April 1, 1997
Dear Shareholder:
The Chesapeake Fund Institutional Class closed the March quarter with a
loss of 2.1% which compares to losses of 8.3% and 5.2% for the Nasdaq
Industrials and Russell 2000, and a gain of 2.7% for the S&P 500. Perhaps the
most noticeable trend so far this year has been the continued revaluation of
smaller to medium sized stocks. With the Russell 2000 growth index down 10.5%
since the beginning of this year, and even more since June of last, it is clear
that a significant correction in this market segment has already occurred while
the S&P has only recently begun to falter. We have written many times in the
past about the need for adherence to stringent valuation criteria and have
discussed our reluctance to invest in stocks whose prices cannot be rationalized
by their earnings. This quarter, as evidenced by a March 28th article in the
Wall Street Journal, adherence to our discipline saved us from the dramatic
declines experienced by many of the managers with whom we compete. In fact, when
looking at a group of five of the most well known, we find that the average
decline year-to-date is 15%, and the average decline since June is 18%. Even the
Investor's Business Daily Mutual Fund Index which includes a broad variety of
management styles is down 8% since the end of June. Conversely, we made 8% over
this time frame because our valuations were low relative to our growth rate.
Thus, we experienced less price-earnings ratio compression; and, because our
earnings were stronger than this compression we were able to profit. The market
always has a tendency to overreact and we do not believe the case today to be
any different. In fact, we felt there to be an abundance of opportunity prior to
this sell-off and think it even greater now given the revaluation of so many
stocks.
We believe that larger company dominance is ending. The S&P 500 has now
outperformed the Russell 2000 by 40% in the last three years, but since the
Federal Reserve met on March 25th of this year, it has given back 2% to the
Russell. This is a very short period of time, particularly when considering that
the Russell did outperform the S&P in 3 of the 12 quarters during the three year
period, but there are now fundamental drivers in place to cause a more lasting
reversal.
The first is the Fed's decision to raise short term rate, the second is
the slowing of earnings growth in the S&P 500, and the third is the generally
high P/E of the S&P relative to its growth rate. A portion of the S&P's progress
over the past two years has been due to investor willingness to pay what we
believe to be an excessive premium for the predictability inherent in some of
its companies. But, more recently, many fundamentalists have been unwilling to
step up and pay these prices. As a result, the S&P's performance has been
increasingly dependent on a massive resurgence in indexation. This too will
change. For, the overall results of the S&P have become more and more reliant
upon a handful of its most heavily weighted companies which are the largest and
often the most economically sensitive. Thus a waning in the growth of a
relatively small number of these companies could bring index returns down
causing renewed focus on stock picking, a practice which has allowed independent
growth management firms, as opposed to large mutual fund houses, to outperform
indexation 70% of the time in the last 10 year (according to a recent study
conducted by a consultant at Dean Witter). We think that as the market digests
both the repercussions of higher interest rates and its recent trend toward
pooled purchases of stock rather than singular investment in companies the
current trend will change. This change will be the result of asset rebalancing
which will increase weightings in smaller to mid-sized companies and, in
particular, those companies whose valuations support investment in them.
Our companies have very little indebtedness and therefore are
internally less susceptible to interest rate movement. They have very high
growth rates driven primarily by the proprietary nature of their businesses and
therefore are an excellent hedge against inflationary pressure; and, they have
low valuations relative to their growth rates which should insulate them from
the pressure rising interest rates can have on higher price to growth rate
stocks. In fact, our companies may be the kind investors seek when the macro
environment becomes clouded. Their strongest performance was during the
inflationary period from the middle 1970's to the early 1980's. This is not to
suggest that we are now anticipating significant inflationary pressure, just
that when the driver for large stocks in the form of Fed loosening reversed
itself in late March, investors had a clear signal that large stocks could no
longer rely upon an accommodating Fed policy and a benign inflationary
environment for continued appreciation. This suggests to us that many smaller to
mid-sized growth companies are not only attractive because of their current
fundamentals but also because of what we believe will be an increase in desire
on the part of investors to own them.
It appears to us that two themes are converging to fuel our stocks. The
first is the recognition that valuation matters and the second is the
recognition that bigger is not always better; in fact, statistically it usually
is not. Lower valuations began to aid our stock prices as early as last year's
mid-summer sell-off but are yet to cause the significant appreciation we expect
because of the general deflection of interest from our portfolio created by the
voracious appetite for much larger companies. Thus, the benefit associated with
a waning in this larger company appetite should only be furthered by the
attractive valuations of our stocks.
The areas that currently excite us seem endless. They range from broad
themes like the movement of both service and manufacturing companies to focus on
their core competencies by outsourcing tasks from product design to customer
service, to more specific themes like the personal communications systems
infrastructure build (PCS) which will ultimately allow anyone to be reached
anywhere via one telephone number. Everything in between is also of interest
like the infinite opportunities to create more efficient business operations
through better management and storage of data, and the revolutionary ways to
promote better health through preventative care, rehabilitation therapy, and
both in-home and inpatient assisted living, as well as the seemingly mundane
blocking and tackling of a retailer who, as a result, can offer a better product
at a better price to its customer base. We continue to have more investment
opportunities that we have cash to invest causing us to constantly cull the
portfolio to make room for new names. This has allowed us to maintain a high 35%
growth rate and a low P/E of 15, the formula we think always needed, and perhaps
even more so today, to promote strong portfolio appreciation.
In one final note, we would like to welcome Brad Hoopman to our
research staff. Have a pleasant spring.
Sincerely,
/s/ Whitfield Gardner /s/ John Lewis
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
April 1, 1997
Dear Shareholder:
The Chesapeake Fund Series A closed the March quarter with a loss of
2.2% which compares to losses of 8.3% and 5.2% for the Nasdaq Industrials and
Russell 2000, and a gain of 2.7% for the S&P 500. Perhaps the most noticeable
trend so far this year has been the continued revaluation of smaller to medium
sized stocks. With the Russell 2000 growth index down 10.5% since the beginning
of this year, and even more since June of last, it is clear that a significant
correction in this market segment has already occurred while the S&P has only
recently begun to falter. We have written many times in the past about the need
for adherence to stringent valuation criteria and have discussed our reluctance
to invest in stocks whose prices cannot be rationalized by their earnings. This
quarter, as evidenced by a March 28th article in the Wall Street Journal,
adherence to our discipline saved us from the dramatic declines experienced by
many of the managers with whom we compete. In fact, when looking at a group of
five of the most well known, we find that the average decline year-to-date is
15%, and the average decline since June is 18%. Even the Investor's Business
Daily Mutual Fund Index which includes a broad variety of management styles is
down 8% since the end of June. Conversely, we made 8% over this time frame
because our valuations were low relative to our growth rate. Thus, we
experienced less price-earnings ratio compression; and, because our earnings
were stronger than this compression we were able to profit. The market always
has a tendency to overreact and we do not believe the case today to be any
different. In fact, we felt there to be an abundance of opportunity prior to
this sell-off and think it even greater now given the revaluation of so many
stocks.
We believe that larger company dominance is ending. The S&P 500 has now
outperformed the Russell 2000 by 40% in the last three years, but since the
Federal Reserve met on March 25th of this year, it has given back 2% to the
Russell. This is a very short period of time, particularly when considering that
the Russell did outperform the S&P in 3 of the 12 quarters during the three year
period, but there are now fundamental drivers in place to cause a more lasting
reversal.
The first is the Fed's decision to raise short term rate, the second is
the slowing of earnings growth in the S&P 500, and the third is the generally
high P/E of the S&P relative to its growth rate. A portion of the S&P's progress
over the past two years has been due to investor willingness to pay what we
believe to be an excessive premium for the predictability inherent in some of
its companies. But, more recently, many fundamentalists have been unwilling to
step up and pay these prices. As a result, the S&P's performance has been
increasingly dependent on a massive resurgence in indexation. This too will
change. For, the overall results of the S&P have become more and more reliant
upon a handful of its most heavily weighted companies which are the largest and
often the most economically sensitive. Thus a waning in the growth of a
relatively small number of these companies could bring index returns down
causing renewed focus on stock picking, a practice which has allowed independent
growth management firms, as opposed to large mutual fund houses, to outperform
indexation 70% of the time in the last 10 year (according to a recent study
conducted by a consultant at Dean Witter). We think that as the market digests
both the repercussions of higher interest rates and its recent trend toward
pooled purchases of stock rather than singular investment in companies the
current trend will change. This change will be the result of asset rebalancing
which will increase weightings in smaller to mid-sized companies and, in
particular, those companies whose valuations support investment in them.
Our companies have very little indebtedness and therefore are
internally less susceptible to interest rate movement. They have very high
growth rates driven primarily by the proprietary nature of their businesses and
therefore are an excellent hedge against inflationary pressure; and, they have
low valuations relative to their growth rates which should insulate them from
the pressure rising interest rates can have on higher price to growth rate
stocks. In fact, our companies may be the kind investors seek when the macro
environment becomes clouded. Their strongest performance was during the
inflationary period from the middle 1970's to the early 1980's. This is not to
suggest that we are now anticipating significant inflationary pressure, just
that when the driver for large stocks in the form of Fed loosening reversed
itself in late March, investors had a clear signal that large stocks could no
longer rely upon an accommodating Fed policy and a benign inflationary
environment for continued appreciation. This suggests to us that many smaller to
mid-sized growth companies are not only attractive because of their current
fundamentals but also because of what we believe will be an increase in desire
on the part of investors to own them.
It appears to us that two themes are converging to fuel our stocks. The
first is the recognition that valuation matters and the second is the
recognition that bigger is not always better; in fact, statistically it usually
is not. Lower valuations began to aid our stock prices as early as last year's
mid-summer sell-off but are yet to cause the significant appreciation we expect
because of the general deflection of interest from our portfolio created by the
voracious appetite for much larger companies. Thus, the benefit associated with
a waning in this larger company appetite should only be furthered by the
attractive valuations of our stocks.
The areas that currently excite us seem endless. They range from broad
themes like the movement of both service and manufacturing companies to focus on
their core competencies by outsourcing tasks from product design to customer
service, to more specific themes like the personal communications systems
infrastructure build (PCS) which will ultimately allow anyone to be reached
anywhere via one telephone number. Everything in between is also of interest
like the infinite opportunities to create more efficient business operations
through better management and storage of data, and the revolutionary ways to
promote better health through preventative care, rehabilitation therapy, and
both in-home and inpatient assisted living, as well as the seemingly mundane
blocking and tackling of a retailer who, as a result, can offer a better product
at a better price to its customer base. We continue to have more investment
opportunities that we have cash to invest causing us to constantly cull the
portfolio to make room for new names. This has allowed us to maintain a high 35%
growth rate and a low P/E of 15, the formula we think always needed, and perhaps
even more so today, to promote strong portfolio appreciation.
In one final note, we would like to welcome Brad Hoopman to our
research staff. Have a pleasant spring.
Sincerely,
/s/ Whitfield Gardner /s/ John Lewis
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
April 1, 1997
Dear Shareholder:
The Chesapeake Fund Series C closed the March quarter with a loss of
2.5% which compares to losses of 8.3% and 5.2% for the Nasdaq Industrials and
Russell 2000, and a gain of 2.7% for the S&P 500. Perhaps the most noticeable
trend so far this year has been the continued revaluation of smaller to medium
sized stocks. With the Russell 2000 growth index down 10.5% since the beginning
of this year, and even more since June of last, it is clear that a significant
correction in this market segment has already occurred while the S&P has only
recently begun to falter. We have written many times in the past about the need
for adherence to stringent valuation criteria and have discussed our reluctance
to invest in stocks whose prices cannot be rationalized by their earnings. This
quarter, as evidenced by a March 28th article in the Wall Street Journal,
adherence to our discipline saved us from the dramatic declines experienced by
many of the managers with whom we compete. In fact, when looking at a group of
five of the most well known, we find that the average decline year-to-date is
15%, and the average decline since June is 18%. Even the Investor's Business
Daily Mutual Fund Index which includes a broad variety of management styles is
down 8% since the end of June. Conversely, we made 8% over this time frame
because our valuations were low relative to our growth rate. Thus, we
experienced less price-earnings ratio compression; and, because our earnings
were stronger than this compression we were able to profit. The market always
has a tendency to overreact and we do not believe the case today to be any
different. In fact, we felt there to be an abundance of opportunity prior to
this sell-off and think it even greater now given the revaluation of so many
stocks.
We believe that larger company dominance is ending. The S&P 500 has now
outperformed the Russell 2000 by 40% in the last three years, but since the
Federal Reserve met on March 25th of this year, it has given back 2% to the
Russell. This is a very short period of time, particularly when considering that
the Russell did outperform the S&P in 3 of the 12 quarters during the three year
period, but there are now fundamental drivers in place to cause a more lasting
reversal.
The first is the Fed's decision to raise short term rate, the second is
the slowing of earnings growth in the S&P 500, and the third is the generally
high P/E of the S&P relative to its growth rate. A portion of the S&P's progress
over the past two years has been due to investor willingness to pay what we
believe to be an excessive premium for the predictability inherent in some of
its companies. But, more recently, many fundamentalists have been unwilling to
step up and pay these prices. As a result, the S&P's performance has been
increasingly dependent on a massive resurgence in indexation. This too will
change. For, the overall results of the S&P have become more and more reliant
upon a handful of its most heavily weighted companies which are the largest and
often the most economically sensitive. Thus a waning in the growth of a
relatively small number of these companies could bring index returns down
causing renewed focus on stock picking, a practice which has allowed independent
growth management firms, as opposed to large mutual fund houses, to outperform
indexation 70% of the time in the last 10 year (according to a recent study
conducted by a consultant at Dean Witter). We think that as the market digests
both the repercussions of higher interest rates and its recent trend toward
pooled purchases of stock rather than singular investment in companies the
current trend will change. This change will be the result of asset rebalancing
which will increase weightings in smaller to mid-sized companies and, in
particular, those companies whose valuations support investment in them.
Our companies have very little indebtedness and therefore are
internally less susceptible to interest rate movement. They have very high
growth rates driven primarily by the proprietary nature of their businesses and
therefore are an excellent hedge against inflationary pressure; and, they have
low valuations relative to their growth rates which should insulate them from
the pressure rising interest rates can have on higher price to growth rate
stocks. In fact, our companies may be the kind investors seek when the macro
environment becomes clouded. Their strongest performance was during the
inflationary period from the middle 1970's to the early 1980's. This is not to
suggest that we are now anticipating significant inflationary pressure, just
that when the driver for large stocks in the form of Fed loosening reversed
itself in late March, investors had a clear signal that large stocks could no
longer rely upon an accommodating Fed policy and a benign inflationary
environment for continued appreciation. This suggests to us that many smaller to
mid-sized growth companies are not only attractive because of their current
fundamentals but also because of what we believe will be an increase in desire
on the part of investors to own them.
It appears to us that two themes are converging to fuel our stocks. The
first is the recognition that valuation matters and the second is the
recognition that bigger is not always better; in fact, statistically it usually
is not. Lower valuations began to aid our stock prices as early as last year's
mid-summer sell-off but are yet to cause the significant appreciation we expect
because of the general deflection of interest from our portfolio created by the
voracious appetite for much larger companies. Thus, the benefit associated with
a waning in this larger company appetite should only be furthered by the
attractive valuations of our stocks.
The areas that currently excite us seem endless. They range from broad
themes like the movement of both service and manufacturing companies to focus on
their core competencies by outsourcing tasks from product design to customer
service, to more specific themes like the personal communications systems
infrastructure build (PCS) which will ultimately allow anyone to be reached
anywhere via one telephone number. Everything in between is also of interest
like the infinite opportunities to create more efficient business operations
through better management and storage of data, and the revolutionary ways to
promote better health through preventative care, rehabilitation therapy, and
both in-home and inpatient assisted living, as well as the seemingly mundane
blocking and tackling of a retailer who, as a result, can offer a better product
at a better price to its customer base. We continue to have more investment
opportunities that we have cash to invest causing us to constantly cull the
portfolio to make room for new names. This has allowed us to maintain a high 35%
growth rate and a low P/E of 15, the formula we think always needed, and perhaps
even more so today, to promote strong portfolio appreciation.
In one final note, we would like to welcome Brad Hoopman to our
research staff. Have a pleasant spring.
Sincerely,
/s/ Whitfield Gardner /s/ John Lewis
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
April 1, 1997
Dear Shareholder:
The Chesapeake Fund Series D closed the March quarter with a loss of
2.4% which compares to losses of 8.3% and 5.2% for the Nasdaq Industrials and
Russell 2000, and a gain of 2.7% for the S&P 500. Perhaps the most noticeable
trend so far this year has been the continued revaluation of smaller to medium
sized stocks. With the Russell 2000 growth index down 10.5% since the beginning
of this year, and even more since June of last, it is clear that a significant
correction in this market segment has already occurred while the S&P has only
recently begun to falter. We have written many times in the past about the need
for adherence to stringent valuation criteria and have discussed our reluctance
to invest in stocks whose prices cannot be rationalized by their earnings. This
quarter, as evidenced by a March 28th article in the Wall Street Journal,
adherence to our discipline saved us from the dramatic declines experienced by
many of the managers with whom we compete. In fact, when looking at a group of
five of the most well known, we find that the average decline year-to-date is
15%, and the average decline since June is 18%. Even the Investor's Business
Daily Mutual Fund Index which includes a broad variety of management styles is
down 8% since the end of June. Conversely, we made 8% over this time frame
because our valuations were low relative to our growth rate. Thus, we
experienced less price-earnings ratio compression; and, because our earnings
were stronger than this compression we were able to profit. The market always
has a tendency to overreact and we do not believe the case today to be any
different. In fact, we felt there to be an abundance of opportunity prior to
this sell-off and think it even greater now given the revaluation of so many
stocks.
We believe that larger company dominance is ending. The S&P 500 has now
outperformed the Russell 2000 by 40% in the last three years, but since the
Federal Reserve met on March 25th of this year, it has given back 2% to the
Russell. This is a very short period of time, particularly when considering that
the Russell did outperform the S&P in 3 of the 12 quarters during the three year
period, but there are now fundamental drivers in place to cause a more lasting
reversal.
The first is the Fed's decision to raise short term rate, the second is
the slowing of earnings growth in the S&P 500, and the third is the generally
high P/E of the S&P relative to its growth rate. A portion of the S&P's progress
over the past two years has been due to investor willingness to pay what we
believe to be an excessive premium for the predictability inherent in some of
its companies. But, more recently, many fundamentalists have been unwilling to
step up and pay these prices. As a result, the S&P's performance has been
increasingly dependent on a massive resurgence in indexation. This too will
change. For, the overall results of the S&P have become more and more reliant
upon a handful of its most heavily weighted companies which are the largest and
often the most economically sensitive. Thus a waning in the growth of a
relatively small number of these companies could bring index returns down
causing renewed focus on stock picking, a practice which has allowed independent
growth management firms, as opposed to large mutual fund houses, to outperform
indexation 70% of the time in the last 10 year (according to a recent study
conducted by a consultant at Dean Witter). We think that as the market digests
both the repercussions of higher interest rates and its recent trend toward
pooled purchases of stock rather than singular investment in companies the
current trend will change. This change will be the result of asset rebalancing
which will increase weightings in smaller to mid-sized companies and, in
particular, those companies whose valuations support investment in them.
Our companies have very little indebtedness and therefore are
internally less susceptible to interest rate movement. They have very high
growth rates driven primarily by the proprietary nature of their businesses and
therefore are an excellent hedge against inflationary pressure; and, they have
low valuations relative to their growth rates which should insulate them from
the pressure rising interest rates can have on higher price to growth rate
stocks. In fact, our companies may be the kind investors seek when the macro
environment becomes clouded. Their strongest performance was during the
inflationary period from the middle 1970's to the early 1980's. This is not to
suggest that we are now anticipating significant inflationary pressure, just
that when the driver for large stocks in the form of Fed loosening reversed
itself in late March, investors had a clear signal that large stocks could no
longer rely upon an accommodating Fed policy and a benign inflationary
environment for continued appreciation. This suggests to us that many smaller to
mid-sized growth companies are not only attractive because of their current
fundamentals but also because of what we believe will be an increase in desire
on the part of investors to own them.
It appears to us that two themes are converging to fuel our stocks. The
first is the recognition that valuation matters and the second is the
recognition that bigger is not always better; in fact, statistically it usually
is not. Lower valuations began to aid our stock prices as early as last year's
mid-summer sell-off but are yet to cause the significant appreciation we expect
because of the general deflection of interest from our portfolio created by the
voracious appetite for much larger companies. Thus, the benefit associated with
a waning in this larger company appetite should only be furthered by the
attractive valuations of our stocks.
The areas that currently excite us seem endless. They range from broad
themes like the movement of both service and manufacturing companies to focus on
their core competencies by outsourcing tasks from product design to customer
service, to more specific themes like the personal communications systems
infrastructure build (PCS) which will ultimately allow anyone to be reached
anywhere via one telephone number. Everything in between is also of interest
like the infinite opportunities to create more efficient business operations
through better management and storage of data, and the revolutionary ways to
promote better health through preventative care, rehabilitation therapy, and
both in-home and inpatient assisted living, as well as the seemingly mundane
blocking and tackling of a retailer who, as a result, can offer a better product
at a better price to its customer base. We continue to have more investment
opportunities that we have cash to invest causing us to constantly cull the
portfolio to make room for new names. This has allowed us to maintain a high 35%
growth rate and a low P/E of 15, the formula we think always needed, and perhaps
even more so today, to promote strong portfolio appreciation.
In one final note, we would like to welcome Brad Hoopman to our
research staff. Have a pleasant spring.
Sincerely,
/s/ Whitfield Gardner /s/ John Lewis
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
THE CHESAPEAKE FUND
Super Institutional Shares
Performance Update - $50,000,000 Investment
For the period from June 12, 1996 (commencement of operations)
to February 28, 1997
Super Ins S&P 500 NASDAQ
Date Shares Total Return Industrial
06/12/96 50000000 50000000 50000000
06/30/96 46361880 50145489 47710503
07/31/96 42144237 47929797 42422054
08/31/96 44816484 48940746 45188818
09/30/96 48744366 51695941 47647561
10/31/96 48776561 53121406 46327320
11/30/96 51513200 56981759 48033613
12/31/96 51191243 56004738 47786797
01/31/97 53509337 59503381 49921942
02/28/97 52446877 59969752 47256720
This graph depicts the performance of The Chesapeake Fund Super Institutional
Shares versus the NASDAQ Industrials Index and the S&P 500 Total Return Index.
It is important to note The Chesapeake Fund is a professionally managed mutual
fund while the indexes are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
Total Return
- ------------------------------
Commencement of operations
through 2/28/97
- ------------------------------
4.89%
- ------------------------------
The graph assumes an initial $50,000,000 investment at June 12, 1996. All
dividends and distributions are reinvested.
At February 28, 1997, the Super Institutional Shares of the Fund would have
grown to $52,446,877 - total investment return of 4.89% since June 12, 1996.
At February 28, 1997, a similar investment in the NASDAQ Industrials Index would
have been worth $47,256,720 - total investment return of -5.49%; while a similar
investment in the S&P 500 Total Return Index would have grown to $59,969,752.04
- - total investment return of 19.94% since June 12, 1996.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
THE CHESAPEAKE FUND
Institutional Shares
Performance Update - $1,000,000 Investment
For the period from April 6,1994 (commencement of operations)
to February 28, 1997
Institutional S&P 500 NASDAQ
Date Shares Total Return Industrial
04/06/94 1000000 1000000 1000000
05/31/94 1013000 1023703 947950
08/31/94 1058200 1073692 979838
11/30/94 1081100 1031962 961061
02/28/95 1128600 1116296 988000
05/31/95 1247000 1230372 1053310
08/31/95 1535000 1303973 1226306
11/30/95 1467366 1431491 1240874
02/29/96 1463316 1522715 1287605
05/31/96 1571672 1600271 1516725
08/31/96 1408631 1567793 1347959
11/30/96 1618255 1825383 1432818
02/28/97 1646610 1921102 1409644
This graph depicts the performance of The Chesapeake Fund Institutional Shares
versus the NASDAQ Industrials Index and the S&P 500 Total Return Index. It is
important to note The Chesapeake Fund is a professionally managed mutual fund
while the indexes are not available for investment and are unmanaged. The
comparison is shown for illustrative purposes only.
Annualized Total Return
- ------------------------------------
Since Inception One Year
- ------------------------------------
18.75% 12.53%
- ------------------------------------
The graph assumes an initial $1,000,000 investment at April 6, 1994. All
dividends and distributions are reinvested.
At February 28, 1997, the Institutional Shares of the Fund would have grown to
$1,646,610 - total investment return of 64.66% since April 6, 1994.
At February 28, 1997, a similar investment in the NASDAQ Industrials Index would
have grown to $,1409,644 - total investment return of 40.96%; while a similar
investment in the S&P 500 Total Return Index would have grown to $1,921,102 -
total investment return of 92.11% since April 6, 1994.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
THE CHESAPEAKE FUND
Series A Investor Shares
Performance Update - $25,000 Investment
For the period from April 7,1995 (commencement of operations)
to February 28, 1997
Series A NASDAQ S&P 500 Total
Shares Industrials Return
04/07/95 24250 25000 25000
05/31/95 25628 25834 26443
08/31/95 31572 30077 28025
11/30/95 30140 30434 32020
02/29/96 30036 31580 33109
05/31/96 32244 37200 33963
08/31/96 28890 33061 33274
11/30/96 33139 35142 38741
02/28/97 33702 34574 40772
This graph depicts the performance of The Chesapeake Fund Series A Investor
Shares versus the NASDAQ Industrials Index and the S&P 500 Total Return Index.
It is important to note that The Chesapeake Fund is a professionally managed
mutual fund while the indexes are not available for investment and are
unmanaged. The comparison is shown for illustrative purposes only.
- ------------------------------------------------------------------
Since Inception One Year
- ------------------------------------------------------------------
No Sales Load 18.93% 12.21%
With 3% Sales Load 17.04% 8.84%
- -----------------------------------------------------------------
The graph assumes an initial $25,000 investment at April 7, 1995 ($24,250 after
maximum sales load of 3%). All dividends and distributions are reinvested.
At February 28, 1997, the Series A Investor Shares of the Fund would have grown
to $33,702 - total investment return of 34.81% since April 7, 1995. Without the
deduction of the 3% maximum sales load, the Series A Investor Shares of the Fund
would have grown to $34,744 - total investment return of 38.98% since April 7,
1995. The sales load may be reduced or eliminated for larger purchases.
At February 28, 1997, a similar investment in the NASDAQ Industrials Index would
have grown to $34,574 - total investment return of 38.29%; while a similar
investment in the S&P 500 Total Return Index would have grown to $40,772 - total
investment return of 63.09% since April 7, 1995.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
THE CHESAPEAKE FUND
Series C Investor Shares
Performance Update - $25,000 Investment
For the period from April 7,1995 (commencement of operations)
to February 28, 1997
Series C NASDAQ S&P 500
Date Shares Industrial Total Return
04/07/95 25000 25000 25000
05/31/95 26421 25834 26443
08/31/95 32528 30077 28025
11/30/95 30966 30434 32020
02/29/96 30794 31580 33109
05/31/96 33028 37200 33963
08/31/96 29506 33061 33274
11/30/96 33779 35142 38741
02/28/97 34273 34574 40772
This graph depicts the performance of The Chesapeake Fund Series C Investor
Shares versus the NASDAQ Industrials Index and the S&P 500 Total Return Index.
It is important to note that The Chesapeake Fund is a professionally managed
mutual fund while the indexes are not available for investment and are
unmanaged. The comparison is shown for illustrative purposes only.
- ---------------------------------------------
Since Inception One Year
- ---------------------------------------------
18.08% 11.30%
- ---------------------------------------------
The graph assumes an initial $25,000 investment at April 7, 1995. All dividends
and distributions are reinvested.
At February 28, 1997, the Series C Investor Shares of the Fund would have grown
to $34,273 - total investment return of 37.09% since April 7, 1995.
At February 28, 1997, a similar investment in the NASDAQ Industrials Index would
have grown to $34,574 - total investment return of 38.29%; while a similar
investment in the S&P 500 Total Return Index would have grown to $40,772 - total
investment return of 63.09% since April 7, 1995.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
THE CHESAPEAKE FUND
Series D Investor Shares
Performance Update - $25,000 Investment
For the period from April 7,1995 (commencement of operations)
to February 28, 1997
Series D NASDAQ S&P 500
Date Shares Industrial Total Return
04/07/95 24625 25000 25000
05/31/95 26045 25834 26443
08/31/95 32040 30077 28025
11/30/95 30606 30434 32020
02/29/96 30479 31580 33109
05/31/96 32700 37200 33963
08/31/96 29231 33061 33274
11/30/96 33504 35142 38741
This graph depicts the performance of The Chesapeake Fund Series D Investor
Shares versus the NASDAQ Industrials Index and the S&P 500 Total Return Index.
It is important to note that The Chesapeake Fund is a professionally managed
mutual fund while the indexes are not available for investment and are
unmanaged. The comparison is shown for illustrative purposes only.
- ----------------------------------------------------------------
Since Inception One Year
- ----------------------------------------------------------------
No Sales Load 18.54% 11.59%
With 1.5% Sales Load 17.60% 9.92%
- ----------------------------------------------------------------
The graph assumes an initial $25,000 investment at April 7, 1995 ($24,625 after
maximum sales load of 1.5%). All dividends and distributions are reinvested.
At February 28, 1997, the Series D Investor Shares of the Fund would have grown
to $34,012 - total investment return of 36.05% since April 7, 1995. Without the
deduction of the 1.5% maximum sales load, the Series D Investor Shares of the
Fund would have grown to $34,529 - total investment return of 38.12% since April
7, 1995. The sales load may be reduced or eliminated for larger purchases.
At February 28, 1997, a similar investment in the NASDAQ Industrials Index would
have grown to $34,574 - total investment return of 38.29%; while a similar
investment in the S&P 500 Total Return Index would have grown to $40,772 - total
investment return of 63.09% since April 7, 1995.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual returns are historical in nature and measure net investment
income and capital gain or loss from portfolio investments assuming
reinvestments of dividends.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
February 28, 1997
- -------------------------------------------------------------------------------------------
Value
Shares (note 1)
- -------------------------------------------------------------------------------------------
COMMON STOCKS - 97.90%
Apparel - Textiles - 7.59%
(a)Jones Apparel Group, Inc. 168,600 $6,259,275
Liz Claiborne, Inc. 86,300 3,495,150
Warnaco Group, Inc. 128,000 4,080,000
(a)WestPoint Stevens, Inc. 108,100 3,729,450
------- ---------
17,563,875
----------
Building Materials - 1.44%
(a)Dal-Tile International Inc. 187,400 3,326,350
------- ---------
Commercial Services - 0.57%
(a)AccuStaff, Inc. 63,600 1,319,700
------ ---------
Computers - 14.87%
(a)3Com Corporation 42,800 1,417,082
(a)Compaq Computer Corporation 42,100 3,336,425
(a)Dell Computer Corporation 52,200 3,712,725
(a)EMC Corporation 161,600 5,817,600
(a)Komag, Inc. 32,200 966,000
(a)Lexmark International Group, Inc. 150,400 4,192,400
(a)Quantum Corporation 84,500 3,358,875
(a)Read-Rite Corporation 74,700 2,292,356
(a)Seagate Technology, Inc. 73,600 3,477,600
(a)Sun Microsystems, Inc. 108,200 3,340,675
(a)U.S. Robotics Corporation 45,700 2,550,631
------ ---------
34,462,369
----------
Computer Software & Services - 6.02%
(a)BMC Software, Inc. 75,800 3,245,187
(a)Cadence Design Systems, Inc. 62,100 2,289,937
(a)Network General Corporation 84,500 1,869,563
(a)Structural Dynamics Research Corporation 116,800 2,321,400
(a)System Software Associates, Inc. 297,900 3,090,713
(a)Vanstar Corporation 82,200 1,130,250
------ ---------
13,947,050
----------
Electrical Equipment - 0.79%
(a)Cable Design Technologies 69,000 1,828,500
------ ---------
Electronics - Semiconductor - 9.37%
(a)Adaptec, Inc. 225,400 8,579,287
(a)Advanced Micro Devices, Inc. 73,400 2,633,225
(a)ESS Technology, Inc. 20,000 526,250
Intel Corporation 29,000 4,114,375
(a)Lattice Semiconductor Corporation 46,800 2,234,700
(a)MEMC Electronic Materials, Inc. 46,100 1,129,450
(a)S3, Inc. 143,700 2,487,806
------- ---------
21,705,093
----------
(Continued)
<PAGE>
THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
February 28, 1997
- -------------------------------------------------------------------------------------------
Value
Shares (note 1)
- -------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Emerging Technology - 1.01%
Cognizant Corporation 67,000 $2,336,625
------ ----------
Environmental Control - 2.23%
(a)USA Waste Services, Inc. 143,600 5,169,600
------- ---------
Financial - Banks, Money Center - 0.92%
The Money Store, Inc. 82,300 2,129,512
------ ---------
Foreign Securities - 4.91%
(a)ASM Lithography Holding 24,100 1,602,650
ECI Telecommunications Limited 168,300 3,997,125
(a)Petroleum Geo-Services ASA - ADR 45,600 1,915,200
Teva Pharmaceutical Industries Ltd. - ADR 62,500 3,863,281
------ ---------
11,378,256
----------
Imaging - 1.57%
Polaroid Corporation 86,400 3,650,400
------ ---------
Lodging - 0.97%
(a)Prime Hospitality Corp. 136,400 2,250,600
------- ---------
Machine - Diversified - 1.05%
AGCO Corporation 85,300 2,420,387
------ ---------
Medical - Hospital Management & Service - 6.09%
(a)Genesis Health Ventures, Inc. 117,800 4,078,825
(a)HEALTHSOUTH Corporation 92,900 3,739,225
(a)Lincare Holdings, Inc. 82,200 3,544,875
(a)MedPartners, Inc. 124,500 2,739,000
------- ---------
14,101,925
----------
Medical Supplies - 0.99%
(a)Sofamor Danek Group, Inc. 57,700 2,286,363
------ ---------
Miscellaneous - Manufacturing - 3.88%
Apogee Enterprises, Inc. 127,600 2,536,050
(a)Coltec Industries, Inc. 178,200 3,252,150
(a)Samsonite Corporation 67,300 3,196,750
------ ---------
8,984,950
---------
Office & Business Equipment - 1.55%
(a)U.S. Office Products Company 111,900 3,580,800
------- ---------
Oil & Gas - Equipment & Services - 1.86%
(a)Reading & Bates Corporation 94,200 2,284,350
(a)Rowan Companies, Inc. 102,100 2,029,238
------- ---------
4,313,588
---------
(Continued)
<PAGE>
THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
February 28, 1997
- -------------------------------------------------------------------------------------------
Value
Shares (note 1)
- -------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Oil & Gas - Exploration - 1.37%
(a)J. Ray McDermott, S.A. 137,500 $3,162,500
------- ----------
Pharmaceuticals - 0.94%
Watson Pharmaceuticals, Inc. 49,700 2,168,163
------ ---------
Restaurants & Food Service - 1.22%
(a)Boston Chicken, Inc. 62,500 2,046,875
CKE Restaurants, Inc. 39,800 771,125
------ -------
2,818,000
---------
Retail - Apparel - 2.34%
(a)Footstar, Inc. 93,700 2,365,925
Ross Stores, Inc. 12,900 619,200
TJX Companies, Inc. 58,300 2,434,025
------ ---------
5,419,150
---------
Retail - Department Stores - 3.81%
(a)Consolidated Stores Corporation 66,125 2,322,641
(a)Proffitt's, Inc. 95,400 3,088,575
Sears, Roebuck and Co. 62,700 3,401,475
------ ---------
8,812,691
---------
Retail - Specialty Line - 7.93%
(a)Borders Group, Inc. 100,400 4,229,350
Costco Companies, Inc. 139,900 3,584,938
(a)General Nutrition Companies, Inc. 120,900 2,176,200
(a)Hollywood Entertainment Corporation 61,500 1,476,000
Lowe's Companies, Inc. 110,800 4,044,200
(a)Staples, Inc. 73,000 1,578,625
(a)Toys "R" Us, Inc. 48,500 1,261,000
------ ---------
18,350,313
----------
Shoes - Leather - 2.65%
(a)Nine West Group, Inc. 63,400 2,979,800
Wolverine World Wide, Inc. 88,900 3,155,950
------ ---------
6,135,750
---------
Telecommunications - 1.32%
Tel-Save Holdings, Inc. 170,600 3,049,475
------- ---------
Telecommunications Equipment - 2.23%
(a)Newbridge Networks Corporation 71,000 2,263,125
(a)QUALCOMM, Inc. 52,000 2,895,750
------ ---------
5,158,875
---------
Transportation - 0.82%
(a)Gulfstream Aerospace Corporation 87,000 1,892,250
------ ---------
Utilities - Electric - 3.48%
Calenergy Co., Inc. 241,200 8,050,050
------- ---------
(Continued)
<PAGE>
THE CHESAPEAKE FUND
PORTFOLIO OF INVESTMENTS
February 28, 1997
- --------------------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Utilities - Telecommunications - 2.11%
(a)WorldCom, Inc. 183,700 $4,891,013
------- ----------
Total Common Stocks (Cost $197,137,549) 226,664,173
-----------
Principal
Amount
REPURCHASE AGREEMENT (b) - 0.38%
Wachovia Bank $891,108 891,108
5.38%, dated February 28, 1997, due March 3, 1997 -------
(Cost $891,108)
Total Value of Investments (Cost $198,028,657 (c)) 98.28% 227,555,281
Other Assets Less Liabilities 1.72% 3,985,650
---- ---------
Net Assets 100.00% $231,540,931
====== ============
</TABLE>
(a) Non-income producing investment.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other funds administered by The Nottingham Company.
(c) Aggregate cost for federal income tax purposes is $198,187,488. Unrealized
appreciation (depreciation) of investments for federal income tax purposes
is as follows:
Unrealized appreciation $37,648,881
Unrealized depreciation (8,281,088)
-----------
Net unrealized appreciation $29,367,793
===========
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE FUND
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997
ASSETS
Investments, at value (cost $198,028,657) $227,555,281
Income receivable 66,200
Receivable for investments sold 5,711,210
Receivable for fund shares sold 25,776
Prepaid expenses 13,093
Deferred organization expenses, net (note 3) 21,817
Due from administrator (note 2) 13,657
Other asset 1,725
------------
Total assets 233,408,759
------------
LIABILITIES
Accrued expenses 69,371
Payable for investment purchases 1,643,745
Due to investment advisor (note 2) 1,741
Disbursements in excess of cash on demand deposit 152,971
------------
Total liabilities 1,867,828
------------
NET ASSETS $231,540,931
============
NET ASSETS CONSIST OF
Paid-in capital $202,300,431
Accumulated net realized loss on investments (286,124)
Net unrealized appreciation on investments 29,526,624
------------
$231,540,931
============
INSTITUTIONAL SHARES
Net asset value, redemption and offering price per share $16.26
($77,858,406 / 4,787,965 shares outstanding) ============
SERIES A INVESTOR SHARES
Net asset value, redemption and offering price per share $16.18
($39,376,442 / 2,433,384 shares outstanding) ============
Maximum offering price per share (100 / 97 of $16.18) $16.68
============
SERIES C INVESTOR SHARES
Net asset value, redemption and offering price per share $15.97
($9,191,946 / 575,663 shares outstanding) ============
SERIES D INVESTOR SHARES
Net asset value, redemption and offering price per share $16.09
($10,774,384 / 669,574 shares outstanding) ============
Maximum offering price per share (100 / 98.5 of $16.09) $16.34
============
SUPER INSTITUTIONAL SHARES
Net asset value, redemption and offering price per share $16.29
($94,339,753 / 5,792,346 shares outstanding) ============
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE FUND
STATEMENT OF OPERATIONS
Year ended February 28, 1997
INVESTMENT INCOME
Income
Interest $394,366
Dividends 300,920
------------
Total income 695,286
------------
Expenses
Investment advisory fees (note 2) 1,940,587
Fund administration fees (note 2) 101,473
Distribution and service fees - Class A (note 4) 96,096
Distribution and service fees - Class C (note 4) 64,129
Distribution and service fees - Class D (note 4) 58,554
Custody fees 16,627
Registration and filing administration fees (note 2) 21,107
Fund accounting fees (note 2) 84,000
Audit fees 15,265
Legal fees 22,699
Securities pricing fees 7,162
Shareholder administration fees 24,244
Shareholder recordkeeping fees 9,950
Shareholder servicing expenses 23,288
Registration and filing expenses 77,082
Printing expenses 9,770
Amortization of deferred organization expenses (note 3) 7,942
Trustee fees and meeting expenses 8,508
Other operating expenses 9,077
------------
Total expenses 2,597,560
------------
Less:
Expense reimbursements-Super-Institutional Class (note 2) (13,657)
Expense reductions (note 6) (21,927)
------------
Net expenses 2,561,976
------------
Net investment loss (1,866,690)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 4,887,131
Increase in unrealized appreciation on investments 17,077,631
------------
Net realized and unrealized gain on investments 21,964,762
------------
Net increase in net assets resulting from operations $20,098,072
============
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Year ended Year ended
February 28, February 29,
1997 1996
- ------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss $(1,866,690) $(590,626)
Net realized gain (loss) from investment transactions 4,887,131 (3,843,955)
Increase in unrealized appreciation on investments 17,077,631 11,158,332
---------- ----------
Net increase in net assets resulting from operations 20,098,072 6,723,751
---------- ---------
Distributions to shareholders from
Net realized gain from investment transactions 0 (579,228)
Tax return of capital 0 (391,310)
---------- ---------
Decrease in net assets resulting from distributions 0 (970,538)
Capital share transactions ---------- ---------
Increase in net assets resulting from capital share transactions (a) 78,804,804 111,796,492
---------- -----------
Total increase in net assets 98,902,876 117,549,705
NET ASSETS
Beginning of year 132,638,055 15,088,350
----------- ----------
End of year (including accumulated net investment loss $231,540,931 $132,638,055
of $0 in 1997 and $0 in 1996) ============ ============
(a) A summary of capital share activity follows:
Year ended Year ended
February 28, 1997 February 29, 1996
--------------------------- ---------------------------
Shares Value Shares Value
Institutional Shares --------------------------- ---------------------------
Shares sold 1,194,039 $17,551,689 4,380,621 $64,300,633
Shares issued for reinvestment of distributiions 0 0 32,117 481,428
Shares redeemed (1,960,761) (29,179,867) (191,923) (2,739,490)
---------- ----------- -------- ----------
Net increase (decrease) (766,722) $(11,628,178) 4,220,815 $62,042,571
======== ============ ========= ===========
Year ended For the period from April 7, 1995
February 28, 1997 to February 29, 1996
------------------------- ---------------------------------
Shares Value Shares Value
------------------------- ---------------------------------
Series A Shares
Shares sold 886,587 $13,180,184 2,375,405 $33,628,982
Shares issued for reinvestment of distributions 0 0 16,639 249,093
Shares redeemed (711,164) (10,814,500) (134,083) (1,836,410)
-------- ----------- -------- ----------
Net increase 175,423 $2,365,684 2,257,961 $32,041,665
======= ========== ========= ===========
Series C Shares
Shares sold 51,704 $764,137 556,093 $7,112,526
Shares issued for reinvestment of distributions 0 0 3,810 56,850
Shares redeemed (27,426) (414,118) (8,518) (107,907)
------- -------- ------ --------
Net increase 24,278 $350,019 551,385 $7,061,469
====== ======== ======= ==========
Series D Shares
Shares sold 80,650 $1,210,179 990,621 $12,876,680
Shares issued for reinvestment of distributions 0 0 8,302 124,284
Shares redeemed (239,185) (3,492,900) (170,814) (2,350,177)
-------- ---------- -------- ----------
Net increase (decrease) (158,535) $(2,282,721) 828,109 $10,650,787
======== =========== ======= ===========
For the period from June 12, 1996
to February 28, 1997
---------------------------------
Shares Value
Super Institutional Shares ---------------------------------
Shares sold 5,792,346 $90,000,000
Shares redeemed 0 0
--------- -----------
Net increase 5,792,346 $90,000,000
========= ===========
Year ended Year ended
February 28, 1997 February 29, 1996
--------------------------- ---------------------------
Shares Value Shares Value
Fund Summary --------------------------- ---------------------------
Shares sold 8,005,326 $122,706,189 8,302,740 $117,918,821
Shares issued for reinvestment of distributions 0 0 60,868 911,655
Shares redeemed (2,938,536) (43,901,385) (505,338) (7,033,984)
---------- ----------- -------- ----------
Net increase 5,066,790 $78,804,804 7,858,270 $111,796,492
========= =========== ========= ============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
---------------------------------------------
Institutional
---------------------------------------------
For the
period from
April 6, 1994
(commencement of
Year ended Year ended operations) to
February 28, February 29, February 28,
1997 1996 1995
Net asset value, beginning of period $14.45 $11.31 $10.00
Income from investment operations
Net investment loss (0.13) (0.05) (0.04)
Net realized and unrealized gain (loss) 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 and waivers 1.23 % 1.65 % 2.75 %(b)
After expense reimbursements and waivers 1.22 % 1.49 % 1.73 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waivers (0.85)% (0.98)% (1.80)%(b)
After expense reimbursements and waivers (0.84)% (0.82)% (0.78)%(b)
Portfolio turnover rate 126.44 % 99.33 % 64.92 %(b)
Average broker commission per share $0.06
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
--------------------------- ----------------------------
Series A Series C
--------------------------- ----------------------------
For the For the
period from period from
April 7, 1995 April 7, 1995
(commencement of (commencement of
Year ended operations) to Year ended operations) to
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
Net asset value, beginning of period $14.42 $11.79 $14.34 $11.79
Income from investment operations
Net investment loss (0.18) (0.06) (0.29) (0.12)
Net realized and unrealized gain (loss) on investments 1.94 2.88 1.92 2.86
Total from investment operations 1.76 2.82 1.63 2.74
Distributions to shareholders from
Net realized gain from investment transactions 0.00 (0.11) 0.00 (0.11)
Tax return of capital 0.00 (0.08) 0.00 (0.08)
Total distributions 0.00 (0.19) 0.00 (0.19)
Net asset value, end of period $16.18 $14.42 $15.97 $14.34
Total return 12.21%(a) 23.86%(a) 11.30% 23.18%
Ratios/supplemental data
Net assets, end of period (000's) $39,376 $32,549 $9,192 $7,908
Ratio of expenses to average net assets
Before expense reimbursements and waivers 1.54% 1.88%(b) 2.34% 2.38%(b)
After expense reimbursements and waivers 1.53% 1.71%(b) 2.33% 2.18%(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waivers (1.16)% (1.20)%(b) (1.97)% (1.77)%(b)
After expense reimbursements and waivers (1.15)% (1.04)%(b) (1.96)% (1.57)%(b)
Portfolio turnover rate 126.44 % 99.33 % 126.44 % 99.33 %
Average broker commission per share $0.06 $0.06
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
------------------------------ --------------
Super
Series D Institutional
------------------------------ --------------
For the For the
period from period from
April 7, 1995 June 12, 1996
commencement of (commencement of
Year ended operations) to operations) to
February 28, February 29, February 28,
1997 1996 1997
Net asset value, beginning of period $14.41 $11.79 $15.53
Income from investment operations
Net investment loss (0.29) (0.11) (0.07)
Net realized and unrealized gain (loss) on investment 1.97 2.92 0.83
Total from investment operations 1.68 2.81 0.76
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 $16.09 $14.41 $16.29
Total return 11.59%(a) 23.77%(a) 4.89%
Ratios/supplemental data
Net assets, end of period (000's) $10,774 $11,929 $94,340
Ratio of expenses to average net assets
Before expense reimbursements and waivers 2.02 % 2.13 %(b) 1.08 %(b)
After expense reimbursements and waivers 2.01 % 1.73 %(b) 1.04 %(b)
Ratio of net investment loss to average net assets
Before expense reimbursements and waivers (1.64)% (1.54)%(b) (0.75)%(b)
After expense reimbursements and waivers (1.63)% (1.14)%(b) (0.72)%(b)
Portfolio turnover rate 126.44 % 99.33 % 126.44 %
Average broker commission per share $0.06 $0.06
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Chesapeake Fund (the "Fund") is a diversified series of shares of beneficial
interest of the Gardner Lewis Investment Trust (the "Trust"). The Trust, an
open-end investment company, was organized on August 12, 1992 as a Massachusetts
Business Trust and is registered under the Investment Company Act of 1940, as
amended. The Fund began operations on April 6, 1994. 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.
Pursuant to a plan approved by the Board of Trustees of the Trust, the existing
single class of shares of the Fund was redesignated as the Institutional Shares
of the Fund on February 3, 1995, and three new classes of shares - Series A,
Series C and Series D Investor Shares (the "Investor Shares") - were authorized.
On April 7, 1995, Series A, Series C and Series D Investor Shares became
effective. The Board of Trustees of the Trust approved on May 2, 1996 a plan to
authorize a new class of shares designated as the Super Institutional Shares. On
June 12, 1996, the Super Institutional Shares became effective. The
Institutional Shares and Super Institutional Shares are offered to institutional
investors without a sales charge and bear no distribution and service fees. The
Investor Shares are offered with a sales charge (except for Series C Shares) at
different levels and bear distribution fees at different levels.
Each class of shares has equal rights as to assets of the Fund, and the classes
are identical except for differences in their sales charge structures, ongoing
distribution and service fees, and various expenses that can be attributed to
specific class activity. Income, expenses (other than distribution and service
fees, which are attributable to each class of Investor Shares based upon a set
percentage of its net assets, and other expenses which can be traced to specific
class activity), and realized and unrealized gains or losses on investments are
allocated to each class of shares based upon its relative net assets. All
classes have equal voting privileges since the Trust shareholders vote in the
aggregate, not by fund or class, except where otherwise required by law or when
the Board of Trustees determines that the matter to be voted on affects only the
interests of a particular fund or class. The following is a summary of
significant accounting policies followed by the Fund.
A. Security Valuation - The Fund's investments in securities are carried at
value. Securities listed on an exchange or quoted on a national market
system are valued at the last quoted sales price as of 4:00 p.m. New York
time on the day of valuation. Other securities traded in the
over-the-counter market and listed securities for which no sale was
reported on that date are valued at the most recent bid price. Securities
for which market quotations are not readily available, if any, are valued
by using an independent pricing service or by following procedures approved
by the Board of Trustees. Short-term investments are valued at cost which
approximates value.
B. Federal Income Taxes - No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income to relieve it from all
federal income taxes.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and income tax purposes primarily because of losses
incurred subsequent to October 31, which are deferred for income tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing
of dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains were recorded by
the Fund.
(Continued)
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THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1997
C. Investment Transactions - Investment transactions are recorded on the trade
date. Realized gains and losses are determined using the specific
identification cost method. Interest income is recorded daily on an accrual
basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
D. Distributions to Shareholders - The Fund may declare dividends quarterly,
generally payable in March, June, September and December, on a date
selected by the Trust's Trustees. In addition, distributions may be made
annually in November out of net realized gains through October 31 of that
year. The Fund may make a supplemental distribution subsequent to the end
of its fiscal year.
The Fund has capital loss carryforwards for federal income tax purposes of
$127,293 which expire in the year 2005. It is the intention of the Board of
Trustees of the Trust not to distribute any realized gains until the
carryforwards have been offset or expire.
E. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
F. Repurchase Agreements - The Fund may acquire U. S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the
Federal Reserve or a registered Government Securities dealer) for delivery
on an agreed upon future date. The repurchase price exceeds the purchase
price by an amount which reflects an agreed upon market interest rate
earned by the Fund effective for the period of time during which the
repurchase agreement is in effect. Delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Fund will
not enter into a repurchase agreement which will cause more than 10% of its
net assets to be invested in repurchase agreements which extend beyond
seven days. In the event of the bankruptcy of the other party to a
repurchase agreement, the Fund could experience delays in recovering its
cash or the securities lent. To the extent that in the interim the value of
the securities purchased may have declined, the Fund could experience a
loss. In all cases, the creditworthiness of the other party to a
transaction is reviewed and found satisfactory by the Advisor. Repurchase
agreements are, in effect, loans of Fund assets. The Fund will not engage
in reverse repurchase transactions, which are considered to be borrowings
under the Investment Company Act of 1940, as amended.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Gardner Lewis Asset Management
(the "Advisor") provides the Fund with a continuous program of supervision of
the Fund's assets, including the composition of its portfolio, and furnishes
advice and recommendations with respect to investments, investment policies, and
the purchase and sale of securities. As compensation for its services, the
Advisor receives a fee at the annual rate of 1.00% of the Fund's average daily
net assets.
(Continued)
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THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1997
The Fund's administrator, The Nottingham Company, (the "Administrator"),
provides administrative services to and is generally responsible for the overall
management and day-to-day operations of the Fund pursuant to an accounting and
administrative agreement with the Trust. As compensation for its services, the
Administrator receives a fee at the annual rate of 0.075% of the average daily
net assets for the Institutional Shares and for Series A, Series C, and Series D
Investor Shares. The Administrator also receives a monthly fee of $1,750 for the
Institutional Shares and for Series A, Series C, and Series D Investor Shares
for accounting and recordkeeping services. Additionally, the Administrator
charges the Fund for servicing of shareholder accounts and registration of the
Fund's shares. The contract with the Administrator provides that the aggregate
fees for the aforementioned administration, accounting and recordkeeping
services shall not be less than $3,000 per month. The Administrator receives a
fee at the annual rate of 0.015% of average daily net assets for shareholder
administration costs. The Administrator also charges the Fund for certain
expenses involved with the daily valuation of portfolio securities. The
Administrator currently intends to reimburse expenses of the Super-Institutional
Class to limit total Super- Institutional Class operating expenses to 1.04% of
the average daily net assets of that class. There can be no assurance that the
foregoing voluntary expense reimbursements will continue. A receivable from the
Administrator in the amount of $13,657 has been recorded to reflect the
reimbursement for the year ended February 28, 1997.
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's
principal underwriter and distributor. The Distributor receives any sales
charges imposed on purchases of shares and re-allocates a portion of such
charges to dealers through whom the sale was made, if any. For the fiscal year
ended February 28, 1997, the Distributor retained sales charges in the amount of
$8,836.
Certain Trustees and officers of the Trust are also officers or directors of the
Advisor or the Administrator.
NOTE 3 - DEFERRED ORGANIZATION EXPENSES
Expenses totalling $66,799 incurred in connection with its organization and the
registration of its shares have been assumed by the Fund.
The organization expenses are being amortized over a period of sixty months.
Investors purchasing shares of the Fund bear such expenses only as they are
amortized against the Fund's investment income.
NOTE 4 - DISTRIBUTION AND SERVICE FEES
The Board of Trustees, including a majority of the Trustees who are not
"interested persons" of the Trust as defined in the Investment Company Act of
1940 (the "Act"), adopted a distribution plan with respect to Investor Shares
pursuant to Rule 12b-1 of the Act (the "Plan"). Rule 12b-1 regulates the manner
in which a regulated investment company may assume costs of distributing and
promoting the sales of its shares and servicing of its shareholder accounts.
The Plan provides that the Fund may incur certain costs, which may not exceed
0.25%, 0.75% and 0.50% per annum of the average daily net assets of Series A,
Series C and Series D Investor Shares, respectively, for each year elapsed
subsequent to adoption of the Plan, for payment to the Distributor and others
for items such as advertising expenses, selling expenses, commissions, travel or
other expenses reasonably intended to result in sales of Investor Shares of the
Fund or support servicing of shareholder accounts.
(Continued)
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THE CHESAPEAKE FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1997
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 year ended February 28, 1997.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments other than short-term investments aggregated
$321,103,038 and $232,904,488, respectively, for the fiscal year ended February
28, 1997.
NOTE 6 - EXPENSE REDUCTIONS
The Advisor has transacted certain portfolio trades with brokers who paid a
portion of the fund's expenses. For the fiscal year ended February 28, 1997, the
Fund's expenses were reduced by $21,927 under this arrangement.
<PAGE>
[Deloitte & Touche letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Gardner Lewis Investment Trust and Shareholders of
The Chesapeake Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Chesapeake Fund as of February 28, 1997,
and the related statements of operations and changes in net assets, and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended February 29, 1996 and the financial highlights for the two
years in the period ended February 29, 1996 were audited by other auditors,
whose reports thereon dated April 22, 1996, expressed an unqualified opinion.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of February 28, 1997
by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 1997 financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of The
Chesapeake Fund as of February 28, 1997, the results of its operations, the
changes in its net assets and its financial highlights for the year then ended
in conformity with generally accepted accounting principles.
Deloitte & Touche
Pittsburgh, Pennsylvania
March 26, 1997
