Cusip Number 36559B104
PROSPECTUS NASDAQ Symbol CPGRX
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THE CHESAPEAKE
AGGRESSIVE GROWTH FUND
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a series of the Gardner Lewis Investment Trust
The investment objective of The Chesapeake Aggressive Growth Fund (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. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this Prospectus.
INVESTMENT ADVISOR
Gardner Lewis Asset Management
Chadds Ford, Pennsylvania
The Fund is a diversified series of the Gardner Lewis Investment Trust (the
"Trust"), a registered open-end management investment company. This Prospectus
provides you with the basic information you should know before investing in the
Fund. The Prospectus should be read and kept for future reference.
Prior to November 1, 1997, The Chesapeake Aggressive Growth Fund was known as
The Chesapeake Growth Fund. The Board of Trustees determined that renaming the
Fund more accurately reflected the Investment Objectives and Policies outlined
herein.
A Statement of Additional Information containing additional information about
the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus in its entirety. The Fund's address
is Post Office Drawer 69, Rocky Mount, North Carolina 27802-0069, and its
telephone number is 1-800-430-3863. A copy of the Statement of Additional
Information may be obtained at no charge by calling the Fund.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, and Fund shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. Investment in the Fund involves risks, including the possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is
December 11, 1996, supplemented September 3, 1997, and November 1, 1997.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY...................................................... 2
FEE TABLE............................................................... 3
FINANCIAL HIGHLIGHTS.................................................... 4
INVESTMENT OBJECTIVE AND POLICIES....................................... 5
RISK FACTORS............................................................ 7
INVESTMENT LIMITATIONS.................................................. 8
FEDERAL INCOME TAXES.................................................... 9
DIVIDENDS AND DISTRIBUTIONS............................................. 10
HOW SHARES ARE VALUED................................................... 10
HOW SHARES MAY BE PURCHASED............................................. 11
HOW SHARES MAY BE REDEEMED.............................................. 15
MANAGEMENT OF THE FUND.................................................. 16
OTHER INFORMATION....................................................... 18
This Prospectus is not an offering of the securities herein described in any
state in which the offering is unauthorized. No sales representative, dealer or
other person is authorized to give any information or make any representations
other than those contained in this Prospectus. The Fund reserves the right in
its sole discretion to withdraw all or any part of the offering made by this
Prospectus or to reject purchase orders. All orders to purchase shares are
subject to acceptance by the Fund and are not binding until confirmed or
accepted in writing.
NOTICE: CLOSURE OF FUND TO MOST NEW INVESTORS
In December 1994, the Advisor determined that the Fund had reached an asset base
that allowed for both efficiency and maneuverability. Because the Fund did not
wish to compromise this position, the Board of Trustees of the Trust determined
that it would be advisable to close the Fund to most new investors effective
December 23, 1994. Shareholders who maintain open Fund accounts originally
established prior to December 23, 1994 (or established after that date under the
limited circumstances described below) may make additional investments in the
Fund and reinvest any dividends and capital gains distributions. Please note
under "HOW SHARES MAY BE REDEEMED" that the Board of Trustees reserves the right
to involuntarily redeem any account having a net asset value of less than
$25,000. Shareholders who originally established Fund accounts prior to December
23, 1994 (or who established such accounts after that date under the limited
circumstances described below) but who have redeemed or who redeem their Fund
account in full (i.e., close their accounts) may not make additional investments
in the Fund except under the limited circumstances described below. The Fund
will currently accept new accounts only under limited circumstances. The Fund,
in its sole discretion, may accept new Fund accounts from Trustees and officers
and their families and certain parties related thereto, including clients of the
Advisor and other investment advisors registered under the Investment Advisors
Act of 1940. These additional investments in the Fund, if accepted, will
generally be under circumstances in which the Advisor deems it appropriate to
maintain the Fund's asset base, which may be reduced from time to time by
redemptions by other shareholders or market conditions. The Fund may resume
unlimited sales of shares to the public at some future date.
<PAGE>
PROSPECTUS SUMMARY
The Fund
The Chesapeake Aggressive Growth Fund (the "Fund") is a diversified series of
the Gardner Lewis Investment Trust (the "Trust"), a registered open-end
management investment company organized as a Massachusetts business trust. See
"Other Information - Description of Shares." Prior to November 1, 1997, The
Chesapeake Aggressive Growth Fund was known as The Chesapeake Growth Fund. The
Board of Trustees determined that renaming the Fund more accurately reflected
the Investment Objectives and Policies outlined herein.
Offering Price
Shares in the Fund are offered at net asset value plus a 3.0% sales charge,
which is reduced on purchases involving larger amounts. The minimum initial
investment is $25,000. The minimum subsequent investment is $500. See "How
Shares May be Purchased."
Investment Objective
The investment objective of the Fund is to seek capital appreciation through
investments in and Special Risk equity securities, consisting primarily of
common and preferred stocks and securities Considerations convertible into
common stocks. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. See "Investment Objective and Policies." The Fund is not intended to
be a complete investment program, and there can be no assurance that the Fund
will achieve its investment objective. While the Fund will invest primarily in
common stocks traded in U.S. securities markets, some of the Fund's investments
may include foreign securities, illiquid securities, and securities purchased
subject to a repurchase agreement or on a "when-issued" basis, which involve
certain risks. The Fund's portfolio will also contain a significant amount of
securities of smaller capitalization companies, which may exhibit more
volatility than medium and larger capitalization companies. The Fund may borrow
only under certain limited conditions (including to meet redemption requests)
and not to purchase securities. It is not the intent of the Fund to borrow
except for temporary cash requirements. Borrowing, if done, would tend to
exaggerate the effects of market and interest rate fluctuations on the Fund's
net asset value until repaid. See "Risk Factors."
Manager
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the Fund's investment policies, Gardner Lewis Asset Management
of Chadds Ford, Pennsylvania (the "Advisor"), manages the Fund's investments.
The Advisor currently manages approximately $3.5 billion in assets. For its
advisory services, the Advisor receives a monthly fee based on the Fund's daily
net assets at the annual rate of 1.25%. See "Management of the Fund-The
Advisor."
Dividends
Income dividends, if any, are paid at least annually; capital gains, if any, are
distributed at least annually or retained for reinvestment by the Fund.
Dividends and capital gains distributions are automatically reinvested in
additional shares at net asset value unless the shareholder elects to receive
cash. See "Dividends and Distributions."
Distributor
Capital Investment Group, Inc. (the "Distributor") serves as distributor of the
Fund's shares. The Distributor may sell Fund shares to or through qualified
securities dealers or others. See "Management of the Fund - Distributor."
Redemption of Shares
There is no charge for redemptions, other than possible charges associated with
wire transfers of redemption proceeds. Shares may be redeemed at any time at the
net asset value next determined after receipt of a redemption request by the
Fund. A shareholder who submits appropriate written authorization may redeem
shares by telephone. See "How Shares May Be Redeemed."
<PAGE>
FEE TABLE
The following table sets forth certain information in connection with the
expenses of the Fund for the current fiscal year. The information is intended to
assist the investor in understanding the various costs and expenses borne by the
Fund, and therefore indirectly by its investors, the payment of which will
reduce an investor's return on an annual basis.
Shareholder Transaction Expenses
Maximum sales load imposed on purchases
(as a percentage of offering price)................................. 3.00%1
Sales load imposed on reinvested dividends.......................... NONE
Deferred sales load................................................. NONE
Redemption fee*..................................................... NONE
Exchange fee........................................................ NONE
* The Fund in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring redemption
proceeds. The Custodian currently charges the Fund $7.00 per transaction
for wiring redemption proceeds.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Investment advisory fees............................................ 1.25%2
12b-1 fees.......................................................... NONE
Other expenses...................................................... 0.17%
Total operating expenses............................................ 1.42%2
EXAMPLE: You would pay the following expenses (including the maximum initial
sales charge) on a $1,000 investment in the Fund, whether or not you redeem at
the end of the period, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$44 $74 $106 $196
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 Reduced for larger purchases. See "How Shares May Be Purchased - Sales
Charges."
2 The "Total operating expenses" shown above are based upon actual operating
expenses incurred by the Fund for the fiscal year ended August 31, 1996,
which were 1.42% of average net assets of the Fund.
See "How Shares May Be Purchased" and "Management of the Fund" below for more
information about the fees and costs of operating the Fund. The assumed 5%
annual return is required by the Securities and Exchange Commission. The
hypothetical rate of return is not intended to be representative of past or
future performance of the Fund; the actual rate of return for the Fund may be
greater or less than 5%.
FINANCIAL HIGHLIGHTS
The financial data included in the table below has been derived from audited
financial statements of the Fund. The financial data for the fiscal year ended
August 31, 1996, has been audited by Deloitte & Touche LLP, independent
auditors, whose report covering such period is included in the Statement of
Additional Information. The financial data for the prior fiscal years and period
was audited by other independent auditors. This information should be read in
conjunction with the Fund's latest audited annual financial statements and notes
thereto, which are also included in the Statement of Additional Information, a
copy of which may be obtained at no charge by calling the Fund. Further
information about the performance of the Fund is contained in the Annual Report
of the Fund, a copy of which may be obtained at no charge by calling the Fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(For a Share Outstanding Throughout each Period)
Years ended August 31,
1996 1995 1994 1993*
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Net Asset Value, Beginning of Period $20.70 $13.58 $11.86 $10.00
Income (loss) from investment operations
Net investment gain (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 transactions (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 (000s) $460,307 $460,286 $179,223 $25,421
======== ======== ======== =======
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 income (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>
* For the period from January 4, 1993 (commencement of operations) to August
31, 1993.
(a) Does not reflect the maximum sales charge of 3.00%.
(b) Annualized.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. 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.
Realization of current income is not a significant investment consideration, and
any income realized will be incidental to the Fund's objective. The Fund's
investment objective and fundamental investment limitations discussed herein may
not be altered without the prior approval of a majority of the Fund's
shareholders.
Investment Selection. The Fund's portfolio will include equity securities of
those companies which the Advisor feels show superior prospects for growth. The
Advisor will focus attention on those companies which, in the view of the
Advisor, exhibit internal changes such as a promising new product, new
distribution strategy, new manufacturing technology, or new management team or
management philosophy. Many of the portfolio companies are responsible for
technological breakthroughs and/or unique solutions to market needs. Investing
in companies which are undergoing internal change, such as implementing new
strategies or introducing new technologies, may involve greater than average
risk due to their unproven nature. Many of the portfolio companies will be small
capitalization companies, which may exhibit more volatility than medium and
large capitalization companies. By focusing upon internal rather than external
factors, the Fund will seek to minimize the risk associated with macro-economic
forces such as changes in commodity prices, currency exchange rates and interest
rates.
In selecting portfolio companies, the Advisor uses analysis which includes the
growth rate in earnings, financial performance, management strengths and
weaknesses, and current market valuation in relation to earnings growth as well
as historic and comparable company valuations. The Advisor also analyzes the
level and nature of the company's debt, cash flow, working capital and the
quality of the company's assets. Typically companies included in the Fund's
portfolio will show strong earnings growth versus the previous year's comparable
period. Companies that the Advisor determines have excessive levels of debt are
generally avoided.
By developing and maintaining contacts with management, customers, competitors
and suppliers of current and potential portfolio companies, the Advisor attempts
to invest in those companies undergoing positive changes that have not been
recognized by "Wall Street" analysts and the financial press. Lack of
recognition of these changes often causes securities to be less efficiently
priced. The Advisor believes these companies offer unique and potentially
superior investment opportunities. The Advisor favors portfolio companies whose
price when purchased is between 8 and 19 times projected earnings for the coming
year.
While portfolio securities are generally acquired for the long term, they may be
sold under any of the following circumstances:
a) the anticipated price appreciation has been achieved or is no longer
probable;
b) the company's fundamentals appear, in the analysis of the Advisor, to
be deteriorating;
c) general market expectations regarding the company's future performance
exceed those expectations held by the Advisor;
d) alternative investments offer, in the view of the Advisor, superior
potential for appreciation.
The portfolio will be comprised primarily of common stocks, and may include
preferred stocks, participating and non-participating preferred stocks, and
convertible preferred stock as well as convertible debt. All securities will be
traded on domestic and foreign securities exchanges or on the over-the-counter
markets. Up to 10% of the Fund's total assets may consist of foreign securities.
The Fund will normally be at least 90% invested in equity securities. As a
temporary defensive position, however, when the Advisor determines that market
conditions so warrant, the Fund may invest up to 100% of its total assets in
investment grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments. When the Fund invests in investment grade bonds, U.S.
Government Securities, repurchase agreements, or money market instruments as a
temporary defensive measure, it is not pursuing its investment objective. Under
normal circumstances, however, money market or repurchase agreement instruments
will typically represent a portion of the Fund's portfolio, as funds awaiting
investment, to accumulate cash for anticipated purchases of portfolio securities
and to provide for shareholder redemptions and operational expenses of the Fund.
Money Market Instruments. Money market instruments mature in thirteen months or
less from the date of purchase and may include U.S. Government Securities and
corporate debt securities (including those subject to repurchase agreements),
bankers acceptances and certificates of deposit of domestic branches of U.S.
banks, and commercial paper (including variable amount demand master notes)
rated in one of the two highest rating categories by any of the nationally
recognized securities rating organizations or, if not rated, of equivalent
quality in the Advisor's opinion. The Advisor may, when it believes that
unusually volatile or unstable economic and market conditions exist, depart from
the Fund's investment approach and assume temporarily a defensive portfolio
posture, increasing the Fund's percentage investment in money market
instruments, even to the extent that 100% of the Fund's total assets may be so
invested. See the Statement of Additional Information for a more detailed
description of money market instruments.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, since it is not obligated to do so by law. The
guarantee of the U.S. Government does not extend to the yield or value of the
Fund's shares.
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.
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, as amended (the "1940 Act").
The Fund may invest up to 10% of its total assets in foreign securities. The
same factors would be considered in selecting foreign securities as with
domestic securities. Foreign securities investment presents special
considerations not typically associated with investments in domestic securities.
Foreign taxes may reduce income. Currency exchange rates and regulations may
cause fluctuations in the value of foreign securities. Foreign securities are
subject to different regulatory environments than in the United States and,
compared to the United States, there may be a lack of uniform accounting,
auditing and financial reporting standards, less volume and liquidity and more
volatility, less public information, and less regulation of foreign issuers.
Countries have been known to expropriate or nationalize assets, and foreign
investments may be subject to political, financial or social instability or
adverse diplomatic developments. There may be difficulties in obtaining service
of process on foreign issuers and difficulties in enforcing judgments with
respect to claims under the United States securities laws against such issuers.
Favorable or unfavorable differences between U.S. and foreign economies could
affect foreign securities values. The United States Government has, in the past,
discouraged certain foreign investments by United States investors through
taxation or other restrictions, and it is possible that such restrictions could
be imposed again. Foreign securities markets have substantially less volume than
the New York Stock Exchange and securities of some foreign companies are less
liquid and more volatile than securities of comparable U.S. companies. In
addition to the fluctuation inherent in any equity investment, there is an
additional risk of fluctuation when valuing foreign securities based solely on
the relative exchange rates between U.S. currency (the valuation method for the
Fund) and the currency in which the foreign security is traded. While the share
value of the foreign security may increase, its value to the Fund may decrease
due to changes in currency exchange rates.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will generally limit foreign investments to those traded domestically as
American Depository Receipts ("ADRs"). ADRs are receipts issued by a U.S. bank
or trust company evidencing ownership of securities of a foreign issuer. ADRs
may be listed on a national securities exchange or may trade in the
over-the-counter market. The prices of ADRs are denominated in U.S. dollars
while the underlying security may be denominated in a foreign currency.
The Fund may invest in both sponsored and unsponsored ADRs. Unsponsored ADR
programs are organized independently and without the cooperation of the issuer
of the underlying foreign securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, and the
prices of unsponsored ADRs may be more volatile than if such instruments were
sponsored by the issuer. The issuers of the securities underlying unsponsored
ADRs are not obligated to disclose material information in the U.S. and,
therefore, there may be no correlation between such information and the market
value of the ADRs. Because of the additional risks inherent in unsponsored ADRs,
the Fund will tend to invest in sponsored ADRs over unsponsored ADRs, to the
extent it invests in ADRs.
ADRs purchased by the Fund, if any, will not be considered foreign securities
for purposes of the 10% limit on investments in foreign securities. To the
extent the Fund invests in other foreign securities, subject to the 10% limit,
it will generally limit such investments to foreign securities traded on foreign
securities exchanges.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. The Fund will only invest in other investment companies by
purchase of such securities on the open market where no commission or profit to
a sponsor or dealer results from the purchase other than the customary broker's
commissions or when the purchase is part of a plan of merger, consolidation,
reorganization, or acquisition. To the extent the Fund invests in other
investment companies, the shareholders of the Fund would indirectly pay a
portion of the operating costs of the underlying investment companies. These
costs include management, brokerage, shareholder servicing and other operational
expenses. Shareholders of the Fund would then indirectly pay higher operational
costs than if they owned shares of the underlying investment companies directly.
The Advisor will waive its advisory fee for that portion of the Fund's assets
invested in other investment companies, except when such purchase is part of a
plan of merger, consolidation, reorganization, or acquisition.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
RISK FACTORS
Investment Policies and Techniques. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Fund and the specific securities and investment
techniques that may be employed by the Fund, including the risks associated with
repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
To the extent that the major portion of the Fund's portfolio consists of common
stocks, it may be expected that the net asset value will be subject to greater
fluctuation than a portfolio containing mostly fixed income securities. To the
extent that the Advisor seeks to identify the securities of companies which are
undergoing internal change, such as implementing new strategies or introducing
new technologies, investment in the Fund may involve greater than average risk
due to the unproven nature of such securities. These securities will include a
significant amount of securities of small capitalization companies. To the
extent the Fund's assets are invested in small capitalization companies, that
portion of the Fund's portfolio may exhibit more volatility than the portion
invested in medium and large capitalization companies. Because there is risk in
any investment, there can be no assurance the Fund will achieve its investment
objective.
The Fund sells portfolio securities in order to take advantage of investment
opportunities. Nevertheless, by utilizing the approach to investing described
herein, portfolio turnover in the Fund is expected to average between 75% and
100% and will generally not exceed 125%. Portfolio turnover generally involves
some expense to the Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and the reinvestment in other
securities. The degree of portfolio activity may also have an effect on the tax
consequences of capital gain distributions. See "Financial Highlights" for the
Fund's portfolio turnover rate for prior fiscal periods.
Borrowing. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary or emergency purposes and 15% of its total assets to meet
redemption requests, which might otherwise require untimely disposition of
portfolio holdings. To the extent the Fund borrows for these purposes, the
effects of market price fluctuations on portfolio net asset value will be
exaggerated. If, while such borrowing is in effect, the value of the Fund's
assets declines, the Fund could be forced to liquidate portfolio securities when
it is disadvantageous to do so. The Fund would incur interest and other
transaction costs in connection with borrowing. The Fund will borrow only from a
bank. The Fund will not make any investments if the borrowing exceeds 5% of its
assets until such time as repayment has been made to bring the total borrowing
below 5% of its total assets.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. The Fund will not invest in restricted securities, which generally cannot
be sold to the public without registration under the federal securities laws.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. This requirement must be met unless the Fund enters
into offsetting contracts for the forward sale of other securities it owns.
Purchasing securities on a when-issued or forward commitment basis involves a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, which risk is in addition to the risk of decline in value of
the Fund's other assets. In addition, no income accrues to the purchaser of
when-issued securities during the period prior to issuance. Although the Fund
would generally purchase securities on a when-issued or forward commitment basis
with the intention of acquiring securities for its portfolio, the Fund may
dispose of a when-issued security or forward commitment prior to settlement if
the Advisor deems it appropriate to do so. The Fund may realize short-term gains
or losses upon such sales.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain fundamental
investment limitations which, together with its investment objective, are
fundamental policies which may not be changed without shareholder approval. Some
of these restrictions are that the Fund will not: (1) issue senior securities,
borrow money or pledge its assets, except that it may borrow from banks as a
temporary measure (a) for extraordinary or emergency purposes, in amounts not
exceeding 5% of the Fund's total assets or, (b) in order to meet redemption
requests, in amounts not exceeding 15% of its total assets. The Fund will not
make any investments if borrowing exceeds 5% of its total assets until such time
as total borrowing represents less than 5% of Fund assets; (2) make loans of
money or securities, except that the Fund may invest in repurchase agreements
(but repurchase agreements having a maturity of longer than seven days, together
with other illiquid securities, are limited to 10% of the Fund's net assets);
(3) invest in securities of issuers which have a record of less than three years
continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) write, purchase or sell puts, calls, warrants or combinations
thereof, or purchase or sell commodities, commodities contracts, futures
contracts or related options; (5) invest in oil, gas or mineral leases or
exploration programs, or real estate (except the Fund may invest in readily
marketable securities of companies that own or deal in such things); (6) invest
more than 5% of its total assets at market in the securities of any one issuer
nor hold more than 10% of the voting stock of any issuer; (7) invest in
restricted securities; (8) invest more than 10% of the Fund's assets in foreign
securities (excluding ADRs), and (9) invest more than 25% of the Fund's total
assets in the securities of issuers in any one industry (other than U.S.
Government Securities). See "Investment Limitations" in the Fund's Statement of
Additional Information for a complete list of investment limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Fund's Prospectus, or in
the Statement of Additional Information, as being fundamental, is
non-fundamental. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of the Fund's portfolio securities will not constitute a
violation of such limitation. In order to permit the sale of the Fund's shares
in certain states, the Fund may make commitments that are more restrictive than
the investment policies and limitations described above and in the Statement of
Additional Information. Such commitments may have an effect on the investment
performance of the Fund. Should the Fund determine that any such commitment is
no longer in the best interests of the Fund, it may revoke the commitment and
terminate sales of its shares in the state involved.
FEDERAL INCOME TAXES
Taxation of the Fund. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Fund, as a separate
regulated investment company. Each series of the Trust, including the Fund,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Fund will not
be liable for Federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Fund, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, are subject to a non-deductible 4% excise tax to the extent
they do not distribute the statutorily required amount of investment income,
determined on a calendar year basis, and capital gain net income, using an
October 31 year-end measuring period. The Fund intends to declare or distribute
dividends during the calendar year in an amount sufficient to prevent imposition
of the 4% excise tax.
Taxation of Shareholders. For Federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Fund or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund.
Capital gain distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Dividends and capital gain
distributions paid by the Fund shortly after shares have been purchased,
although in effect a return of investment, are subject to Federal income
taxation.
The sale of shares of the Fund is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Fund of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the Federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to Federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Fund is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Fund has not complied with the applicable statutory and IRS
requirements, the Fund is generally required by Federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends. The Fund may pay dividends, if any, and
distribute capital gains, if any, at least annually. The Fund may, however,
determine either to distribute or to retain all or part of any long-term capital
gains in any year for reinvestment.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the Fund at
the net asset value per share next determined. Reinvested dividends and capital
gains are exempt from any sales load. Shareholders wishing to receive their
dividends or capital gains in cash may make their request in writing to the Fund
at 107 North Washington Street, Post Office Box 4365, Rocky Mount, North
Carolina 27803-0365. That request must be received by the Fund prior to the
record date to be effective for the next dividend. If cash payment is requested,
checks will be mailed within five business days after the distribution of the
dividends or capital gains, as applicable. Each shareholder of the Fund will
receive a quarterly summary of his or her account, including information
regarding reinvested dividends from the Fund. Tax consequences to shareholders
of dividends and distributions are the same if received in cash or in additional
shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distribution during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance regarding the
payment of any dividends or the realization of any gains.
HOW SHARES ARE VALUED
Net asset value is determined at 4:00 p.m., New York time, Monday through
Friday, except on business holidays when the New York Stock Exchange is closed.
The net asset value of the shares of the Fund for purposes of pricing sales and
redemptions is equal to the total market value of its investments, less all of
its liabilities, divided by the number of its outstanding shares.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the mean of the bid and asked prices.
Prices for securities traded on foreign exchanges will be converted to the
equivalent price in U.S. currency using the published currency exchange rates
available at the time of valuation. Unlisted securities for which market
quotations are readily available are valued at the latest quoted sales price, if
available, otherwise, at the latest quoted bid price. Temporary cash investments
with maturities of 60 days or less will be valued at amortized cost, which
approximates market value. Securities for which no current quotations are
readily available are valued at fair value as determined in good faith using
methods approved by the Board of Trustees of the Trust. Securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Fund by calling 1-800-430-3863, or by writing to the address shown below for
purchases by mail. Assistance is also available through any broker-dealer
authorized to sell shares in the Fund. Payment for shares purchased may also be
made through your account at the broker-dealer processing your application and
order to purchase. Your investment will purchase shares at the Fund's public
offering price next determined after your order is received by the Fund in
proper form as indicated herein.
The minimum initial investment is $25,000. The minimum subsequent investment is
$500. The Fund may, in the Advisor's sole discretion, accept certain accounts
with less than the stated minimum initial investment. You may invest in the
following ways:
Purchases by Mail. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The Chesapeake Aggressive Growth Fund, 107 North
Washington Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365.
Subsequent investments in an existing account in the Fund may be made at any
time by sending a check payable to the Fund, to the address stated above. Please
enclose the stub of your account statement and include the amount of the
investment, the name of the account for which the investment is to be made and
the account number.
Purchases by Wire. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-430-3863 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund, federal funds and registration instructions should be wired through
the Federal Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For The Chesapeake Aggressive Growth Fund Acct #2000000861894
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the Fund
immediately after the initial wire as described under "Purchases by Mail" above.
Investors should be aware that some banks may impose a wire service fee.
General. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any application or
investment. Orders become effective, and shares are purchased at, the next
determined public offering price per share after an investment has been received
by the Fund, which is as of 4:00 p.m., New York time, Monday through Friday,
exclusive of business holidays. Orders received by the Fund and effective prior
to such 4:00 p.m. time will purchase shares at the public offering price
determined as of that time. Otherwise, your order will purchase shares as of
4:00 p.m. New York time on the next business day. For orders placed through a
qualified broker-dealer, such firm is responsible for promptly transmitting
purchase orders to the Fund. Investors may be charged a fee if they effect
transactions in the Fund through a broker or agent.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any Fund
of the Trust already owned by any purchaser whose order is cancelled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
The Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Administrator, that your taxpayer identification number is
correct and that you are not currently subject to backup withholding or you are
exempt from backup withholding. For individuals, your taxpayer identification
number is your social security number.
Sales Charges. The public offering price of shares of the Fund equals net asset
value plus a sales charge. Capital Investment Group, Inc. (the "Distributor"),
Post Office Box 32249, Raleigh, North Carolina 27622, receives this sales charge
as Distributor and may reallow it in the form of dealer discounts and brokerage
commissions as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales Sales
Charge As Charge As Dealers Discounts
% of Net % of Public and Brokerage
Amount of Transaction Amount Offering Commissions as % of
At Public Offering Price Invested Price Public Offering Price
------------------------ -------- --------- ---------------------
Less than $50,000............................. 3.09% 3.00% 2.80%
$50,000 but less than $250,000............... 2.04% 2.00% 1.80%
$250,000 or more.............................. 1.01% 1.00% 0.90%
</TABLE>
At times the Distributor may reallow the entire sales charge to selected
dealers. From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. Pursuant to the
terms of the Distribution Agreement, the sales charge payable to the Distributor
and the dealer discounts may be suspended, terminated or amended. Dealers who
receive 90% or more of the sales charge may be deemed to be "underwriters" under
the federal securities laws.
The dealer discounts and brokerage commissions schedule above applies to all
dealers who have agreements with the Distributor. The Distributor, at its
expense, may also provide additional compensation to dealers in connection with
sales of shares of the Fund. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding the Fund,
and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Fund or its shareholders.
Reduced Sales Charges
Concurrent Purchases. For purposes of qualifying for a lower sales charge,
investors have the privilege of combining concurrent purchases of the Fund and
another series of the Trust affiliated with the Advisor and sold with a sales
charge. For example, if a shareholder concurrently purchases shares in another
series of the Trust affiliated with the Advisor and sold with a sales charge at
the total public offering price of $25,000, and shares in the Fund at the total
public offering price of $25,000, the sales charge would be that applicable to a
$50,000 purchase as shown in the appropriate table above. This privilege may be
modified or eliminated at any time or from time to time by the Trust without
notice thereof.
Rights of Accumulation. Pursuant to the right of accumulation, investors
are permitted to purchase shares at the public offering price applicable to the
total of (a) the total public offering price of the shares of the Fund then
being purchased plus (b) an amount equal to the then current net asset value of
the purchaser's combined holdings of the shares of all of the series of the
Trust affiliated with the Advisor and sold with a sales charge. To receive the
applicable public offering price pursuant to the right of accumulation,
investors must, at the time of purchase, provide sufficient information to
permit confirmation of qualification, and confirmation of the purchase is
subject to such verification. This right of accumulation may be modified or
eliminated at any time or from time to time by the Trust without notice.
Letters of Intent. Investors may qualify for a lower sales charge by
executing a letter of intent. A letter of intent allows an investor to purchase
shares of the Fund over a 13-month period at reduced sales charges based on the
total amount intended to be purchased plus an amount equal to the then current
net asset value of the purchaser's combined holdings of the shares of all of the
series of the Trust affiliated with the Advisor and sold with a sales charge.
Thus, a letter of intent permits an investor to establish a total investment
goal to be achieved by any number of purchases over a 13-month period. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the intended investment.
The letter of intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day back-dating period can be used to include earlier purchases at the
investor's cost (without a retroactive downward adjustment of the sales charge);
the 13-month period would then begin on the date of the first purchase during
the 90-day period. No retroactive adjustment will be made if purchases exceed
the amount indicated in the letter of intent. Investors must notify the
Administrator or the Distributor whenever a purchase is being made pursuant to a
letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the
Administrator or the Distributor. This letter of intent option may be modified
or eliminated at any time or from time to time by the Trust without notice.
Reinvestments. Investors may reinvest, without a sales charge, proceeds
from a redemption of shares of the Fund in shares of the Fund or in shares of
another series of the Trust affiliated with the Advisor and sold with a sales
charge, within 90 days after the redemption. If the other series charges a sales
charge higher than the sales charge the investor paid in connection with the
shares redeemed, the investor must pay the difference. In addition, the shares
of the series to be acquired must be registered for sale in the investor's state
of residence. The amount that may be so reinvested may not exceed the amount of
the redemption proceeds, and a written order for the purchase of such shares
must be received by the Fund or the Distributor within 90 days after the
effective date of the redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
Purchases by Related Parties and Groups. Reductions in sales charges apply
to purchases by a single "person," including an individual, members of a family
unit, consisting of a husband, wife and children under the age of 21 purchasing
securities for their own account, or a trustee or other fiduciary purchasing for
a single fiduciary account or single trust estate.
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar value of
shares purchased by all members of the qualified group and still owned by the
group plus the shares currently being purchased. For purposes of this paragraph,
a qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Fund at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls, or has the power to vote five percent or more of the outstanding
voting securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls, or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
Sales at Net Asset Value. The Fund may sell shares at a purchase price
equal to the net asset value of such shares, without a sales charge, to
Trustees, officers, and employees of the Trust, the Fund, and the Advisor, and
to employees and principals of related organizations and their families and
certain parties related thereto, including clients and related accounts of the
Advisor. In addition, the Fund may sell shares at a purchase price equal to the
net asset value of such shares, without a sales charge, to investment advisors,
financial planners and their clients who are charged a management, consulting or
other fee for their services; and clients of such investment advisors or
financial planners who place trades for their own accounts if the accounts are
linked to the master account of such investment advisor or financial planner on
the books and records of the broker or agent. The public offering price of
shares of the Fund may also be reduced to net asset value per share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company.
Exchange Feature. Investors will have the privilege of exchanging shares of
the Fund for shares of any other series of the Trust to be established by
Advisor. An exchange is a taxable transaction and involves the simultaneous
redemption of shares of one series and purchase of shares of another series at
the respective closing net asset value next determined after a request for
redemption has been received plus applicable sales charge. Each series of the
Trust will have a different investment objective, which may be of interest to
investors in each series. Shares of the Fund may be exchanged for shares of any
other series of the Trust affiliated with the Advisor at the net asset value
plus the percentage difference between that series' sales charge and any sales
charge previously paid in connection with the shares being exchanged. For
example, if a 2% sales charge was paid on shares that are exchanged into a
series with a 3% sales charge, there would be an additional sales charge of 1%
on the exchange. Exchanges may only be made by investors in states where shares
of the other series are qualified for sale. An investor may direct the Fund to
exchange his shares by writing to the Fund at its principal office. The request
must be signed exactly as the investor's name appears on the account, and it
must also provide the account number, number of shares to be exchanged, the name
of the series to which the exchange will take place and a statement as to
whether the exchange is a full or partial redemption of existing shares.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Fund. Such a pattern may, at the discretion of the Advisor, be limited by the
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of the Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
series into which the shareholder will be making an exchange, as described in
the prospectus for that other series. The Board of Trustees of the Trust
reserves the right to suspend or terminate, or amend the terms of, the exchange
privilege upon 60 days written notice to the shareholders.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Administrator will automatically charge the checking account for
the amount specified ($100 minimum), which will be automatically invested in
shares at the public offering price on or about the 21st day of the month. The
shareholder may change the amount of the investment or discontinue the plan at
any time by writing to the Administrator.
Stock Certificates. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
which will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of the Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the Fund's
portfolio securities. All redemption orders received in proper form, as
indicated herein, by the Fund, whether by mail or telephone, prior to 4:00 p.m.
New York time, Monday through Friday, except for business holidays, will redeem
shares at the net asset value determined as of that time. Otherwise, your order
will redeem shares as of such 4:00 p.m. time on the next business day. There is
no charge for redemptions from the Fund, other than the charges for wiring
redemption proceeds. You may also redeem your shares through a broker-dealer or
other institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $25,000 (due to redemptions, exchanges or
transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $25,000 or more during the
notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-430-3863, or write to the address shown below.
Your request should be addressed to The Chesapeake Aggressive Growth Fund, 107
North Washington Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. Your request for redemption must include:
1) Your letter of instruction specifying the account number, and the number of
shares or dollar amount to be redeemed. This request must be signed by all
registered shareholders in the exact names in which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, the Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next determined after
the receipt of the request for redemption will be used in processing the
redemption. The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
The Fund offers shareholders the option of redeeming shares by telephone under
certain limited conditions. The Fund will redeem shares when requested by the
shareholder if, and only if, the shareholder confirms redemption instructions in
writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and
4) Shareholder signature as it appears on the application then on file with
the Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. You can choose to have
redemption proceeds mailed to you at your address of record, your bank, or to
any other authorized person, or you can have the proceeds sent by bank wire to
your bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days in which your bank is not open for business. You can change your redemption
instructions anytime you wish by filing a letter including your new redemption
instructions with the Fund. (See "Signature Guarantees" below.) The Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market changes, telephone redemption privileges may be difficult to implement.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges imposed by the Custodian for wire redemptions. The Custodian
currently charges the Fund $7.00 per transaction for wiring redemption proceeds.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-430-3863. Redemption proceeds will only be sent to the bank
account or person named in your Fund Shares Application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and, if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$50,000 or more at current net asset value may establish a Systematic Withdrawal
Plan to receive a monthly or quarterly check in a stated amount not less than
$100. Each month or quarter as specified, the Fund will automatically redeem
sufficient shares from your account to meet the specified withdrawal amount.
Call or write the Fund for an application form. See the Statement of Additional
Information for further details.
Signature Guarantees. To protect your account and the Fund from fraud, signature
guarantees are required to be sure that you are the person who has authorized a
change in registration, or standing instructions, for your account. Signature
guarantees are required for (1) change of registration requests, (2) requests to
establish or change exchange privileges or telephone redemption service other
than through your initial account application, and (3) requests for redemptions
in excess of $50,000. Signature guarantees are acceptable from a member bank of
the Federal Reserve System, a savings and loan institution, credit union (if
authorized under state law), registered broker-dealer, securities exchange or
association clearing agency, and must appear on the written request for
redemption, establishment or change in exchange privileges, or change of
registration.
MANAGEMENT OF THE FUND
Trustees and Officers. The Fund is a series of the Gardner Lewis Investment
Trust (the "Trust"), a registered open-end management investment company
organized as a Massachusetts business trust in 1992. The Board of Trustees of
the Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its and the Fund's day-to-day operations.
The Advisor. Subject to the authority of the Board of Trustees, 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, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Delaware corporation in 1990 and converted to a
Pennsylvania limited partnership in 1994, is controlled by W. Whitfield Gardner.
The Advisor currently serves as investment advisor to approximately $3.5 billion
in assets, providing investment advice to corporations, trusts, pension and
profit sharing plans, other business and institutional accounts, and
individuals. The Advisor's address is 285 Wilmington-West Chester Pike, Chadds
Ford, Pennsylvania 19317.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 1.25% of the average daily net asset
value of the Fund. Although the investment advisory fee is higher than that paid
by most other investment companies, the Board of Trustees believes the fee to be
comparable to advisory fees paid by many funds having similar objectives and
policies. For the fiscal year ended August 31, 1996, the Advisor was paid
investment advisory fees totaling $5,788,117 or 1.25% of the average daily net
assets of the Fund.
The Advisor supervises and implements the investment activities of the Fund,
including the making of specific decisions as to the purchase and sale of
portfolio investments. Among the responsibilities of the Advisor under the
Advisory Agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio investments will be effected. The Advisor
attempts to obtain the best execution for all such transactions. If it is
believed that more than one broker is able to provide the best execution, the
Advisor will consider the receipt of quotations and other market services and of
research, statistical and other data and the sale of shares of the Fund in
selecting a broker. The Advisor may also utilize a brokerage firm affiliated
with the Trust or the Advisor if it believes it can obtain the best execution of
transactions from such broker. Research services obtained through Fund brokerage
transactions may be used by the Advisor for its other clients and, conversely,
the Fund may benefit from research services obtained through the brokerage
transactions of the Advisor's other clients. For further information, see
"Investment Objective and Policies Investment Transactions" in the Statement of
Additional Information.
W. Whitfield Gardner and John L. Lewis, IV, principals of the Advisor and
executive officers of the Trust, have been responsible for day-to-day management
of the Fund's portfolio since its inception in 1993. They have been with the
Advisor since its inception. Additional information about these gentlemen is set
forth in the Statement of Additional Information under "Management of the Fund -
Trustees and Officers."
The Administrator. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069. Subject to the
authority of the Board of Trustees, the services the Administrator provides to
the Fund include coordinating and monitoring any third parties furnishing
services to the Fund; providing the necessary office space, equipment and
personnel to perform administrative and clerical functions for the Fund; and
preparing, filing and distributing proxy materials, periodic reports to
shareholders, registration statements and other documents. The Administrator
also performs certain accounting and pricing services for the Fund as pricing
agent, including the daily calculation of the Fund's net asset value.
The Administrator was incorporated as a North Carolina corporation in 1988. With
its predecessors and affiliates, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III is the firm's Managing
Director and controlling shareholder.
The Transfer Agent. NC Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing agent. The
Transfer Agent, subject to the authority of the Board of Trustees, provides
transfer agency services pursuant to an agreement with the Administrator, which
has been approved by the Trust. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning accounts,
processes purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions. The Transfer Agent is compensated for its services by the
Administrator and not directly by the Fund.
The Transfer Agent, whose address is 107 North Washington Street, Post Office
Box 4365, Rocky Mount, North Carolina 27803-0365, was established as a North
Carolina limited liability company in 1997. John D. Marriott, Jr., is the firm's
controlling member.
The Custodian. First Union National Bank of North Carolina (the "Custodian"),
Two First Union Center, Charlotte, North Carolina 28288-1151, serves as
Custodian of the Fund's assets. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties.
Capital Investment Group, Inc. (the "Distributor"), a North Carolina
corporation, is the principal distributor of the Fund's shares pursuant to a
Distribution Agreement between the Fund and the Distributor. The Distributor
receives commissions consisting of that portion of the sales charge remaining
after the discounts which it allows to investment dealers. See "How Shares May
Be Purchased - Sales Charges."
Other Expenses. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, the fees and expenses of the
Administrator, the fees and expenses of Trustees, outside auditing and legal
expenses, all taxes and corporate fees payable by the Fund, Securities and
Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
the Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable.
OTHER INFORMATION
Description of Shares. The Trust was organized as a Massachusetts business trust
on August 12, 1992, under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Fund, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." When
issued, the shares of each series of the Trust, including the Fund, and each
class of shares, will be fully paid, nonassessable and redeemable. The Trust
does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of at least 10% of the outstanding shares of the Trust.
The term of office of each Trustee is of unlimited duration. The holders of at
least two-thirds of the outstanding shares of the Trust may remove a Trustee
from that position either by declaration in writing filed with the Custodian or
by votes cast in person or by proxy at a meeting called for that purpose.
Shareholders of the Trust will vote in the aggregate and not by series (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
shareholders of a particular series or class. Matters affecting an individual
series, such as the Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
Reporting to Shareholders. The Fund will send to its shareholders annual and
semi-annual reports; the financial statements appearing in annual reports for
the Fund will be audited by independent accountants. In addition, the
Administrator, as transfer agent, will send to each shareholder having an
account directly with the Fund a quarterly statement showing transactions in the
account, the total number of shares owned and any dividends or distributions
paid. Inquiries regarding the Fund may be directed in writing to 107 North
Washington Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365
or by calling 1-800-430-3863.
Calculation of Performance Data. From time to time the Fund may advertise its
average annual total return. The "average annual total return" refers to the
average annual compounded rates of return over 1-, 5- and 10-year periods that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment. The calculation assumes the
reinvestment of all dividends and distributions, includes all recurring fees
that are charged to all shareholder accounts and deducts all nonrecurring
charges at the end of each period. The calculation further assumes the maximum
sales load is deducted from the initial payment. If the Fund has been operating
less than 1, 5 or 10 years, the time period during which the Fund has been
operating is substituted.
In addition, the Fund may advertise total return performance data other than
average annual total return. Such data would show a percentage rate of return
encompassing all elements of return (i.e. income and capital appreciation or
depreciation), and would assume reinvestment of all dividends and capital gain
distributions. Such other total return data may be shown for the same or
different periods as those used for average annual total return. These data may
consist of a cumulative percentage rate of return, actual year-by-year rates of
return, or any combination thereof. A cumulative percentage rate of return would
show the cumulative change in value of an investment in the Fund for various
periods.
The total return of the Fund could be increased to the extent the Advisor may
waive all or a portion of its fees or may reimburse all or a portion of the
Fund's expenses. Total return figures are based on the historical performance of
the Fund, show the performance of a hypothetical investment, and are not
intended to indicate future performance. The Fund's quotations may from time to
time be used in advertisements, sales literature, shareholder reports, or other
communications. For further information, see "Additional Information on
Performance" in the Statement of Additional Information.
<PAGE>
- --------------------------------------------------------------------------------
THE CHESAPEAKE
AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
PROSPECTUS
December 11, 1996
Supplemented September 3, 1997
Supplemented November 1, 1997
The Chesapeake Aggressive Growth Fund
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
Investment Advisor
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
Administrator & Fund Accountant
The Nottingham Company
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
Dividend Disbursing & Transfer Agent
North Carolina Shareholder Services
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Custodian
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
Distributor
Capital Investment Group, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
Independent Auditors
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
<PAGE>
PROSPECTUS Cusip Number 36559B401
NASDAQ Symbol CHESX
- --------------------------------------------------------------------------------
THE CHESAPEAKE GROWTH FUND
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The investment objective of The Chesapeake Growth Fund (the "Fund") is to seek
capital appreciation through investments in equity securities of medium and
large capitalization companies, consisting primarily of common and preferred
stocks and securities convertible into common stocks. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this Prospectus. The
Fund has a net asset value that will fluctuate in accordance with the value of
its portfolio securities. An investor may invest, reinvest or redeem shares at
any time.
Prior to November 1, 1997, The Chesapeake Growth Fund was known as The
Chesapeake Fund. The Board of Trustees determined that renaming the Fund more
accurately reflected the Investment Objectives and Policies outlined herein.
This Prospectus relates to shares ("Institutional Shares") representing
interests in the Fund. The Institutional Shares are designed to provide
institutional clients with core growth investment management by Gardner Lewis
Asset Management. The Institutional Shares are offered to institutional
investors without any sales or redemption charges or shareholder servicing or
distribution fees. See "Prospectus Summary - Offering Price."
INVESTMENT ADVISOR
Gardner Lewis Asset Management
Chadds Ford, Pennsylvania
The Fund is a diversified series of the Gardner Lewis Investment Trust (the
"Trust"), a registered open-end management investment company. This Prospectus
sets forth concisely the information about the Fund that a prospective investor
should know before investing. Investors should read this Prospectus and retain
it for future reference. Additional information about the Fund has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge. You may request the Statement of Additional
Information, which is incorporated in this Prospectus by reference, by writing
the Fund at Post Office Box 4365, Rocky Mount, North Carolina 27803-0365, or by
calling 1-800-430-3863. The SEC also maintains an Internet Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
Investment in the Fund involves risks, including the possible loss of principal.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, and such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is June
30, 1997, supplemented November 1, 1997.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................2
FEE TABLE.................................................................3
FINANCIAL HIGHLIGHTS......................................................4
INVESTMENT OBJECTIVE AND POLICIES.........................................5
RISK FACTORS..............................................................7
INVESTMENT LIMITATIONS....................................................8
FEDERAL INCOME TAXES......................................................8
DIVIDENDS AND DISTRIBUTIONS...............................................9
HOW SHARES ARE VALUED.....................................................9
HOW SHARES MAY BE PURCHASED..............................................10
HOW SHARES MAY BE REDEEMED...............................................12
MANAGEMENT OF THE FUND...................................................13
OTHER INFORMATION........................................................15
This Prospectus is not an offering of the securities described herein in any
state in which the offering is unauthorized. No sales representative, dealer or
other person is authorized to give any information or make any representations
other than those contained in this Prospectus.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this Prospectus or to reject purchase orders. All orders
to purchase shares are subject to acceptance by the Fund and are not binding
until confirmed or accepted in writing.
<PAGE>
PROSPECTUS SUMMARY
The Fund. The Chesapeake Growth Fund (the "Fund") is a diversified series of the
Gardner Lewis Investment Trust (the "Trust"), a registered open-end management
investment company organized as a Massachusetts business trust. This Prospectus
relates to Institutional Shares of the Fund. See "Other Information -
Description of Shares." Prior to November 1, 1997, The Chesapeake Growth Fund
was known as The Chesapeake Fund. The Board of Trustees determined that renaming
the Fund more accurately reflected the Investment Objectives and Policies
outlined herein.
Offering Price. The Institutional Shares are offered to institutional investors
at net asset value without a sales charge. The Institutional Shares are not
subject to any 12b-1 distribution or shareholder service fees. The minimum
initial investment is $1,000,000. The minimum subsequent investment is $5,000.
See "How Shares May be Purchased."
Investment Objective and Special Risk Considerations. The investment objective
of the Fund is to seek capital appreciation through investments in equity
securities of medium and large capitalization companies, consisting primarily of
common and preferred stocks and securities convertible into common stocks.
Realization of current income is not a significant investment consideration, and
any income realized will be incidental to the Fund's objective. See "Investment
Objective and Policies." The Fund is not intended to be a complete investment
program, and there can be no assurance that the Fund will achieve its investment
objective. While the Fund will invest primarily in common stocks traded in U.S.
securities markets, some of the Fund's investments may include foreign
securities, illiquid securities, and securities purchased subject to a
repurchase agreement or on a "when-issued" basis, which involve certain risks.
The Fund's portfolio may also contain a significant amount of securities of
medium capitalization companies, which may exhibit more volatility than
securities of large capitalization companies. See "Risk Factors."
Manager. Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment policies, Gardner Lewis Asset
Management of Chadds Ford, Pennsylvania (the "Advisor") manages the Fund's
investments. The Advisor currently manages approximately $3.5 billion in assets.
For its advisory services, the Advisor receives a monthly fee based on the
Fund's daily net assets at the annual rate of 1.00%. See "Management of the Fund
The Advisor."
Dividends. Income dividends, if any, are paid at least annually; capital gains,
if any, are distributed at least annually or retained for reinvestment by the
Fund. Dividends and capital gains distributions are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder
elects to receive cash. See "Dividends and Distributions."
Distributor. Capital Investment Group, Inc. (the "Distributor") serves as
distributor of shares of the Fund. See "How Shares May Be Purchased -
Distributor."
Redemption of Shares. There is no charge for redemptions, other than possible
charges associated with wire transfers of redemption proceeds. Shares may be
redeemed at any time at the net asset value next determined after receipt of a
redemption request by the Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How Shares May Be Redeemed."
<PAGE>
FEE TABLE
The following table sets forth certain information in connection with the
expenses of the Institutional Shares of the Fund for the current fiscal year.
The information is intended to assist the investor in understanding the various
costs and expenses borne by the Institutional Shares of the Fund, and therefore
indirectly by its investors, the payment of which will reduce an investor's
return on an annual basis.
Shareholder Transaction Expenses for Institutional Shares
Maximum sales load imposed on purchases
(as a percentage of offering price).....................................None
Maximum sales load imposed on
reinvested dividends....................................................None
Maximum deferred sales load................................................None
Redemption fees*...........................................................None
Exchange fee...............................................................None
* The Fund in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring redemption
proceeds. The Custodian currently charges the Fund $7.00 per transaction
for wiring redemption proceeds.
Annual Fund Operating Expenses for Institutional Shares
(as a percentage of average net assets)
Investment advisory fees..................................................1.00%
12b-1 fees................................................................None
Other expenses............................................................0.23%
Total operating expenses1...............................................1.23%
EXAMPLE: You would pay the following expenses on a $1,000 investment in
Institutional Shares of the Funds, whether or not you redeem at the end of the
period, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$13 $39 $68 $149
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 The "Total operating expenses" shown above are based upon actual total
operating expenses incurred by the Institutional Shares of the Fund for the
fiscal year ended February 28, 1997, including amounts of Fund expenses paid
by a broker in connection with a brokerage/service arrangement with the
Fund. After reflecting the Fund expenses paid by the broker in connection
with such brokerage/service arrangement, the actual net operating expenses
incurred by the Institutional Shares of the Fund for the fiscal year ended
February 28, 1997, were 1.22% of average daily net assets of the
Institutional Shares. There can be no assurance that the Fund's
brokerage/service arrangement will continue in the future.
See "Management of the Fund" below for more information about the fees and costs
of operating the Fund. The assumed 5% annual return in the example is required
by the Securities and Exchange Commission. The hypothetical rate of return is
not intended to be representative of past or future performance of the Fund; the
actual rate of return for the Fund may be greater or less than 5%.
FINANCIAL HIGHLIGHTS
The shares of the Fund are divided into multiple Classes representing interests
in the Fund. This Prospectus relates to Institutional Shares. See "Other
Information - Description of Shares." The financial data included in the table
below for the fiscal year ended February 28, 1997, has been audited by Deloitte
& Touche LLP, independent auditors, whose report covering such period is
included in the Statement of Additional Information. The financial data for the
prior fiscal periods was audited by other independent auditors. This information
should be read in conjunction with the Fund's latest audited financial
statements and notes thereto, which are also included in the Statement of
Additional Information, a copy of which may be obtained at no charge by calling
the Fund. Further information about the performance of the Fund is contained in
the Annual Report of the Fund, a copy of which may be obtained at no charge by
calling the Fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Institutional Shares
(For a Share Outstanding Throughout the Period)
Year Year Period
Ended Ended Ended
2/28/97 2/29/96 2/28/95(a)
Net Asset Value, Beginning of Period $14.45 $11.31 $10.00
Income (loss) from investment operations
Net investment loss (0.13) (0.05) (0.04)
Net realized and unrealized gain on investments 1.94 3.38 1.35
---- ---- ----
Total from investment operations 1.81 3.33 1.31
---- ---- ----
Distributions to shareholders from
Net realized gain from investment transactions 0.00 (0.11) 0.00
Tax return of capital 0.00 (0.08) 0.00
---- ------ ----
Total distributions 0.00 (0.19) 0.00
---- ------ ----
Net Asset Value, End of Period $16.26 $14.45 $11.31
===== ===== =====
Total return 12.53% 29.66% 13.12%
Ratios/supplemental data
Net assets, end of period (000's) $77,858 $80,252 $15,088
======= ======= =======
Ratio of expenses to average net assets
Before expense reimbursements 1.23% 1.65% 2.75%(b)
After expense reimbursements 1.22% 1.49% 1.73%(b)
Ratio of net investment loss to average net assets
Before expense reimbursements (0.85)% (0.98)% (1.80)%(b)
After expense reimbursements (0.84)% (0.82)% (0.78)%(b)
Portfolio turnover rate 126.44% 99.33% 64.92%
Average commission rate paid $0.06
</TABLE>
(a) For the period from April 6, 1994 (commencement of operations) to February
28, 1995.
(b) Annualized.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of the Fund is to seek capital
appreciation through investments in equity securities of medium and large
capitalization companies, consisting primarily of common and preferred stocks
and securities convertible into common stocks. Realization of current income
will not be a significant investment consideration, and any such income realized
should be considered incidental to the Fund's objective. The Fund's investment
objective and fundamental investment limitations described herein may not be
altered without the prior approval of a majority of the Fund's shareholders.
Investment Selection. The Fund's portfolio will include equity securities which
the Advisor feels show superior prospects for growth. The Advisor will focus
attention on proven medium and large capitalization companies which, in the view
of the Advisor, exhibit internal changes such as a promising new product, new
distribution strategy, new manufacturing technology, or new management team or
management philosophy. Many of the portfolio companies will be responsible for
technological breakthroughs and/or unique solutions to market needs. Investing
in companies which are undergoing internal change, such as implementing new
strategies or introducing new technologies, may involve greater than average
risk due to their unproven nature. By focusing upon internal rather than
external factors, the Fund will seek to minimize the risk associated with
macro-economic forces such as changes in commodity prices, currency exchange
rates and interest rates.
In selecting portfolio companies, the Advisor uses analysis which includes the
growth rate in earnings, financial performance, management strengths and
weaknesses, and current market valuation in relation to earnings growth as well
as historic and comparable company valuations. The Advisor also analyzes the
level and nature of the company's debt, cash flow, working capital and the
quality of the company's assets. Typically companies included in the Fund's
portfolio will show strong earnings growth versus the previous year's comparable
period. Companies that the Advisor determines have excessive levels of debt are
generally avoided.
By developing and maintaining contacts with management, customers, competitors
and suppliers of current and potential portfolio companies, the Advisor attempts
to invest in those companies undergoing positive changes that have not yet been
recognized by "Wall Street" analysts and the financial press. Lack of
recognition of these changes often causes securities to be less efficiently
priced. The Advisor believes these companies offer unique and potentially
superior investment opportunities. The Advisor favors portfolio companies whose
price when purchased is between 8 and 19 times projected earnings for the coming
year.
While portfolio securities are generally acquired for the long term, they may be
sold under any of the following circumstances:
a) the anticipated price appreciation has been achieved or is no longer
probable;
b) the company's fundamentals appear, in the analysis of the Advisor, to be
deteriorating;
c) general market expectations regarding the company's future performance
exceed those expectations held by the Advisor;
d) alternative investments offer, in the view of the Advisor, superior
potential for appreciation.
The equity securities in which the Fund may invest include common stock,
convertible preferred stock, straight preferred stock, participating and
non-participating preferred stock, and investment grade convertible bonds. All
securities will be traded on domestic and foreign securities exchanges or on the
over-the-counter markets. Up to 10% of the Fund's total assets may consist of
foreign securities and sponsored ADRs.
Under normal conditions, at least 90% of the Fund's total assets will be
invested in equity securities. As a temporary defensive measure, however, when
the Advisor determines that market conditions so warrant, the Fund may invest up
to 100% of the Fund's total assets in investment grade bonds, U.S. Government
Securities, repurchase agreements, or money market instruments. When the Fund
invests its assets in investment grade bonds, U.S. Government Securities or
money market instruments as a temporary defensive measure, it is not pursuing
its stated investment objective. Under normal circumstances, however, the Fund
will also hold money market or repurchase agreement instruments for funds
awaiting investment, to accumulate cash for anticipated purchases of portfolio
securities, to allow for shareholder redemptions, and to provide for Fund
operating expenses.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Money Market Instruments. Money market instruments may be purchased for
temporary defensive purposes, to accumulate cash for anticipated purchases of
portfolio securities and to provide for shareholder redemptions and operating
expenses of the Fund. Money market instruments mature in thirteen months or less
from the date of purchase and may include U.S. Government Securities, corporate
debt securities (including those subject to repurchase agreements), bankers
acceptances and certificates of deposit of domestic branches of U.S. banks, and
commercial paper (including variable amount demand master notes) rated in one of
the two highest rating categories by any of the nationally recognized
statistical rating organizations or if not rated, of equivalent quality in the
Advisor's opinion. The Advisor may, when it believes that unusually volatile or
unstable economic and market conditions exist, depart from the Fund's investment
approach and assume temporarily a defensive portfolio posture, increasing the
Fund's percentage investment in money market instruments, even to the extent
that 100% of the Fund's total assets may be so invested.
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
that 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 seven days of
the purchase. The Fund will not enter into any repurchase agreement that will
cause more than 10% of its net assets to be invested in repurchase agreements
that 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.
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 1940 Act.
Foreign Securities. The Fund may invest up to 10% of its total assets in foreign
securities and sponsored ADRs. The same factors would be considered in selecting
foreign securities as with domestic securities. Foreign securities investment
presents special consideration not typically associated with investment in
domestic securities. Foreign taxes may reduce income. Currency exchange rates
and regulations may cause fluctuations in the value of foreign securities.
Foreign securities are subject to different regulatory environments than in the
United States and, compared to the United States, there may be a lack of uniform
accounting, auditing and financial reporting standards, less volume and
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial, or social
instability, or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions and it is possible that such restrictions could be imposed
again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will generally limit foreign investments to those traded domestically as
sponsored American Depository Receipts ("ADRs"). ADRs are receipts issued by a
U.S. bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in the
over-the-counter market. The prices of ADRs are denominated in U.S. dollars
while the underlying security may be denominated in a foreign currency. To the
extent the Fund invests in other foreign securities, it will generally limit
such investments to foreign securities traded on foreign securities exchanges.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
RISK FACTORS
Investment Policies and Techniques. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Fund and the specific securities and investment
techniques that may be employed by the Fund, including the risks associated with
repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
Fluctuations in Value. To the extent that the major portion of the Fund's
portfolio consists of common stocks, it may be expected that its net asset value
will be subject to greater fluctuation than a portfolio containing mostly fixed
income securities. Given that a significant portion of the Fund's assets may be
invested in equity securities of medium capitalization companies, that portion
of the Fund's portfolio may exhibit more volatility than the portion of the
Fund's portfolio invested in large capitalization companies. Because there is
risk in any investment, there can be no assurance that the Fund will achieve its
investment objective.
Portfolio Turnover. The Fund sells portfolio securities in order to take
advantage of new investment opportunities. The Fund's portfolio turnover rate
for its fiscal years ended February 28, 1997, and February 29, 1996, was 126.44%
and 99.33%, respectively. This is indicative of the expected turnover rate of
the Fund. Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and the reinvestment in other securities. Portfolio
turnover may also have capital gains tax consequences.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. The Fund will not invest in restricted securities, which cannot be sold
to the public without registration under the federal securities laws. Unless
registered for sale, restricted securities can only be sold in privately
negotiated transactions or pursuant to an exemption from registration.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain fundamental
investment limitations. Some of these restrictions are that the Fund will not:
(1) issue senior securities, borrow money or pledge its assets; (2) make loans
of money or securities, except that the Fund may invest in repurchase agreements
(but repurchase agreements having a maturity of longer than seven days, together
with other illiquid securities, are limited to 10% of the Fund's net assets);
(3) invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) write, purchase or sell puts, calls, warrants or combinations
thereof, or purchase or sell commodities, commodities contracts, futures
contracts or related options, or invest in oil, gas or mineral leases or
exploration programs, or real estate; (5) invest more than 5% of the value of
its total assets in the securities of any one issuer nor hold more than 10% of
the voting stock of any issuer; (6) invest in restricted securities; (7) invest
more than 10% of the Fund's total assets in foreign securities, including
sponsored ADRs; and (8) invest more than 25% of the Fund's total assets in the
securities of issuers in any one industry. See "Investment Limitations" in the
Fund's Statement of Additional Information for a complete list of investment
limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Fund's Prospectus, or in
the Statement of Additional Information, as being fundamental, is
non-fundamental. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of the Fund's portfolio securities will not constitute a
violation of such limitation.
FEDERAL INCOME TAXES
Taxation of the Fund. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Fund, as a separate
regulated investment company. Each series of the Trust, including the Fund,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Fund will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Fund, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Fund, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar-year basis, and capital gain net
income, using an October 31 year-end measuring period. The Fund intends to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
Taxation of Shareholders. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Fund or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund.
Capital gain distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Dividends and capital gain
distributions paid by the Fund shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
The sale of shares of the Fund is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Fund of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Fund is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Fund has not complied with the applicable statutory and IRS
requirements, the Fund is generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends and distribute capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the same
Class of the Fund at the net asset value per share next determined. Reinvested
dividends and capital gains are exempt from any sales load. Shareholders wishing
to receive their dividends or capital gains in cash may make their request in
writing to the Fund at 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365. That request must be received by the Fund
prior to the record date to be effective as to the next dividend. If cash
payment is requested, checks will be mailed within five business days after the
distribution of the dividends or capital gains, as applicable. Each shareholder
of the Fund will receive a quarterly summary of his or her account, including
information as to reinvested dividends from the Fund. Tax consequences to
shareholders of dividends and distributions are the same if received in cash or
in additional shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. The Fund's net investment
income available for distribution to holders of Institutional Shares will be
reduced by the amount of any expenses allocated to the Institutional Shares.
HOW SHARES ARE VALUED
Net asset value for each Class of Shares of the Fund is determined at 4:00 p.m.,
New York time, Monday through Friday, except on business holidays when the New
York Stock Exchange is closed. The net asset value of the shares of the Fund for
purposes of pricing sales and redemptions is equal to the total market value of
its investments and other assets, less all of its liabilities, divided by the
number of its outstanding shares. Net asset value is determined separately for
each Class of Shares of the Fund and reflects any liabilities allocated to a
particular Class as well as the general liabilities of the Fund.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the mean of the bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the latest quoted sales price, if available, at the time of valuation,
otherwise, at the latest quoted bid price. Temporary cash investments with
maturities of 60 days or less will be valued at amortized cost, which
approximates market value. Securities for which no current quotations are
readily available are valued at fair value as determined in good faith using
methods approved by the Board of Trustees of the Trust. Securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Fund by calling 1-800-430-3863, or by writing to the Fund at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Fund. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
the Fund's net asset value next determined after your order is received by the
Fund in proper form as indicated herein.
The minimum initial investment is $1,000,000. The minimum subsequent investment
is $5,000. The Fund may, in the Advisor's sole discretion, accept certain
accounts with less than the stated minimum initial investment. You may invest in
the following ways:
Purchases by Mail. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The Chesapeake Growth Fund, Institutional Shares, 107
North Washington Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. Subsequent investments in an existing account in the Fund may be
made at any time by sending a check payable to the Fund, to the address stated
above. Please enclose the stub of your account statement and include the amount
of the investment, the name of the account for which the investment is to be
made and the account number. Please remember to add a reference to
"Institutional Shares" to your check to ensure proper credit to your account.
Purchases by Wire. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-430-3863 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund, federal funds and registration instructions should be wired through
the Federal Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For The Chesapeake Growth Fund
Institutional Shares
Acct #2000000862068
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the Fund
immediately after the initial wire as described under "Purchases by Mail" above.
Investors should be aware that some banks may impose a wire service fee.
General. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any application or
investment. Orders become effective, and shares are purchased at, the next
determined net asset value per share after an investment has been received by
the Fund, which is as of 4:00 p.m., New York time, Monday through Friday,
exclusive of business holidays. Orders received by the Fund and effective prior
to such 4:00 p.m. time will purchase shares at the net asset value determined at
that time. Otherwise, your order will purchase shares as of such 4:00 p.m. time
on the next business day. For orders placed through a qualified broker-dealer,
such firm is responsible for promptly transmitting purchase orders to the Fund.
Investors may be charged a fee if they effect transactions in the Fund shares
through a broker or agent.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is cancelled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
The Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Fund, that your taxpayer identification number is correct and
that you are not currently subject to backup withholding or you are exempt from
backup withholding.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622 (the "Distributor"), is the national distributor for the
Fund under a Distribution Agreement with the Trust. The Distributor may sell
Fund shares to or through qualified securities dealers or others.
The Distributor, at its expense, may provide additional compensation to dealers
in connection with sales of shares of the Fund. Compensation may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding the Fund, and/or other dealer-sponsored special events. In
some instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell a significant amount of
such shares. Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Dealers may not
use sales of the Fund shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by the Fund or its shareholders.
Exchange Feature. Investors will have the privilege of exchanging shares of the
Fund for shares of any other series of the Trust established by Advisor. An
exchange involves the simultaneous redemption of shares of one series and
purchase of shares of another series at the respective closing net asset value
next determined after a request for redemption has been received plus applicable
sales charge, and is a taxable transaction. Each series of the Trust will have a
different investment objective, which may be of interest to investors in each
series. Shares of the Fund may be exchanged for shares of any other series of
the Trust affiliated with the Advisor at the net asset value plus the percentage
difference between that series' sales charge and any sales charge previously
paid in connection with the shares being exchanged. For example, if a 2% sales
charge was paid on shares that are exchanged into a series with a 3% sales
charge, there would be an additional sales charge of 1% on the exchange.
Exchanges may only be made by investors in states where shares of the other
series are qualified for sale. An investor may direct the Fund to exchange his
shares by writing to the Fund at its principal office. The request must be
signed exactly as the investor's name appears on the account, and it must also
provide the account number, number of shares to be exchanged, the name of the
series to which the exchange will take place and a statement as to whether the
exchange is a full or partial redemption of existing shares. Notwithstanding the
foregoing, exchanges of shares may only be within the same class or type of
class of shares involved. For example, Investor Shares may not be exchanged for
Institutional or Super-Institutional Shares, and Investor Shares may not be
exchanged among the various Classes of Investor Shares (i.e., Series C Shares
may not be exchanged for Series A or Series D Shares and Series D Shares may not
be exchanged for Series A Shares). Notwithstanding the foregoing, unless
otherwise determined by the Fund, an investor may not exchange shares of the
Fund for shares of The Chesapeake Aggressive Growth Fund, another series of the
Trust affiliated with the Advisor, unless such investor has an existing account
with such Fund.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Fund. Such a pattern may, at the discretion of the Advisor, be limited by the
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of the Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
series into which the shareholder will be making an exchange, as described in
the prospectus for that other series. The Board of Trustees of the Trust
reserves the right to suspend or terminate, or amend the terms of, the exchange
privilege upon 60 days written notice to the shareholders.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Fund will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Stock Certificates. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of the Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the Fund's
portfolio securities. All redemption orders received in proper form, as
indicated herein, by the Fund, whether by mail or telephone, prior to 4:00 p.m.
New York time, Monday through Friday, except for business holidays, will redeem
shares at the net asset value determined at that time. Otherwise, your order
will redeem shares as of such 4:00 p.m. time on the next business day. There is
no charge for redemptions from the Fund other than possible charges for wiring
redemption proceeds. You may also redeem your shares through a broker-dealer or
other institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $1,000,000 (due to redemptions, exchanges
or transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $1,000,000 or more during
the notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-430-3863, or write to the address shown below.
Regular Mail Redemptions. Your request should be addressed to The Chesapeake
Growth Fund, Institutional Shares, 107 North Washington Street, Post Office Box
4365, Rocky Mount, North Carolina 27803-0365. Your request for redemption must
include:
1) Your letter of instruction specifying the account number, and the number of
shares or dollar amount to be redeemed. This request must be signed by all
registered shareholders in the exact names in which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, the Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next determined after
the receipt of the request for redemption will be used in processing the
redemption. The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Telephone and Bank Wire Redemptions. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. The Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and 4)
Shareholder signature as it appears on the application then on file with
the Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. Shareholders can choose to have
redemption proceeds mailed to them at their address of record, their bank, or to
any other authorized person, or they can have the proceeds sent by bank wire to
their bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days on which the bank is not open for business. Shareholders can change
redemption instructions anytime by filing a letter including new redemption
instructions with the Fund. (See "Signature Guarantees" below.) The Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market changes, telephone redemption privileges may be difficult to implement.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges by the Custodian for wire redemptions. The Custodian currently
charges $7.00 per transaction for wiring redemption proceeds. If this cost is
passed through to redeeming shareholders by the Fund, the charge will be
deducted automatically from the shareholder's account by redemption of shares in
the account. The shareholder's bank or brokerage firm may also impose a charge
for processing the wire. If wire transfer of funds is impossible or impractical,
the redemption proceeds will be sent by mail to the designated account.
Shareholders may redeem shares, subject to the procedures outlined above, by
calling the Fund at 1-800-430-3863. Redemption proceeds will only be sent to the
bank account or person named in the Fund Shares Application currently on file
with the Fund. Telephone redemption privileges authorize the Fund to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and, if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$1,000,000 or more at current net asset value may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter as specified, the Fund will automatically
redeem sufficient shares from the account to meet the specified withdrawal
amount. Call or write the Fund for an application form. See the Statement of
Additional Information for further details.
Signature Guarantees. To protect an account and the Fund from fraud, signature
guarantees are required to authorize a change in registration, or standing
instructions, for your account. Signature guarantees are required for (1) change
of registration requests, (2) requests to establish or change exchange
privileges or telephone redemption service other than through the initial
account application, and (3) requests for redemptions in excess of $50,000.
Signature guarantees are acceptable from a member bank of the Federal Reserve
System, a savings and loan institution, credit union (if authorized under state
law), registered broker-dealer, securities exchange or association clearing
agency, and must appear on the written request for redemption, establishment or
change in exchange privileges, or change of registration.
MANAGEMENT OF THE FUND
Trustees and Officers. The Fund is a diversified series of the Gardner Lewis
Investment Trust (the "Trust"), a registered open-end management investment
company organized as a Massachusetts business trust. The Board of Trustees of
the Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its and the Fund's day-to-day operations.
The Advisor. Subject to the authority of the Board of Trustees, 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, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Delaware corporation in 1990 and converted to a
Pennsylvania limited partnership in 1994, is controlled by W. Whitfield Gardner.
The Advisor currently serves as investment advisor to approximately $3.5 billion
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation. The
Advisor's address is 285 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania
19317.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 1.00% of the average daily net asset
value of the Fund. For the fiscal year ended February 28, 1997, the Advisor was
paid investment advisory fees of $1,940,587.
The Advisor supervises and implements the investment activities of the Fund,
including making specific decisions as to the purchase and sale of portfolio
investments. Among the responsibilities of the Advisor under the Advisory
Agreement is the selection of brokers and dealers through whom transactions in
the Fund's portfolio investments will be effected. The Advisor attempts to
obtain the best execution for all such transactions. If it is believed that more
than one broker is able to provide the best execution, the Advisor will consider
the receipt of quotations and other market services and of research, statistical
and other data and the sale of shares of the Fund in selecting a broker. The
Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. The Advisor may also utilize a brokerage firm
affiliated with the Trust or the Advisor if it believes it can obtain the best
execution of transactions from such broker. Research services obtained through
Fund brokerage transactions may be used by the Advisor for its other clients
and, conversely, the Fund may benefit from research services obtained through
the brokerage transactions of the Advisor's other clients. For further
information, see "Investment Objective and Policies - Investment Transactions"
in the Statement of Additional Information.
W. Whitfield Gardner and John L. Lewis, IV, principals of the Advisor and
executive officers of the Trust, have been responsible for day-to-day management
of the Fund's portfolio since its inception in 1994. They have been with the
Advisor since its inception. Additional information about these gentlemen is set
forth in the Statement of Additional Information under "Management of the Fund -
Trustees and Officers."
The Administrator. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069. Subject to the
authority of the Board of Trustees, the services the Administrator provides to
the Fund include coordinating and monitoring any third parties furnishing
services to the Fund; providing the necessary office space, equipment and
personnel to perform administrative and clerical functions for the Fund; and
preparing, filing and distributing proxy materials, periodic reports to
shareholders, registration statements and other documents. The Administrator
also performs certain accounting and pricing services for the Fund as pricing
agent, including the daily calculation of the Fund's net asset value.
The Administrator was incorporated as a North Carolina corporation in 1988. With
its predecessors and affiliates, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III is the firm's Managing
Director and controlling shareholder.
The Transfer Agent. North Carolina Shareholder Services, LLC (the "Transfer
Agent") serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent, subject to the authority of the Board of
Trustees, provides transfer agency services pursuant to an agreement with the
Administrator, which has been approved by the Trust. The Transfer Agent
maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent, and performs other
shareholder servicing functions. The Transfer Agent is compensated for its
services by the Administrator and not directly by the Fund.
The Transfer Agent, whose address is 107 North Washington Street, Post Office
Box 4365, Rocky Mount, North Carolina 27803-0365, was established as a North
Carolina limited liability company in 1997. John D. Marriott, Jr., is the firm's
controlling member.
The Custodian. First Union National Bank of North Carolina (the "Custodian"),
Two First Union Center, Charlotte, North Carolina 28288-1151, serves as
Custodian of the Fund's assets. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties.
Other Expenses. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, the fees and expenses of the
Administrator, the fees and expenses of Trustees, outside auditing and legal
expenses, all taxes and corporate fees payable by the Fund, Securities and
Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
the Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable. Any expenses relating only to a particular Class of
Shares of the Fund will be borne solely by such Class.
OTHER INFORMATION
Description of Shares. The Trust was organized as a Massachusetts business trust
on August 12, 1992, under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Fund, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." Pursuant
to its authority under the Declaration of Trust, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of five Classes
("Series A, Series C, and Series D Investor Shares," "Institutional Shares," and
Super-Institutional Shares") representing equal pro rata interests in the Fund,
except that the Classes bear different expenses that reflect the differences in
services provided to them. Investor Shares are sold with a sales charge (except
for Series C Shares) and bear potential distribution expenses and service fees
at different levels. See "How Shares May Be Purchased - Sales Charges" and " -
Distribution Plan." Institutional and Super-Institutional Shares are sold
without a sales charge and bear no shareholder servicing or distribution fees.
The Super-Institutional Shares, however, receive fewer investor services than
the Institutional and Investor Shares due to the size and nature of accounts
holding Super-Institutional Shares. As a result of different charges, fees, and
expenses between the Classes, the total return on the Fund's Investor Shares
will generally be lower than the total return on the Institutional and
Super-Institutional Shares, and the total return on the Institutional Shares
will generally be lower than the total return on the Super-Institutional Shares.
Standardized total return quotations will be computed separately for each Class
of Shares of the Fund.
THIS PROSPECTUS RELATES TO THE FUND'S INSTITUTIONAL SHARES AND DESCRIBES ONLY
THE POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS PERTAINING TO THE
INSTITUTIONAL SHARES. THE FUND ALSO ISSUES A CLASS OF SUPER-INSTITUTIONAL SHARES
AND THREE CLASSES OF INVESTOR SHARES. SUCH OTHER CLASSES MAY HAVE DIFFERENT
SALES CHARGES AND EXPENSES, WHICH MAY AFFECT PERFORMANCE. INVESTORS MAY CALL THE
FUND AT 1-800-430-3863 TO OBTAIN MORE INFORMATION CONCERNING OTHER CLASSES
AVAILABLE TO THEM THROUGH THEIR SALES REPRESENTATIVE. INVESTORS MAY OBTAIN
INFORMATION CONCERNING OTHER CLASSES FROM THEIR SALES REPRESENTATIVE, THE
DISTRIBUTOR, THE FUND, OR ANY OTHER PERSON WHICH IS OFFERING OR MAKING AVAILABLE
TO THEM THE SECURITIES OFFERED IN THIS PROSPECTUS.
When issued, the shares of each series of the Trust, including the Fund, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of at least 10% of the outstanding shares of the Trust.
The term of office of each Trustee is of unlimited duration. The holders of at
least two-thirds of the outstanding shares of the Trust may remove a Trustee
from that position either by declaration in writing filed with the Custodian or
by votes cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (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 the
shareholders of a particular series or class. Matters affecting an individual
series, such as the Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
Reporting to Shareholders. The Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
the Fund will be audited by independent accountants. In addition, the Fund will
send to each shareholder having an account directly with the Fund a quarterly
statement showing transactions in the account, the total number of shares owned
and any dividends or distributions paid. Inquiries regarding the Fund may be
directed in writing to 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365 or by calling 1-800-430-3863.
Calculation of Performance Data. From time to time the Fund may advertise its
average annual total return for each Class of Shares. The "average annual total
return" refers to the average annual compounded rates of return over 1-, 5-, and
10-year periods that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment. The
calculation assumes the reinvestment of all dividends and distributions,
includes all recurring fees that are charged to all shareholder accounts and
deducts all nonrecurring charges at the end of each period. The calculation
further assumes the maximum sales load is deducted from the initial payment. If
the Fund has been operating less than 1, 5 or 10 years, the time period during
which the Fund has been operating is substituted.
In addition, the Fund may advertise other total return performance data other
than average annual total return for each Class of Shares. This data shows as a
percentage rate of return encompassing all elements of return (i.e. income and
capital appreciation or depreciation); it assumes reinvestment of all dividends
and capital gain distributions. Such other total return data may be quoted for
the same or different periods as those for which average annual total return is
quoted. This data may consist of a cumulative percentage rate of return, actual
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in the Fund for
various periods.
The total return of the Fund could be increased to the extent the Advisor may
waive a portion of its fees or may reimburse a portion of the Fund's expenses.
Total return figures are based on the historical performance of the Fund, show
the performance of a hypothetical investment, and are not intended to indicate
future performance. The Fund's quotations may from time to time be used in
advertisements, sales literature, shareholder reports, or other communications.
For further information, see "Additional Information on Performance" in the
Statement of Additional Information.
<PAGE>
- --------------------------------------------------------------------------------
THE CHESAPEAKE GROWTH FUND
INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
PROSPECTUS
June 30, 1997
Supplemented November 1, 1997
THE CHESAPEAKE GROWTH FUND
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
ADMINISTRATOR & FUND ACCOUNTANT
The Nottingham Company
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
DIVIDEND DISBURSING & TRANSFER AGENT
North Carolina Shareholder Services
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
DISTRIBUTOR
Capital Investment Group, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
CUSTODIAN
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
<PAGE>
Investor Class A Cusip Number 36559B203
PROSPECTUS Investor Class C Cusip Number 36559B500
Investor Class D Cusip Number 36559B302
- --------------------------------------------------------------------------------
THE CHESAPEAKE GROWTH FUND
INVESTOR SHARES
- --------------------------------------------------------------------------------
The investment objective of The Chesapeake Growth Fund (the "Fund") is to seek
capital appreciation through investments in equity securities of medium and
large capitalization companies, consisting primarily of common and preferred
stocks and securities convertible into common stocks. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this Prospectus. The
Fund has a net asset value that will fluctuate in accordance with the value of
its portfolio securities. An investor may invest, reinvest or redeem shares at
any time.
Prior to November 1, 1997, The Chesapeake Growth Fund was known as The
Chesapeake Fund. The Board of Trustees determined that renaming the Fund more
accurately reflected the Investment Objectives and Policies outlined herein.
This Prospectus relates to three Classes of Shares from which investors may
choose representing interests in the Fund: Series A Investor Shares ("Series A
Shares"), Series C Investor Shares ("Series C Shares"), and Series D Investor
Shares ("Series D Shares" and, collectively with Series A Shares and Series C
Shares, "Investor Shares"). Series A and Series D Shares are sold with a sales
charge. Series C Shares are sold without a sales charge. The Investor Shares are
offered to the general public. See "Prospectus Summary - Offering Price."
INVESTMENT ADVISOR
Gardner Lewis Asset Management
Chadds Ford, Pennsylvania
The Fund is a diversified series of the Gardner Lewis Investment Trust (the
"Trust"), a registered open-end management investment company. This Prospectus
sets forth concisely the information about the Fund that a prospective investor
should know before investing. Investors should read this Prospectus and retain
it for future reference. Additional information about the Fund has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge. You may request the Statement of Additional
Information, which is incorporated in this Prospectus by reference, by writing
the Fund at Post Office Box 4365, Rocky Mount, North Carolina 27803-0365, or by
calling 1-800-430-3863. The SEC also maintains an Internet Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
Investment in the Fund involves risks, including the possible loss of principal.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, and such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is June
30, 1997, supplemented November 1, 1997.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY.........................................................2
FEE TABLE..................................................................3
FINANCIAL HIGHLIGHTS.......................................................4
INVESTMENT OBJECTIVE AND POLICIES..........................................5
RISK FACTORS...............................................................7
INVESTMENT LIMITATIONS.....................................................8
FEDERAL INCOME TAXES.......................................................8
DIVIDENDS AND DISTRIBUTIONS................................................9
HOW SHARES ARE VALUED......................................................9
HOW SHARES MAY BE PURCHASED...............................................10
HOW SHARES MAY BE REDEEMED................................................15
MANAGEMENT OF THE FUND....................................................17
OTHER INFORMATION.........................................................18
This Prospectus is not an offering of the securities described herein in any
state in which the offering is unauthorized. No sales representative, dealer or
other person is authorized to give any information or make any representations
other than those contained in this Prospectus.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this Prospectus or to reject purchase orders. All orders
to purchase shares are subject to acceptance by the Fund and are not binding
until confirmed or accepted in writing.
<PAGE>
PROSPECTUS SUMMARY
The Fund. The Chesapeake Growth Fund (the "Fund") is a diversified series of the
Gardner Lewis Investment Trust (the "Trust"), a registered open-end management
investment company organized as a Massachusetts business trust. This Prospectus
relates to Investor Shares of the Fund. See "Other Information - Description of
Shares." Prior to November 1, 1997, The Chesapeake Growth Fund was known as The
Chesapeake Fund. The Board of Trustees determined that renaming the Fund more
accurately reflected the Investment Objectives and Policies outlined herein.
Offering Price. The Investor Shares are offered to the general public at net
asset value plus a 3% sales charge for Series A Shares and a 1.5% sales charge
for Series D Shares, which sales charge is reduced on purchases involving larger
amounts. The Series C Shares are offered at net asset value without a sales
charge. The Investor Shares are also subject to potential 12b-1 distribution and
service fees annually of up to 0.25%, 0.75%, and 0.50%, respectively, of the
average net assets of the Series A, Series C, and Series D Shares, respectively.
See "Distributor and Distribution Fee" below. The minimum initial investment is
$25,000. The minimum subsequent investment is $500. See "How Shares May be
Purchased."
Investment Objective and Special Risk Considerations. The investment objective
of the Fund is to seek capital appreciation through investments in equity
securities of medium and large capitalization companies, consisting primarily of
common and preferred stocks and securities convertible into common stocks.
Realization of current income is not a significant investment consideration, and
any income realized will be incidental to the Fund's objective. See "Investment
Objective and Policies." The Fund is not intended to be a complete investment
program, and there can be no assurance that the Fund will achieve its investment
objective. While the Fund will invest primarily in common stocks traded in U.S.
securities markets, some of the Fund's investments may include foreign
securities, illiquid securities, and securities purchased subject to a
repurchase agreement or on a "when-issued" basis, which involve certain risks.
The Fund's portfolio may also contain a significant amount of securities of
medium capitalization companies, which may exhibit more volatility than
securities of large capitalization companies. See "Risk Factors."
Manager. Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment policies, Gardner Lewis Asset
Management of Chadds Ford, Pennsylvania (the "Advisor") manages the Fund's
investments. The Advisor currently manages approximately $3.5 billion in assets.
For its advisory services, the Advisor receives a monthly fee based on the
Fund's daily net assets at the annual rate of 1.00%. See "Management of the Fund
The Advisor."
Dividends. Income dividends, if any, are paid at least annually; capital gains,
if any, are distributed at least annually or retained for reinvestment by the
Fund. Dividends and capital gains distributions are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder
elects to receive cash. See "Dividends and Distributions."
Distributor and Distribution Fee. Capital Investment Group, Inc. (the
"Distributor") serves as distributor of shares of the Fund. For its services,
which include payments to qualified securities dealers for sales of Fund shares,
the Distributor receives commissions consisting of the portion of the sales
charge for Series A and Series D Shares remaining after the discounts it allows
to securities dealers. Under the Fund's Distribution Plan with respect to each
class of Investor Shares, expenditures by the Fund for distribution activities
and service fees annually may not exceed 0.25%, 0.75%, and 0.50%, respectively,
of the average net assets of the Series A, Series C, and Series D Shares,
respectively. See "How Shares May Be Purchased - Sales Charges" and "-
Distribution Plan."
Redemption of Shares. There is no charge for redemptions, other than possible
charges associated with wire transfers of redemption proceeds. Shares may be
redeemed at any time at the net asset value next determined after receipt of a
redemption request by the Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How Shares May Be Redeemed."
<PAGE>
FEE TABLE
The following table sets forth certain information in connection with the
expenses of the Investor Shares of the Fund for the current fiscal year. The
information is intended to assist the investor in understanding the various
costs and expenses borne by the Investor Shares of the Fund, and therefore
indirectly by its investors, the payment of which will reduce an investor's
return on an annual basis.
Shareholder Transaction Expenses for Investor Shares
Series A Series C Series D
Maximum sales load imposed on purchases
(as a percentage of offering price) 3.00%1 None 1.50%1
Maximum sales load imposed
on reinvested dividends........... None None None
Maximum deferred sales load........ None None None
Redemption fees*................... None None None
Exchange fee....................... None None None
Annual Fund Operating Expenses for Investor Shares
(as a percentage of average net assets)
Series A Series C Series D
Investment advisory fees........... 1.00% 1.00% 1.00%
12b-1 fees2........................ 0.25% 0.75% 0.50%
Other expenses..................... 0.29% 0.59% 0.52%
------ ------ ------
Total operating expenses3........ 1.54% 2.34% 2.02%
====== ====== ======
<PAGE>
* The Fund in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring redemption
proceeds. The Custodian currently charges the Fund $7.00 per transaction for
wiring redemption proceeds.
EXAMPLE: You would pay the following expenses (including the maximum initial
sales charge) on a $1,000 investment in Investor Shares of the Fund, whether or
not you redeem at the end of the period, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Series A $45 $77 $111 $208
Series C $24 $73 $125 $268
Series D $35 $77 $122 $246
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 Reduced for larger purchases. See "How Shares May Be Purchased - Sales
Charges."
2 The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), with respect
to each Class of Investor Shares, which provides that the Fund may pay
certain distribution expenses and service fees annually with respect to the
Investor Shares up to 0.25%, 0.75%, and 0.50%, respectively, of the average
net assets of the Series A, Series C, and Series D Shares, respectively.
See "How Shares May Be Purchased - Distribution Plan." Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers.
3 The "Total operating expenses" shown above are based upon actual total
operating expenses incurred by the Investor Shares of the Fund for the
fiscal year ended February 28, 1997, including amounts of Fund expenses
paid by a broker in connection with a brokerage/service arrangement with
the Fund. After reflecting the Fund expenses paid by the broker in
connection with such brokerage/service arrangement, the actual net
operating expenses incurred by the Investor Shares of the Fund for the
fiscal year ended February 28, 1997, were 1.53%, 2.33%, and 2.01% of
average daily net assets of the Series A, Series C, and Series D Investor
Shares, respectively. There can be no assurance that the Fund's
brokerage/service arrangement will continue in the future.
See "How Shares May Be Purchased" and "Management of the Fund" below for more
information about the fees and costs of operating the Fund. The assumed 5%
annual return in the example is required by the Securities and Exchange
Commission. The hypothetical rate of return is not intended to be representative
of past or future performance of the Fund; the actual rate of return for the
Fund may be greater or less than 5%.
<PAGE>
FINANCIAL HIGHLIGHTS
The shares of the Fund are divided into multiple Classes representing interests
in the Fund. This Prospectus relates to Investor Shares. See "Other Information
- - Description of Shares." The financial data included in the table below for the
fiscal year ended February 28, 1997, has been audited by Deloitte & Touche LLP,
independent auditors, whose report covering such period is included in the
Statement of Additional Information. The financial data for the prior fiscal
period was audited by other independent auditors. This information should be
read in conjunction with the Fund's latest audited financial statements and
notes thereto, which are also included in the Statement of Additional
Information, a copy of which may be obtained at no charge by calling the Fund.
Further information about the performance of the Fund is contained in the Annual
Report of the Fund, a copy of which may be obtained at no charge by calling the
Fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Investor Shares
(For a Share Outstanding Throughout the Period)
Series A Series C Series D
Year Period Year Period Year Period
Ended ended Ended ended ended ended
2/28/97 2/29/96(a) 2/28/97 2/29/96(a) 2/28/97 2/29/96(a)
Net Asset Value, Beginning of Period $14.42 $11.79 $14.34 $11.79 $14.41 $11.79
Income (loss) from investment operations
Net investment loss (0.18) (0.06) (0.29) (0.12) (0.29) (0.11)
Net realized and unrealized gain on investments 1.94 2.88 1.92 2.86 1.97 2.92
------ ------- ------ ------- ------ -------
Total from investment operations 1.76 2.82 1.63 2.74 1.68 2.81
------ ------- ------ ------- ------ -------
Distributions to shareholders from
Net realized gain from investment transactions 0.00 (0.11) 0.00 (0.11) 0.00 (0.11)
Tax return of capital 0.00 (0.08) 0.00 (0.08) 0.00 (0.08)
---- ----- ---- ----- ---- -----
Total distributions 0.00 (0.19) 0.00 (0.19) 0.00 (0.19)
---- ----- ---- ----- ---- -----
Net Asset Value, End of Period $16.18 $14.42 $15.97 $14.34 $16.09 $14.41
===== ====== ===== ====== ===== ======
Total return (b) 12.21% 23.86% 11.30% 23.18% 11.59% 23.77%
===== ===== ===== ===== ===== =====
Ratios/supplemental data
Net assets, end of period (000's) $39,376 $32,549 $9,192 $7,908 $10,774 $11,929
======= ======= ====== ====== ======= =======
Ratio of expenses to average net assets
Before expense reimbursements 1.54% 1.88%(c) 2.34% 2.38%(c) 2.02% 2.13 %(c)
After expense reimbursements 1.53% 1.71%(c) 2.33% 2.18%(c) 2.01% 1.73 %(c)
Ratio of net investment loss to average net assets
Before expense reimbursements (1.16)% (1.20)%(c) (1.97)% (1.77)%(c) (1.64)% (1.54)%(c)
After expense reimbursements (1.15)% (1.04)%(c) (1.96)% (1.57)%(c) (1.63)% (1.14)%(c)
Portfolio turnover rate 126.44% 99.33% 126.44% 99.33% 126.44% 99.33%
Average commission rate paid $0.06 $0.06 $0.06
</TABLE>
(a) For the period from April 7, 1995 (commencement of operations) to February
29, 1996.
(b) Total return does not reflect payment of a sales charge.
(c) Annualized.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of the Fund is to seek capital
appreciation through investments in equity securities of medium and large
capitalization companies, consisting primarily of common and preferred stocks
and securities convertible into common stocks. Realization of current income
will not be a significant investment consideration, and any such income realized
should be considered incidental to the Fund's objective. The Fund's investment
objective and fundamental investment limitations described herein may not be
altered without the prior approval of a majority of the Fund's shareholders.
Investment Selection. The Fund's portfolio will include equity securities which
the Advisor feels show superior prospects for growth. The Advisor will focus
attention on proven medium and large capitalization companies which, in the view
of the Advisor, exhibit internal changes such as a promising new product, new
distribution strategy, new manufacturing technology, or new management team or
management philosophy. Many of the portfolio companies will be responsible for
technological breakthroughs and/or unique solutions to market needs. Investing
in companies which are undergoing internal change, such as implementing new
strategies or introducing new technologies, may involve greater than average
risk due to their unproven nature. By focusing upon internal rather than
external factors, the Fund will seek to minimize the risk associated with
macro-economic forces such as changes in commodity prices, currency exchange
rates and interest rates.
In selecting portfolio companies, the Advisor uses analysis which includes the
growth rate in earnings, financial performance, management strengths and
weaknesses, and current market valuation in relation to earnings growth as well
as historic and comparable company valuations. The Advisor also analyzes the
level and nature of the company's debt, cash flow, working capital and the
quality of the company's assets. Typically companies included in the Fund's
portfolio will show strong earnings growth versus the previous year's comparable
period. Companies that the Advisor determines have excessive levels of debt are
generally avoided.
By developing and maintaining contacts with management, customers, competitors
and suppliers of current and potential portfolio companies, the Advisor attempts
to invest in those companies undergoing positive changes that have not yet been
recognized by "Wall Street" analysts and the financial press. Lack of
recognition of these changes often causes securities to be less efficiently
priced. The Advisor believes these companies offer unique and potentially
superior investment opportunities. The Advisor favors portfolio companies whose
price when purchased is between 8 and 19 times projected earnings for the coming
year.
While portfolio securities are generally acquired for the long term, they may be
sold under any of the following circumstances:
a) the anticipated price appreciation has been achieved or is no longer
probable;
b) the company's fundamentals appear, in the analysis of the Advisor, to be
deteriorating;
c) general market expectations regarding the company's future performance
exceed those expectations held by the Advisor;
d) alternative investments offer, in the view of the Advisor, superior
potential for appreciation.
The equity securities in which the Fund may invest include common stock,
convertible preferred stock, straight preferred stock, participating and
non-participating preferred stock, and investment grade convertible bonds. All
securities will be traded on domestic and foreign securities exchanges or on the
over-the-counter markets. Up to 10% of the Fund's total assets may consist of
foreign securities and sponsored ADRs.
Under normal conditions, at least 90% of the Fund's total assets will be
invested in equity securities. As a temporary defensive measure, however, when
the Advisor determines that market conditions so warrant, the Fund may invest up
to 100% of the Fund's total assets in investment grade bonds, U.S. Government
Securities, repurchase agreements, or money market instruments. When the Fund
invests its assets in investment grade bonds, U.S. Government Securities or
money market instruments as a temporary defensive measure, it is not pursuing
its stated investment objective. Under normal circumstances, however, the Fund
will also hold money market or repurchase agreement instruments for funds
awaiting investment, to accumulate cash for anticipated purchases of portfolio
securities, to allow for shareholder redemptions, and to provide for Fund
operating expenses.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Money Market Instruments. Money market instruments may be purchased for
temporary defensive purposes, to accumulate cash for anticipated purchases of
portfolio securities and to provide for shareholder redemptions and operating
expenses of the Fund. Money market instruments mature in thirteen months or less
from the date of purchase and may include U.S. Government Securities, corporate
debt securities (including those subject to repurchase agreements), bankers
acceptances and certificates of deposit of domestic branches of U.S. banks, and
commercial paper (including variable amount demand master notes) rated in one of
the two highest rating categories by any of the nationally recognized
statistical rating organizations or if not rated, of equivalent quality in the
Advisor's opinion. The Advisor may, when it believes that unusually volatile or
unstable economic and market conditions exist, depart from the Fund's investment
approach and assume temporarily a defensive portfolio posture, increasing the
Fund's percentage investment in money market instruments, even to the extent
that 100% of the Fund's total assets may be so invested.
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
that 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 seven days of
the purchase. The Fund will not enter into any repurchase agreement that will
cause more than 10% of its net assets to be invested in repurchase agreements
that 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.
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 1940 Act.
Foreign Securities. The Fund may invest up to 10% of its total assets in foreign
securities and sponsored ADRs. The same factors would be considered in selecting
foreign securities as with domestic securities. Foreign securities investment
presents special consideration not typically associated with investment in
domestic securities. Foreign taxes may reduce income. Currency exchange rates
and regulations may cause fluctuations in the value of foreign securities.
Foreign securities are subject to different regulatory environments than in the
United States and, compared to the United States, there may be a lack of uniform
accounting, auditing and financial reporting standards, less volume and
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial, or social
instability, or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions and it is possible that such restrictions could be imposed
again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will generally limit foreign investments to those traded domestically as
sponsored American Depository Receipts ("ADRs"). ADRs are receipts issued by a
U.S. bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in the
over-the-counter market. The prices of ADRs are denominated in U.S. dollars
while the underlying security may be denominated in a foreign currency. To the
extent the Fund invests in other foreign securities, it will generally limit
such investments to foreign securities traded on foreign securities exchanges.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
RISK FACTORS
Investment Policies and Techniques. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Fund and the specific securities and investment
techniques that may be employed by the Fund, including the risks associated with
repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
Fluctuations in Value. To the extent that the major portion of the Fund's
portfolio consists of common stocks, it may be expected that its net asset value
will be subject to greater fluctuation than a portfolio containing mostly fixed
income securities. Given that a significant portion of the Fund's assets may be
invested in equity securities of medium capitalization companies, that portion
of the Fund's portfolio may exhibit more volatility than the portion of the
Fund's portfolio invested in large capitalization companies. Because there is
risk in any investment, there can be no assurance that the Fund will achieve its
investment objective.
Portfolio Turnover. The Fund sells portfolio securities in order to take
advantage of new investment opportunities. The Fund's portfolio turnover rate
for its fiscal years ended February 28, 1997, and February 29, 1996, was 126.44%
and 99.33%, respectively. This is indicative of the expected turnover rate of
the Fund. Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and the reinvestment in other securities. Portfolio
turnover may also have capital gains tax consequences.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. The Fund will not invest in restricted securities, which cannot be sold
to the public without registration under the federal securities laws. Unless
registered for sale, restricted securities can only be sold in privately
negotiated transactions or pursuant to an exemption from registration.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain fundamental
investment limitations. Some of these restrictions are that the Fund will not:
(1) issue senior securities, borrow money or pledge its assets; (2) make loans
of money or securities, except that the Fund may invest in repurchase agreements
(but repurchase agreements having a maturity of longer than seven days, together
with other illiquid securities, are limited to 10% of the Fund's net assets);
(3) invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) write, purchase or sell puts, calls, warrants or combinations
thereof, or purchase or sell commodities, commodities contracts, futures
contracts or related options, or invest in oil, gas or mineral leases or
exploration programs, or real estate; (5) invest more than 5% of the value of
its total assets in the securities of any one issuer nor hold more than 10% of
the voting stock of any issuer; (6) invest in restricted securities; (7) invest
more than 10% of the Fund's total assets in foreign securities, including
sponsored ADRs; and (8) invest more than 25% of the Fund's total assets in the
securities of issuers in any one industry. See "Investment Limitations" in the
Fund's Statement of Additional Information for a complete list of investment
limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Fund's Prospectus, or in
the Statement of Additional Information, as being fundamental, is
non-fundamental. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of the Fund's portfolio securities will not constitute a
violation of such limitation.
FEDERAL INCOME TAXES
Taxation of the Fund. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Fund, as a separate
regulated investment company. Each series of the Trust, including the Fund,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Fund will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Fund, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Fund, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar-year basis, and capital gain net
income, using an October 31 year-end measuring period. The Fund intends to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
Taxation of Shareholders. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Fund or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund.
Capital gain distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Dividends and capital gain
distributions paid by the Fund shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
The sale of shares of the Fund is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Fund of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Fund is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Fund has not complied with the applicable statutory and IRS
requirements, the Fund is generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends and distribute capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the same
Class of the Fund at the net asset value per share next determined. Reinvested
dividends and capital gains are exempt from any sales load. Shareholders wishing
to receive their dividends or capital gains in cash may make their request in
writing to the Fund at 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365. That request must be received by the Fund
prior to the record date to be effective as to the next dividend. If cash
payment is requested, checks will be mailed within five business days after the
distribution of the dividends or capital gains, as applicable. Each shareholder
of the Fund will receive a quarterly summary of his or her account, including
information as to reinvested dividends from the Fund. Tax consequences to
shareholders of dividends and distributions are the same if received in cash or
in additional shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. The Fund's net investment
income available for distribution to holders of Investor Shares will be reduced
by the amount of any expenses allocated to the Investor Shares, and any expenses
allocated among the Classes of the Investor Shares, including the distribution
and service fees under the Fund's Distribution Plan, which vary depending on the
particular Class of the Investor Shares.
HOW SHARES ARE VALUED
Net asset value for each Class of Shares of the Fund is determined at 4:00 p.m.,
New York time, Monday through Friday, except on business holidays when the New
York Stock Exchange is closed. The net asset value of the shares of the Fund for
purposes of pricing sales and redemptions is equal to the total market value of
its investments and other assets, less all of its liabilities, divided by the
number of its outstanding shares. Net asset value is determined separately for
each Class of Shares of the Fund and reflects any liabilities allocated to a
particular Class as well as the general liabilities of the Fund.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the mean of the bid and asked prices.
Unlisted securities for which market quotations are readily available are valued
at the latest quoted sales price, if available, at the time of valuation,
otherwise, at the latest quoted bid price. Temporary cash investments with
maturities of 60 days or less will be valued at amortized cost, which
approximates market value. Securities for which no current quotations are
readily available are valued at fair value as determined in good faith using
methods approved by the Board of Trustees of the Trust. Securities may be valued
on the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The net asset value of each Class of Shares will be affected by expenses accrued
and payable by such Class. Because the distribution and service fees
attributable to the Investor Shares vary depending on the particular Class of
the Investor Shares in question, the net income attributable to and the
dividends payable by the Series C Shares will be lower than the net income
attributable to and the dividends payable by the Series A and Series D Shares,
and the net income attributable to and the dividends payable by the Series D
Shares will be lower than the net income attributable to and the dividends
payable by the Series A Shares.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Fund by calling 1-800-430-3863, or by writing to the Fund at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Fund. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
the Fund's public offering price next determined after your order is received by
the Fund in proper form as indicated herein.
The minimum initial investment is $25,000. The minimum subsequent investment is
$500. The Fund may, in the Advisor's sole discretion, accept certain accounts
with less than the stated minimum initial investment. You may invest in the
following ways:
Purchases by Mail. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The Chesapeake Growth Fund, Investor Shares, 107 North
Washington Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365.
Subsequent investments in an existing account in the Fund may be made at any
time by sending a check payable to the Fund, to the address stated above. Please
enclose the stub of your account statement and include the amount of the
investment, the name of the account for which the investment is to be made and
the account number. Please remember to add a reference to "Series A," "Series
C," or "Series D" to your check to ensure proper credit to your account.
Purchases by Wire. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-430-3863 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund, federal funds and registration instructions should be wired through
the Federal Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For The Chesapeake Growth Fund
Series A, C, or D Investor Shares
Acct #2000000862068
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the Fund
immediately after the initial wire as described under "Purchases by Mail" above.
Investors should be aware that some banks may impose a wire service fee.
General. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any application or
investment. Orders become effective, and shares are purchased at, the next
determined public offering price per share after an investment has been received
by the Fund, which is as of 4:00 p.m., New York time, Monday through Friday,
exclusive of business holidays. Orders received by the Fund and effective prior
to such 4:00 p.m. time will purchase shares at the public offering price
determined at that time. Otherwise, your order will purchase shares as of such
4:00 p.m. time on the next business day. For orders placed through a qualified
broker-dealer, such firm is responsible for promptly transmitting purchase
orders to the Fund. Investors may be charged a fee if they effect transactions
in the Fund shares through a broker or agent.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is cancelled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
The Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Fund, that your taxpayer identification number is correct and
that you are not currently subject to backup withholding or you are exempt from
backup withholding. For individuals, your taxpayer identification number is your
social security number.
Sales Charges. The public offering price of Investor Shares of the Fund equals
net asset value plus a sales charge for Series A and Series D Shares. Series C
Shares are sold without a sales charge. Capital Investment Group, Inc. (the
"Distributor") receives this sales charge as Distributor and may reallow it in
the form of dealer discounts and brokerage commissions as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales Sales
Charge As Charge As Dealers Discounts
% of Net % of Public and Brokerage
Amount of Transaction Amount Offering Commissions as % of
At Public Offering Price Invested Price Public Offering Price
Series A Shares
Less than $250,000........................... 3.09% 3.00% 2.80%
$250,000 but less than $500,000.............. 2.04% 2.00% 1.80%
$500,000 or more............................. 1.01% 1.00% 0.90%
Series D Shares
Less than $250,000........................... 1.52% 1.50% 1.35%
$250,000 but less than $500,000.............. 1.01% 1.00% 0.90%
$500,000 or more............................. 0.50% 0.50% 0.45%
</TABLE>
At times the Distributor may reallow the entire sales charge to selected
dealers. From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. Pursuant to the
terms of the Distribution Agreement, the sales charge payable to the Distributor
and the dealer discounts may be suspended, terminated or amended. Dealers who
receive 90% or more of the sales charge may be deemed to be "underwriters" under
the federal securities laws.
The dealer discounts and brokerage commissions schedule above applies to all
dealers who have agreements with the Distributor. The Distributor, at its
expense, may also provide additional compensation to dealers in connection with
sales of shares of the Fund. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding the Fund,
and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Fund or its shareholders.
Reduced Sales Charges
Concurrent Purchases. For purposes of qualifying for a lower sales charge
for Series A or Series D Shares, investors have the privilege of combining
concurrent purchases of the Fund and any other series of the Trust affiliated
with the Advisor and sold with a sales charge. For example, if a shareholder
concurrently purchases shares in another series of the Trust affiliated with the
Advisor and sold with a sales charge at the total public offering price of
$250,000, and Series A Shares in the Fund at the total public offering price of
$250,000, the sales charge would be that applicable to a $500,000 purchase as
shown in the appropriate table above. This privilege may be modified or
eliminated at any time or from time to time by the Trust without notice thereof.
Rights of Accumulation. Pursuant to the right of accumulation, investors
are permitted to purchase shares at the public offering price applicable to the
total of (a) the total public offering price of the Series A or Series D Shares
of the Fund then being purchased plus (b) an amount equal to the then current
net asset value of the purchaser's combined holdings of the shares of all of the
series of the Trust affiliated with the Advisor of the same Class and sold with
a sales charge. To receive the applicable public offering price pursuant to the
right of accumulation, investors must, at the time of purchase, provide
sufficient information to permit confirmation of qualification, and confirmation
of the purchase is subject to such verification. This right of accumulation may
be modified or eliminated at any time or from time to time by the Trust without
notice.
Letters of Intent. Investors may qualify for a lower sales charge for
Series A or Series D Shares by executing a letter of intent. A letter of intent
allows an investor to purchase Series A or Series D Shares of the Fund (as
applicable) over a 13-month period at reduced sales charges based on the total
amount intended to be purchased of the applicable Class plus an amount equal to
the then current net asset value of the purchaser's combined holdings of the
shares of all of the series of the Trust affiliated with the Advisor of the same
Class and sold with a sales charge. Thus, a letter of intent permits an investor
to establish a total investment goal to be achieved by any number of purchases
over a 13-month period. Each investment made during the period receives the
reduced sales charge applicable to the total amount of the intended investment.
The letter of intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day back-dating period can be used to include earlier purchases of the
applicable Class at the investor's cost (without a retroactive downward
adjustment of the sales charge); the 13-month period would then begin on the
date of the first purchase during the 90-day period. No retroactive adjustment
will be made if purchases exceed the amount indicated in the letter of intent.
Investors must notify the Fund or the Distributor whenever a purchase is being
made pursuant to a letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the Fund
or the Distributor. This letter of intent option may be modified or eliminated
at any time or from time to time by the Trust without notice.
Reinvestments. Investors may reinvest, without a sales charge, proceeds
from a redemption of Series A or Series D Shares of the Fund in either Series A
or Series D Shares of the Fund (as applicable) or in shares of another series of
the Trust affiliated with the Advisor of the same Class and sold with a sales
charge, within 90 days after the redemption. If the other class charges a sales
charge higher than the sales charge the investor paid in connection with the
shares redeemed, the investor must pay the difference. In addition, the shares
of the class to be acquired must be registered for sale in the investor's state
of residence. The amount that may be so reinvested may not exceed the amount of
the redemption proceeds, and a written order for the purchase of such shares
must be received by the Fund or the Distributor within 90 days after the
effective date of the redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
Purchases by Related Parties and Groups. Reductions in sales charges apply
to purchases by a single "person," including an individual, members of a family
unit, consisting of a husband, wife and children under the age of 21 purchasing
securities for their own account, or a trustee or other fiduciary purchasing for
a single fiduciary account or single trust estate.
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar value of
shares purchased by all members of the qualified group and still owned by the
group plus the shares currently being purchased. For purposes of this paragraph,
a qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Fund at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls, or has the power to vote five percent or more of the outstanding
voting securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls, or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
Sales at Net Asset Value. The Fund may sell shares at a purchase price
equal to the net asset value of such shares, without a sales charge, to
Trustees, officers, and employees of the Trust, the Fund, and the Advisor, and
to employees and principals of related organizations and their families and
certain parties related thereto, including clients and related accounts of the
Advisor. In addition, the Fund may sell shares at a purchase price equal to the
net asset value of such shares, without a sales charge, to investment advisors,
financial planners and their clients who are charged a management, consulting or
other fee for their services; and clients of such investment advisors or
financial planners who place trades for their own accounts if the accounts are
linked to the master account of such investment advisor or financial planner on
the books and records of the broker or agent. The public offering price of
shares of the Fund may also be reduced to net asset value per share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company.
Distribution Plan. Capital Investment Group, Inc., Post Office Box 32249,
Raleigh, North Carolina 27622 (the "Distributor"), is the national distributor
for the Fund under a Distribution Agreement with the Trust. The Distributor may
sell Fund shares to or through qualified securities dealers or others.
The Trust has adopted a Distribution Plan (the "Plan") for each Class of the
Investor Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Under the
Plan the Fund may reimburse any expenditures to finance any activity primarily
intended to result in sale of the Investor Shares of the Fund or the servicing
of shareholder accounts, including, but not limited to, the following: (i)
payments to the Distributor, securities dealers, and others for the sale of
Investor Shares of the Fund; (ii) payment of compensation to and expenses of
personnel who engage in or support distribution of Investor Shares of the Fund
or who render shareholder support services not otherwise provided by the
Administrator or Custodian; and (iii) formulation and implementation of
marketing and promotional activities. The categories of expenses for which
reimbursement is made are approved by the Board of Trustees of the Trust.
Expenditures by the Fund pursuant to the Plan are accrued based on the Investor
Shares' average daily net assets (of the particular Class in question) and may
not exceed 0.25%, 0.75%, 0.50%, respectively, of the average net assets of the
Series A, Series C, and Series D Shares, respectively, for each year elapsed
subsequent to adoption of the Plan. Such expenditures paid as service fees to
any person who sells Fund shares may not exceed 0.25% of the Investor Shares'
average annual net asset value of such shares of the particular Class in
question.
The Plan may not be amended to increase materially the amount to be spent under
the Plan without shareholder approval. The continuation of the Plan must be
approved by the Board of Trustees annually. At least quarterly the Board of
Trustees must review a written report of amounts expended pursuant to the Plan
and the purposes for which such expenditures were made.
The Fund incurred $96,096, $64,129, and $58,554 in distribution and service fees
under the Plan with respect to Series A, Series C, and Series D Investor Shares,
respectively, for the fiscal period ended February 28, 1997.
Choosing Among Investor Shares
Investors who purchase Investor Shares must specify at the time of purchase
whether they are purchasing Series A, Series C, or Series D Shares Investor
Shares. Investors should understand the differences between each such Class of
Investor Shares before purchasing Investor Shares.
As described under "How Shares May Be Purchased - Sales Charges," the Series A
Shares are sold subject to a maximum sales charge of 3%, as compared to a
maximum sales charge of 1.5% for sales of Series D Shares and no sales charge
for Series C Shares. The sales charge is reduced or may be waived in some cases.
Series A Shares, however, bear potential distribution and service fees under the
Distribution Plan of up to 0.25% of the Series A Shares' average net assets
annually, as compared to potential distribution and service fees under the
Distribution Plan for the other Classes of Investor Shares of up to 0.50% and
0.75%, respectively, of the Series D and Series C Shares' average net assets
annually, respectively. See "How Shares May Be Purchased - Distribution Plan."
Before deciding among the three Classes of Investor Shares of the Fund, an
investor should carefully consider the amount and intended length of his or her
investment in Investor Shares. Specifically, an investor should consider whether
the accumulated distribution and servicing fees applicable to Series C or Series
D Shares (and the lower sales charge for Series D Shares) would be less than the
sales charge and accumulated distribution and servicing fees applicable to
Series A Shares purchased at the same time and held for the same period, and the
extent to which the differences between those amounts would be offset by the
higher returns associated with Series A Shares. A similar analysis should be
made between Series C Shares and Series D Shares. Because the operating expenses
of Series C and Series D Shares will be greater than those of Series A Shares,
and the operating expenses of Series C Shares will be greater than those of
Series D Shares, the dividends on Series A Shares will be higher than the
dividends on Series C and Series D Shares, and the dividends on Series D Shares
will be higher than the dividends on Series C Shares. However, since the sales
charge is deducted at the time of purchase of Series A or Series D Shares, not
all of the purchase amount will purchase Series A or Series D Shares.
Consequently, the same initial investment will purchase more Series C or Series
D Shares than Series A Shares, and more Series C Shares than Series D Shares.
Because of reductions in the sales charge for purchases of Series A or Series D
Shares aggregating $250,000 or more, it may be advantageous for investors
purchasing large quantities of Investor Shares to purchase Series A or Series D
Shares. Investors who may qualify for any exemption from the sales charge
ordinarily payable with respect to purchases of Investor Shares should purchase
Series A Shares. In addition, because the accumulated higher operating expenses
of Series C and Series D Shares may exceed the amount of the sales charge and
distribution and servicing fees associated with Series A Shares, investors who
intend to hold their Investor Shares for an extended period of time should
consider purchasing Series A Shares.
Investors who would not qualify for a reduction in the sales charge for
purchases of Series A or Series D Shares may decide that it is more advantageous
to have the entire purchase amount invested immediately in Series C Shares
notwithstanding the higher operating expenses associated with Series C Shares.
These higher operating expenses may be offset by any return an investor receives
from the additional Series C Shares received as a result of not having to pay a
sales charge. However, an investor should understand that the Fund's future
return cannot be predicted, and that there is no assurance that such return, if
any, would compensate for the higher operating expenses associated with Series C
Shares.
Exchange Feature. Investors will have the privilege of exchanging shares of the
Fund for shares of any other series of the Trust established by Advisor. An
exchange involves the simultaneous redemption of shares of one series and
purchase of shares of another series at the respective closing net asset value
next determined after a request for redemption has been received plus applicable
sales charge, and is a taxable transaction. Each series of the Trust will have a
different investment objective, which may be of interest to investors in each
series. Shares of the Fund may be exchanged for shares of any other series of
the Trust affiliated with the Advisor at the net asset value plus the percentage
difference between that series' sales charge and any sales charge previously
paid in connection with the shares being exchanged. For example, if a 2% sales
charge was paid on shares that are exchanged into a series with a 3% sales
charge, there would be an additional sales charge of 1% on the exchange.
Exchanges may only be made by investors in states where shares of the other
series are qualified for sale. An investor may direct the Fund to exchange his
shares by writing to the Fund at its principal office. The request must be
signed exactly as the investor's name appears on the account, and it must also
provide the account number, number of shares to be exchanged, the name of the
series to which the exchange will take place and a statement as to whether the
exchange is a full or partial redemption of existing shares. Notwithstanding the
foregoing, exchanges of shares may only be within the same class or type of
class of shares involved. For example, Investor Shares may not be exchanged for
Institutional or Super-Institutional Shares, and Investor Shares may not be
exchanged among the various Classes of Investor Shares (i.e., Series C Shares
may not be exchanged for Series A or Series D Shares and Series D Shares may not
be exchanged for Series A Shares). Notwithstanding the foregoing, unless
otherwise determined by the Fund, an investor may not exchange shares of the
Fund for shares of The Chesapeake Aggressive Growth Fund, another series of the
Trust affiliated with the Advisor, unless such investor has an existing account
with such Fund.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Fund. Such a pattern may, at the discretion of the Advisor, be limited by the
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of the Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
series into which the shareholder will be making an exchange, as described in
the prospectus for that other series. The Board of Trustees of the Trust
reserves the right to suspend or terminate, or amend the terms of, the exchange
privilege upon 60 days written notice to the shareholders.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Fund will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Stock Certificates. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of the Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the Fund's
portfolio securities. All redemption orders received in proper form, as
indicated herein, by the Fund, whether by mail or telephone, prior to 4:00 p.m.
New York time, Monday through Friday, except for business holidays, will redeem
shares at the net asset value determined at that time. Otherwise, your order
will redeem shares as of such 4:00 p.m. time on the next business day. There is
no charge for redemptions from the Fund other than possible charges for wiring
redemption proceeds. You may also redeem your shares through a broker-dealer or
other institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $25,000 (due to redemptions, exchanges or
transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $25,000 or more during the
notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-430-3863, or write to the address shown below.
Regular Mail Redemptions. Your request should be addressed to The Chesapeake
Growth Fund, Investor Shares, 107 North Washington Street, Post Office Box 4365,
Rocky Mount, North Carolina 27803-0365. Your request for redemption must
include:
1) Your letter of instruction specifying the account number, and the number of
shares or dollar amount to be redeemed. This request must be signed by all
registered shareholders in the exact names in which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, the Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next determined after
the receipt of the request for redemption will be used in processing the
redemption. The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Telephone and Bank Wire Redemptions. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. The Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and 4)
Shareholder signature as it appears on the application then on file with
the Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. Shareholders can choose to have
redemption proceeds mailed to them at their address of record, their bank, or to
any other authorized person, or they can have the proceeds sent by bank wire to
their bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days on which the bank is not open for business. Shareholders can change
redemption instructions anytime by filing a letter including new redemption
instructions with the Fund. (See "Signature Guarantees" below.) The Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market changes, telephone redemption privileges may be difficult to implement.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges by the Custodian for wire redemptions. The Custodian currently
charges $7.00 per transaction for wiring redemption proceeds. If this cost is
passed through to redeeming shareholders by the Fund, the charge will be
deducted automatically from the shareholder's account by redemption of shares in
the account. The shareholder's bank or brokerage firm may also impose a charge
for processing the wire. If wire transfer of funds is impossible or impractical,
the redemption proceeds will be sent by mail to the designated account.
Shareholders may redeem shares, subject to the procedures outlined above, by
calling the Fund at 1-800-430-3863. Redemption proceeds will only be sent to the
bank account or person named in the Fund Shares Application currently on file
with the Fund. Telephone redemption privileges authorize the Fund to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and, if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$10,000 or more at current net asset value may establish a Systematic Withdrawal
Plan to receive a monthly or quarterly check in a stated amount not less than
$100. Each month or quarter as specified, the Fund will automatically redeem
sufficient shares from the account to meet the specified withdrawal amount. Call
or write the Fund for an application form. See the Statement of Additional
Information for further details.
Signature Guarantees. To protect an account and the Fund from fraud, signature
guarantees are required to authorize a change in registration, or standing
instructions, for your account. Signature guarantees are required for (1) change
of registration requests, (2) requests to establish or change exchange
privileges or telephone redemption service other than through the initial
account application, and (3) requests for redemptions in excess of $50,000.
Signature guarantees are acceptable from a member bank of the Federal Reserve
System, a savings and loan institution, credit union (if authorized under state
law), registered broker-dealer, securities exchange or association clearing
agency, and must appear on the written request for redemption, establishment or
change in exchange privileges, or change of registration.
MANAGEMENT OF THE FUND
Trustees and Officers. The Fund is a diversified series of the Gardner Lewis
Investment Trust (the "Trust"), a registered open-end management investment
company organized as a Massachusetts business trust. The Board of Trustees of
the Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its and the Fund's day-to-day operations.
The Advisor. Subject to the authority of the Board of Trustees, 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, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Delaware corporation in 1990 and converted to a
Pennsylvania limited partnership in 1994, is controlled by W. Whitfield Gardner.
The Advisor currently serves as investment advisor to approximately $3.5 billion
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation. The
Advisor's address is 285 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania
19317.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 1.00% of the average daily net asset
value of the Fund. For the fiscal year ended February 28, 1997, the Advisor was
paid investment advisory fees of $1,940,587.
The Advisor supervises and implements the investment activities of the Fund,
including making specific decisions as to the purchase and sale of portfolio
investments. Among the responsibilities of the Advisor under the Advisory
Agreement is the selection of brokers and dealers through whom transactions in
the Fund's portfolio investments will be effected. The Advisor attempts to
obtain the best execution for all such transactions. If it is believed that more
than one broker is able to provide the best execution, the Advisor will consider
the receipt of quotations and other market services and of research, statistical
and other data and the sale of shares of the Fund in selecting a broker. The
Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. See Note 3 to the Fee Table. The Advisor may
also utilize a brokerage firm affiliated with the Trust or the Advisor if it
believes it can obtain the best execution of transactions from such broker.
Research services obtained through Fund brokerage transactions may be used by
the Advisor for its other clients and, conversely, the Fund may benefit from
research services obtained through the brokerage transactions of the Advisor's
other clients. For further information, see "Investment Objective and Policies -
Investment Transactions" in the Statement of Additional Information.
W. Whitfield Gardner and John L. Lewis, IV, principals of the Advisor and
executive officers of the Trust, have been responsible for day-to-day management
of the Fund's portfolio since its inception in 1994. They have been with the
Advisor since its inception. Additional information about these gentlemen is set
forth in the Statement of Additional Information under "Management of the Fund -
Trustees and Officers."
The Administrator. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069. Subject to the
authority of the Board of Trustees, the services the Administrator provides to
the Fund include coordinating and monitoring any third parties furnishing
services to the Fund; providing the necessary office space, equipment and
personnel to perform administrative and clerical functions for the Fund; and
preparing, filing and distributing proxy materials, periodic reports to
shareholders, registration statements and other documents. The Administrator
also performs certain accounting and pricing services for the Fund as pricing
agent, including the daily calculation of the Fund's net asset value.
The Administrator was incorporated as a North Carolina corporation in 1988. With
its predecessors and affiliates, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III is the firm's Managing
Director and controlling shareholder.
The Transfer Agent. North Carolina Shareholder Services, LLC (the "Transfer
Agent") serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent, subject to the authority of the Board of
Trustees, provides transfer agency services pursuant to an agreement with the
Administrator, which has been approved by the Trust. The Transfer Agent
maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent, and performs other
shareholder servicing functions. The Transfer Agent is compensated for its
services by the Administrator and not directly by the Fund.
The Transfer Agent, whose address is 107 North Washington Street, Post Office
Box 4365, Rocky Mount, North Carolina 27803-0365, was established as a North
Carolina limited liability company in 1997. John D. Marriott, Jr., is the firm's
controlling member.
The Custodian. First Union National Bank of North Carolina (the "Custodian"),
Two First Union Center, Charlotte, North Carolina 28288-1151, serves as
Custodian of the Fund's assets. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties.
Other Expenses. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, the fees and expenses of the
Administrator, the fees and expenses of Trustees, outside auditing and legal
expenses, all taxes and corporate fees payable by the Fund, Securities and
Exchange Commission fees, state securities qualification fees, costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
the Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable. Any expenses relating only to a particular Class of
Shares of the Fund will be borne solely by such Class.
OTHER INFORMATION
Description of Shares. The Trust was organized as a Massachusetts business trust
on August 12, 1992, under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Fund, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." Pursuant
to its authority under the Declaration of Trust, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of five Classes
("Series A, Series C, and Series D Investor Shares," "Institutional Shares," and
Super-Institutional Shares") representing equal pro rata interests in the Fund,
except that the Classes bear different expenses that reflect the differences in
services provided to them. Investor Shares are sold with a sales charge (except
for Series C Shares) and bear potential distribution expenses and service fees
at different levels. See "How Shares May Be Purchased - Sales Charges" and " -
Distribution Plan." Institutional and Super-Institutional Shares are sold
without a sales charge and bear no shareholder servicing or distribution fees.
The Super-Institutional Shares, however, receive fewer investor services than
the Institutional and Investor Shares due to the size and nature of accounts
holding Super-Institutional Shares. As a result of different charges, fees, and
expenses between the Classes, the total return on the Fund's Investor Shares
will generally be lower than the total return on the Institutional and
Super-Institutional Shares, the total return on the Fund's Series C Shares will
generally be lower than the total return on the Series A and Series D Shares,
and the total return on the Series D Shares will generally be lower than the
total return on the Series A Shares. Standardized total return quotations will
be computed separately for each Class of Shares of the Fund.
THIS PROSPECTUS RELATES TO THE FUND'S INVESTOR SHARES (INCLUDING THE THREE
CLASSES OF INVESTOR SHARES) AND DESCRIBES ONLY THE POLICIES, OPERATIONS,
CONTRACTS, AND OTHER MATTERS PERTAINING TO THE INVESTOR SHARES. THE FUND ALSO
ISSUES A CLASS OF INSTITUTIONAL SHARES AND A CLASS OF SUPER-INSTITUTIONAL
SHARES. SUCH OTHER CLASSES MAY HAVE DIFFERENT SALES CHARGES AND EXPENSES, WHICH
MAY AFFECT PERFORMANCE. INVESTORS MAY CALL THE FUND AT 1-800-430-3863 TO OBTAIN
MORE INFORMATION CONCERNING OTHER CLASSES AVAILABLE TO THEM THROUGH THEIR SALES
REPRESENTATIVE. INVESTORS MAY OBTAIN INFORMATION CONCERNING OTHER CLASSES FROM
THEIR SALES REPRESENTATIVE, THE DISTRIBUTOR, THE FUND, OR ANY OTHER PERSON WHICH
IS OFFERING OR MAKING AVAILABLE TO THEM THE SECURITIES OFFERED IN THIS
PROSPECTUS.
When issued, the shares of each series of the Trust, including the Fund, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of at least 10% of the outstanding shares of the Trust.
The term of office of each Trustee is of unlimited duration. The holders of at
least two-thirds of the outstanding shares of the Trust may remove a Trustee
from that position either by declaration in writing filed with the Custodian or
by votes cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (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 the
shareholders of a particular series or class. Matters affecting an individual
series, such as the Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
Reporting to Shareholders. The Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
the Fund will be audited by independent accountants. In addition, the Fund will
send to each shareholder having an account directly with the Fund a quarterly
statement showing transactions in the account, the total number of shares owned
and any dividends or distributions paid. Inquiries regarding the Fund may be
directed in writing to 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365 or by calling 1-800-430-3863.
Calculation of Performance Data. From time to time the Fund may advertise its
average annual total return for each Class of Shares. The "average annual total
return" refers to the average annual compounded rates of return over 1-, 5-, and
10-year periods that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment. The
calculation assumes the reinvestment of all dividends and distributions,
includes all recurring fees that are charged to all shareholder accounts and
deducts all nonrecurring charges at the end of each period. The calculation
further assumes the maximum sales load is deducted from the initial payment. If
the Fund has been operating less than 1, 5 or 10 years, the time period during
which the Fund has been operating is substituted.
In addition, the Fund may advertise other total return performance data other
than average annual total return for each Class of Shares. This data shows as a
percentage rate of return encompassing all elements of return (i.e. income and
capital appreciation or depreciation); it assumes reinvestment of all dividends
and capital gain distributions. Such other total return data may be quoted for
the same or different periods as those for which average annual total return is
quoted. This data may consist of a cumulative percentage rate of return, actual
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in the Fund for
various periods.
The total return of the Fund could be increased to the extent the Advisor may
waive a portion of its fees or may reimburse a portion of the Fund's expenses.
Total return figures are based on the historical performance of the Fund, show
the performance of a hypothetical investment, and are not intended to indicate
future performance. The Fund's quotations may from time to time be used in
advertisements, sales literature, shareholder reports, or other communications.
For further information, see "Additional Information on Performance" in the
Statement of Additional Information.
<PAGE>
- --------------------------------------------------------------------------------
THE CHESAPEAKE GROWTH FUND
INVESTOR SHARES
- --------------------------------------------------------------------------------
PROSPECTUS
June 30, 1997
Supplemented November 1, 1997
THE CHESAPEAKE GROWTH FUND
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
ADMINISTRATOR & FUND ACCOUNTANT
The Nottingham Company
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
DIVIDEND DISBURSING & TRANSFER AGENT
North Carolina Shareholder Services
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
DISTRIBUTOR
Capital Investment Group, Inc.
Post Office Box 32249
Raleigh, North Carolina 27622
CUSTODIAN
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
