE PER SHARE
(100 / 97.0 of $16.88) $17.40
==============
NET ASSETS CONSIST OF
Paid-in capital $386,582,228
Undistributed net realized gain on investments 28,631,802
Net unrealized appreciation on investments 45,093,466
--------------
$460,307,496
==============
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE GROWTH FUND
STATEMENT OF OPERATIONS
Year ended August 31, 1996
INVESTMENT LOSS
Income
Interest $1,152,892
Dividends 576,192
Miscellaneous 3,436
------------
Total income 1,732,520
------------
Expenses
Investment advisory fees (note 2) 5,788,117
Fund administration fees (note 2) 397,287
Professional fees 37,511
Custody fees 36,277
Other fees 24,295
Shareholder recordkeeping fees 23,424
Fund accounting fees (note 2) 21,000
Securities pricing fees 6,587
Registration and filing administration fees 4,757
Registration and filing expenses 124,372
Other operating expenses 46,417
Shareholder servicing expenses 36,548
Printing expenses 28,210
Amortization of deferred organization expenses (note 4) 8,074
Trustee fees and meeting expenses 6,898
------------
Total expenses 6,589,774
------------
Net investment loss (4,857,254)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized gain from investment transactions 48,006,720
Decrease in unrealized appreciation on investments (105,477,799)
------------
Net realized and unrealized loss on investments (57,471,079)
------------
Net decrease in net assets resulting from operations ($62,328,333)
============
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended Year ended
August 31, August 31,
1996 1995
----------- -----------
INCREASE IN NET ASSETS
<S> <C>
Operations
Net investment loss $ (4,857,254) $ (3,232,264)
Net realized gain from investment transactions 48,006,720 18,861,310
Increase (decrease) in unrealized appreciation on investments (105,477,799) 133,249,034
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (62,328,333) 148,878,080
-------------- --------------
Distributions to shareholders from
Net realized gain from investment transactions (30,366,960) 0
-------------- --------------
Capital share transactions
Increase in net assets resulting from capital share transaction 92,716,745 132,185,206
-------------- --------------
Total increase in net assets 21,452 281,063,286
NET ASSETS
Beginning of period 460,286,044 179,222,758
------------- --------------
End of period $ 460,307,496 $ 460,286,044
============= ==============
</TABLE>
(a) A summary of capital share activity follows:
<TABLE>
<CAPTION>
Year ended Year ended
August 31, 1996 August 31, 1995
Shares Value Shares Value
--------- ------------- ---------- ---------------
<S> <C>
Shares sold 6,577,730 $ 118,581,825 10,830,373 $ 160,528,590
Shares issued for reinvestment
of distributions 1,453,621 27,517,060 0 0
---------- ------------- ---------- ---------------
8,031,351 146,098,885 10,830,373 160,528,590
Shares redeemed (3,002,515) (53,382,140) (1,793,318) (28,343,384)
---------- ------------- ---------- ---------------
Net increase 5,028,836 $ 92,716,745 9,037,055 $ 132,185,206
========== ============= ========== ===============
</TABLE>
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the
period from
January 4, 1993
(commencement
Year ended Year ended Year ended of operations) to
August 31, August 31, August 31, August 31,
1996 1995 1994 1993
----------- ----------- ----------- -----------------
<S> <C>
Net asset value, beginning of period $20.70 $13.58 $11.86 $10.00
Income (loss) from investment operations
Net investment loss (0.18) (0.15) (0.05) (0.01)
Net realized and unrealized gain (loss) on investments (2.53) 7.27 1.98 1.87
----------- ----------- ----------- -----------------
Total from investment operations (2.71) 7.12 1.93 1.86
----------- ----------- ----------- -----------------
Distributions to shareholders from
Net investment income 0.00 0.00 (0.16) 0.00
Net realized gain from investment transaction (1.11) 0.00 (0.05) 0.00
----------- ----------- ----------- -----------------
Total distributions (1.11) 0.00 (0.21) 0.00
----------- ----------- ----------- -----------------
Net asset value, end of period $16.88 $20.70 $13.58 $11.86
=========== =========== =========== =================
Total return (a) (12.81)% 52.45 % 16.42 % 29.76 % (b)
=========== =========== =========== =================
Ratios/supplemental data
Net assets, end of period $460,307,496 $460,286,044 $179,222,758 $25,421,085
============ ============ ============ ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.42 % 1.43 % 1.57 % 2.29 % (b)
After expense reimbursements and waived fees 1.42 % 1.43 % 1.49 % 1.54 % (b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees (1.05)% (1.07)% (0.87)% (1.22)% (b)
After expense reimbursements and waived fees (1.05)% (1.07)% 0.79 % (0.47)% (b)
Portfolio turnover rate 110.04 % 75.42 % 66.03 % 45.95 % (b)
</TABLE>
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Chesapeake Growth Fund (the "Fund") is a diversified series of
shares of beneficial interest of the Gardner Lewis Investment Trust
(the "Trust"). The Trust is an open-end investment company which was
organized in 1992 as a Massachusetts Business Trust and is registered
under the Investment Company Act of 1940. The Fund began operations on
January 4, 1993. The investment objective of The Fund is to seek
capital appreciation through investments in equity securities,
consisting primarily of common and preferred stocks and securities
convertible into common stocks. 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. 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.
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 ending August 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 estimated.
(Continued)
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THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
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 1.25% of the Fund's average daily net assets.
The Fund's administrator, The Nottingham Company, L.L.C. (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 0.20% of the Fund's first $25 million of
average daily net assets, 0.15% of the next $25 million, and 0.075% of
average daily net assets over $50 million. The Administrator also
receives a monthly fee of $1,750 for accounting and recordkeeping
services. Additionally, the Administrator charges the Fund for
servicing of shareholder accounts and registration of the Fund's
shares. The Administrator also charges for certain expenses involved
with the daily valuation of portfolio securities.
Currently, the Fund does not offer its shares for sale in states which
require limitations to be placed on its expenses.
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 year ended August 31, 1996, the Distributor retained sales charges
in the amount of $102,544.
Certain Trustees and officers of the Trust are also officers of the
Advisor or the Administrator.
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
NOTE 3 - DEFERRED ORGANIZATION EXPENSES
Expenses totalling $39,700 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 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments other than short-term investments
aggregated $530,777,430 and $490,248,951, respectively, for the year
ended August 31, 1996.
<PAGE>
