- --------------------------------------------------------------------------------
THE CHESAPEAKE GROWTH FUND
- --------------------------------------------------------------------------------
a series of the Gardner Lewis Investment Trust
Annual Report 1997
FOR THE YEAR ENDED AUGUST 31
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
THE CHESAPEAKE GROWTH FUND
107 North Washington Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
<PAGE>
October 1, 1997
Dear Shareholder:
The Chesapeake Growth Fund closed September with a year-to-date gain of
35.7%. This gain comes on the heels of an 18.8% gain during the most recent
quarter. These gains compare very favorably to those of the S&P 500, 7.5% for
the quarter and 29.6% for the year. They also compare very favorably to the
gains of both the Nasdaq Industrials and Russell 2000. (The Nasdaq was up 16.3%
for the quarter and is up 23.9% for the year. The Russell was up 14.9% for the
quarter and is up 26.6% for the year.) It is great to post another double digit
gain, even more so when it outstrips that of the S&P 500 by such a large margin.
Our significant profits were made in business services, energy, food, retail,
medical products, telecommunications, and several areas of technology.
Recognition of many of the opportunities we have discussed in our recent
quarterly letters has begun to surface in the form of higher stock prices. And,
although the market remains volatile, there seems to be a more rational approach
to both fundamentals and valuation. This has benefited our portfolio
tremendously.
During the quarter, small and mid-sized companies began to garner investor
attention, reversing for the first time in several years the significant
outperformance of the S&P. A look behind the numbers is even more revealing
because it demonstrates that the relatively few stocks that have been
responsible for the S&P's meteoric rise were also in large part responsible for
its underperformance. As we have suggested time and time again, ultimately a
company's stock price is reflective of its underlying fundamentals. Thus when
stocks get ahead of themselves, they will correct. This was the case with
companies like Ascend, Cascade, and Fore Systems when the fortunes of the
"momentum" investors turned for the worse a little more than a year ago. And, it
appears today that it may be the case for the new so called "nifty-fifty" whose
investors were hurt by ownership in wonderful companies like Coca-Cola and
Gillette as their stocks entered a corrective phase during the third quarter.
Prior to and during the decimation of momentum-oriented portfolios, we
stuck to our discipline which prohibits ownership of securities whose price
cannot be rationalized through underlying fundamentals. Likewise, we have
avoided the call to chase the "nifty-fifty" concept knowing that adherence to
our discipline has historically helped us to avoid market pitfalls. This
adherence has allowed us to focus singularly on what we do best, discovering new
investment opportunities with exceptional growth rates at reasonable prices. It
is through the discovery and the resultant replacement process that we are able
to maintain a portfolio of companies that in aggregate are growing at 35% and
are selling at just 16 times our earnings estimates.
Obviously a market excited for the first time in several years about
investing in a broader selection of stocks is an excellent backdrop against
which to work. This backdrop is further enhanced by the incredible growth
prospects of those companies advantaged by an unprecedented business environment
neither short of innovation nor the capital necessary to make it work. We
believe the art of portfolio management lies in the discovery of the fascinating
changes taking place each and every day. These changes can be evident, like the
wholesale reshaping of the electric power industry, an industry undergoing a
transformation from a stodgy business whose success was predicated upon its own
power generation capabilities, to a streamlined and efficient business whose
success will be predicated upon its ability to market what may be its own power,
but more likely that generated by others. Or these changes can be less evident,
like the recent discovery of new technology which could enable manufacturers to
build semiconductors with copper rather than aluminum making them 40% more
powerful and 20-30% less expensive.
Because we desire to be at the forefront of change, our dedication to
discovery is and will continue to be our focus. And, our fuel for the
investments we uncover will continue to be the capital we harvest from those
companies whose stock prices are nearing reflection of their underlying
strength. Today, perhaps more influential than anything else, is a resurgence in
entrepreneurial spirit in companies of all shapes and sizes making it difficult
to find enough room in our portfolio for all of the investments we would like to
make.
In one final note, in our continued effort to enhance the quality of our
research and provide better service to our clients, we have added Richard Bruce,
Karen Horn, and Rebecca McClung to our staff. Have a pleasant fall!
Sincerely,
/S/ Whit /s/ John
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
THE CHESAPEAKE GROWTH FUND
Performance Update - $25,000 Investment
For the period from January 4, 1993
(commencement of operations) to August 31, 1997
4-Jan-93 24,250.00 25,000.00 25,000.00
28-Feb-93 24,065.70 24,230.54 25,561.53
31-May-93 26,473.73 25,487.25 26,005.81
31-Aug-93 28,765.35 26,299.46 27,113.37
30-Nov-93 30,203.17 27,206.54 27,200.10
28-Feb-94 35,797.35 29,006.45 27,692.34
31-May-94 32,132.03 25,932.10 27,265.02
31-Aug-94 33,488.64 26,804.43 28,596.41
30-Nov-94 34,519.67 26,290.77 27,484.98
28-Feb-95 36,044.01 27,027.71 29,731.10
31-May-95 40,251.98 28,814.32 32,769.38
31-Aug-95 51,058.03 33,546.80 34,729.65
30-Nov-95 48,683.89 33,945.33 37,648.74
29-Feb-96 46,152.12 35,223.71 40,047.97
31-May-96 51,083.80 41,491.50 42,087.69
31-Aug-96 44,517.01 36,874.75 41,233.53
30-Nov-96 49,643.05 39,196.15 48,008.24
28-Feb-97 50,735.03 38,562.19 50,525.68
31-May-97 54,206.96 39,949.75 54,468.02
31-Aug-97 62,830.79 45,262.20 58,264.05
This graph depicts the performance of The Chesapeake Growth Fund versus the
NASDAQ Industrials Index and the S&P 500 Total Return Index. It is important to
note The Chesapeake Growth Fund is a professionally managed mutual fund while
the indices are not available for investment and are unmanaged. The comparison
is shown for illustrative purposes only.
Average Annual Total Return
- ------------------------------------------------------------------------
Since One Year Three Years
Inception
- ------------------------------------------------------------------------
No Sales Load 22.68% 41.14% 23.31%
With 3% Sales Load 21.88% 36.90% 22.07%
========================================================================
The graph assumes an initial $25,000 investment at January 4, 1993 ($24,250
after maximum sales load of 3%). All dividends and distributions are reinvested.
At August 31, 1997, the Fund would have grown to $62,831- total investment
return of 151.32% since January 4, 1993. Without the deduction of the 3% maximum
sales load, the Fund would have grown to $64,774 - total investment return of
159.10% since January 4, 1993. The sales load may be reduced or eliminated for
larger purchases.
At August 31, 1997, a similar investment in the NASDAQ Industrials Index would
have grown to $45,262 - total investment return of 81.05% since January 4, 1993;
while a similar investment in the S&P 500 Total Return Index would have grown to
$58,264 - total investment return of 133.06% since January 4, 1993.
Past performance is not a guarantee of future results. A mutual fund's share
price and investment return will vary with market conditions, and the principal
value of shares, when redeemed, may be worth more or less than the original
cost. Average annual total returns are historical in nature and measure net
investment income and capital gain or loss from portfolio investments assuming
reinvestment of dividends.
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS - 97.62%
Aerospace & Defense - 2.12%
(a)BE Aerospace, Inc. .......................... 195,600 $ 6,943,800
(a)Gulfstream Aerospace Corporation ............ 203,600 6,031,650
------- -----------
12,975,450
Apparel Manufacturing - 7.23%
(a)Jones Apparel Group, Inc. ................... 351,200 17,625,850
Kellwood Company ............................ 122,300 4,418,088
Liz Claiborne, Inc. ......................... 203,700 9,077,381
(a)Nautica Enterprises, Inc. ................... 160,600 3,824,287
Warnaco Group, Inc. ........................ 289,400 9,387,412
------- -----------
44,333,018
Auto - Rental/Leasing - 0.73%
(a)Budget Group, Inc. .......................... 149,600 4,394,500
Auto Parts - Original Equipment - 0.99%
Federal-Mogul Corporation ................... 170,500 6,095,375
Bicycles - 0.09%
(a)Cannondale Corporation ...................... 30,100 534,275
Building Materials - 0.55%
Carlisle Companies, Inc. .................... 79,400 3,349,688
Chemicals - 0.91%
(a)Waters Corporation .......................... 167,300 5,573,181
Commercial Services - 0.57%
(a)APAC Teleservices, Inc. ..................... 212,300 3,502,950
Computers - 12.12%
(a)Dell Computer Corporation ................... 155,000 12,719,688
(a)EMC Corporation ............................. 186,800 9,585,175
(a)Gateway 2000, Inc. .......................... 138,200 5,398,438
(a)Quantum Corporation ......................... 172,200 6,037,763
(a)Read-Rite Corporation ....................... 222,600 6,385,838
(a)Sequent Computer Systems, Inc. .............. 212,600 5,992,663
(a)Splash Technology Holdings, Inc. ............ 183,200 6,205,900
(a)Tandem Computers Incorporated ............... 441,600 15,124,800
(a)Western Digital Corporation ................. 143,200 6,891,500
------- -----------
74,341,765
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Computer Software & Services - 8.52%
(a)BancTec, Inc. ................................. 121,900 $ 3,017,025
(a)BMC Software, Inc. ............................ 97,100 6,080,888
(a)Cadence Design Systems, Inc. .................. 179,550 8,539,847
(a)Comverse Technology, Inc. ..................... 62,000 2,848,125
(a)Network Computing Devices, Inc. ............... 180,300 2,141,063
(a)Network General Corporation ................... 129,700 2,156,263
(a)Structural Dynamics Research Corporation ...... 256,100 6,802,656
(a)Synopsys, Inc. ................................ 156,600 5,422,275
(a)System Software Associates, Inc. .............. 675,850 10,264,472
(a)Vanstar Corporation ........................... 323,900 5,081,181
------- -----------
52,353,795
Electrical Equipment - 1.15%
(a)Encore Wire Corporation ....................... 204,750 7,063,875
Electronics - 1.50%
Technitrol, Inc. .............................. 177,600 6,038,400
(a)Vishay Intertechnology, Inc. .................. 117,600 3,145,800
------- -----------
9,184,200
Electronics - Semiconductor - 7.66%
(a)Actel Corporation ............................. 179,900 3,654,218
(a)Adaptec, Inc. ................................. 395,900 19,003,200
(a)DSP Communications, Inc. ...................... 346,300 6,796,137
(a)Hadco Corporation ............................. 44,000 3,085,500
(a)Integrated Process Equipment Corp. ............ 21,200 699,600
(a)SDL, Inc. ..................................... 77,400 1,373,850
(a)Teradyne, Inc. ................................ 222,800 12,407,175
------- -----------
47,019,680
Emerging Technology - 0.58%
Cognizant Corporation ......................... 84,700 3,557,400
Engineering & Construction - 0.44%
(a)American Buildings Company .................... 94,000 2,690,750
Environmental Control - 1.50%
(a)USA Waste Services, Inc. ...................... 218,600 9,181,200
Financial - Consumer Credit - 2.22%
(a)AmeriCredit Corporation ....................... 276,000 7,383,000
The Money Store, Inc. ......................... 218,500 6,227,250
------- -----------
13,610,250
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Food - Wholesale - 1.12%
Michael Foods, Inc. ............................. 139,300 $ 3,012,362
Richfood Holdings, Inc. ......................... 172,400 3,879,000
------- -----------
6,891,362
Foreign Securities (c) - 3.85%
(a)ASM International N.V ........................... 33,400 438,375
(a)Creative Technology Limited ..................... 289,400 5,570,950
ECI Telecommunications Limited .................. 309,900 9,238,893
(a)Petroleum Geo-Services ASA ...................... 99,800 6,056,612
Teva Pharmaceutical Industries Ltd. ............. 45,000 2,356,875
------- -----------
23,661,705
Hand & Machine Tools - 0.30%
SPX Corporation ................................. 32,100 1,865,812
Human Resources - 1.79%
(a)CORESTAFF, Inc. ................................. 205,800 6,122,550
Personnel Group of America, Inc. ................ 145,400 4,870,900
------- -----------
10,993,450
Leisure Time - 0.49%
Polaroid Corporation ............................ 56,600 3,003,337
Machine - Construction & Mining - 0.56%
(a)Terex Corporation ............................... 158,200 3,421,075
Machine - Diversified - 1.62%
(a)Coltec Industries, Inc. ......................... 249,900 5,591,513
DT Industries, Inc. ............................. 146,100 4,346,475
------- -----------
9,937,988
Medical - Hospital Management & Service - 4.51%
(a)Genesis Health Ventures, Inc. ................... 251,500 8,771,063
(a)HEALTHSOUTH Corporation ......................... 219,800 5,481,262
(a)MedPartners, Inc. ............................... 251,500 5,375,812
(a)Tenet Healthcare Corporation .................... 295,700 8,057,825
------- -----------
27,685,962
Medical Supplies - 1.56%
Biomet, Inc. .................................... 402,300 8,347,725
(a)Steris Corporation .............................. 32,500 1,218,750
------- -----------
9,566,475
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Metal Fabrication & Hardware - 0.17%
(a)UNR Industries, Inc. .......................... 226,500 $ 1,047,562
Office & Business Equipment - 1.77%
(a)U.S. Office Products Company .................. 332,400 10,886,100
Oil & Gas - Equipment & Services - 3.11%
(a)J. Ray McDermott, S.A ......................... 207,700 8,204,150
(a)Rowan Companies, Inc. ......................... 229,100 6,844,363
(a)Pride International, Inc. ..................... 126,400 4,044,800
------- -----------
19,093,313
Pharmaceuticals - 1.15%
Jones Medical Industries, Inc. ................ 121,100 3,602,725
(a)Watson Pharmaceuticals, Inc. .................. 65,100 3,421,818
------- -----------
7,024,543
Restaurants & Food Service - 0.89%
CKE Restaurants, Inc. ......................... 169,000 5,450,250
Retail - Apparel - 4.95%
(a)Goody's Family Clothing, Inc. ................. 133,300 4,548,862
Ross Stores, Inc. ............................. 175,700 5,161,188
(a)Stage Stores, Inc. ............................ 272,000 8,415,000
TJX Companies, Inc. ........................... 209,200 5,753,000
(a)The Dress Barn, Inc. .......................... 211,400 4,333,700
(a)The Men's Wearhouse, Inc. ..................... 59,600 2,164,225
------- -----------
30,375,975
Retail - Automobiles - 0.82%
(a)United Auto Group, Inc. ....................... 206,900 5,030,256
Retail - Building Supplies - 0.38%
(a)Eagle Hardware & Garden, Inc. ................. 105,500 2,314,406
Retail - Department Stores - 3.81%
(a)Ames Department Stores, Inc. .................. 195,500 3,299,063
(a)Consolidated Stores Corporation ............... 143,450 5,370,409
(a)Fred Meyer, Inc. .............................. 112,600 5,855,200
(a)Proffitt's, Inc. .............................. 165,300 8,874,544
------- -----------
23,399,216
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - Specialty Line - 2.33%
(a)Borders Group, Inc. ............................ 321,600 $ 7,658,100
Cash America International, Inc. ............... 262,400 2,820,800
(a)Hollywood Entertainment Corporation ............ 233,300 3,820,288
(a)The Score Board, Inc. .......................... 3,011 2,635
-------- -----------
14,301,823
Shoes - Leather - 0.51%
(a)Nine West Group, Inc. .......................... 74,100 3,130,725
Telecommunications - 1.03%
(a)Mastec, Inc. ................................... 135,000 6,302,813
Telecommunications Equipment - 3.70%
(a)Boston Technology, Inc. ........................ 113,600 3,344,100
(a)Cable Design Technologies ...................... 89,900 3,006,031
(a)Newbridge Networks Corporation ................. 117,400 5,341,700
(a)P-COM, Inc. .................................... 129,600 6,018,300
(a)QUALCOMM, Inc. ................................. 107,900 4,990,375
-------- -----------
22,700,506
Transportation - Air - 1.88%
Airborne Freight Corporation ................... 141,800 6,983,650
Comair Holdings, Inc. .......................... 168,725 4,534,484
-------- -----------
11,518,134
Utilities - Electric - 3.34%
(a)CalEnergy Co., Inc. ............................ 497,500 16,479,688
(a)Calpine Corporation ............................ 217,500 4,023,750
-------- -----------
20,503,438
Wholesale & Distribution - Special Line - 3.10%
(a)CellStar Corporation ........................... 309,000 10,293,563
(a)Central Garden and Pet Company ................. 147,100 4,339,450
(a)Inacom Corp. ................................... 127,900 4,412,550
-------- -----------
19,045,563
Total Common Stocks (Cost $439,362,071) ........ 598,913,141
-----------
INVESTMENT COMPANIES - 2.35%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares
(Cost $14,422,299) ............................. 14,422,299 14,422,299
----------- -----------
(Continued)
<PAGE>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
August 31, 1997
Total Value of Investments (Cost $453,784,370 (b)) .... 99.97% $613,335,440
Other Assets Less Liabilities ......................... 0.03% 153,462
------ ------------
Net Assets .......................................... 100.00% $613,488,902
====== ============
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is $454,104,414. Unrealized
appreciation (depreciation) of investments for federal income tax purposes
is as follows:
Unrealized appreciation $164,393,747
Unrealized depreciation (5,162,721)
------------
Net unrealized appreciation $159,231,026
============
(c) Foreign securities represent securities issued in the United States markets
by non-domestic companies.
<PAGE>
THE CHESAPEAKE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997
ASSETS
Investments, at value (cost $453,784,370) ................... $613,335,440
Cash ........................................................ 91,653
Income receivable ........................................... 166,335
Receivable for investments sold ............................. 5,964,642
Receivable for fund shares sold ............................. 3,590
Prepaid expenses ............................................ 11,565
Deferred organization expenses, net (note 3) ................ 3,446
------------
Total assets ............................................. 619,576,671
------------
LIABILITIES
Accrued expenses ............................................ 50,103
Payable for investment purchases ............................ 6,012,666
Due to administrator (note 2) ............................... 25,000
------------
Total liabilities ........................................ 6,087,769
------------
NET ASSETS
(applicable to 27,340,585 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ..... $613,488,902
============
NET ASSET VALUE, REDEMPTION AND OFFERING PRICE PER SHARE
($613,488,902 / 27,340,585 shares) .......................... $ 22.44
============
MAXIMUM OFFERING PRICE PER SHARE
(100 / 97% of $22.44) ....................................... $ 23.13
============
NET ASSETS CONSIST OF
Paid-in capital ............................................. $387,339,202
Undistributed net realized gain on investments .............. 66,598,630
Net unrealized appreciation on investments .................. 159,551,070
------------
$613,488,902
============
See accompanying notes to financial statements
<PAGE>
THE CHESAPEAKE GROWTH FUND
STATEMENT OF OPERATIONS
Year ended August 31, 1997
INVESTMENT INCOME
Income
Interest ................................................ $ 423,215
Dividends ............................................... 872,244
-------------
Total income ......................................... 1,295,459
-------------
Expenses
Investment advisory fees (note 2) ....................... 6,475,547
Fund administration fees (note 2) ....................... 499,572
Custody fees ............................................ 37,516
Registration and filing administration fees (note 2) .... 7,126
Fund accounting fees (note 2) ........................... 21,000
Audit fees .............................................. 13,825
Legal fees .............................................. 10,630
Securities pricing fees ................................. 7,563
Shareholder recordkeeping fees .......................... 15,990
Shareholder administrative fees ......................... 102,708
Shareholder servicing expenses .......................... 25,554
Registration and filing expenses ........................ 57,412
Printing expenses ....................................... 37,520
Amortization of deferred organization expenses (note 3) . 8,052
Trustee fees and meeting expenses ....................... 10,566
Other operating expenses ................................ 46,965
-------------
Total expenses ....................................... 7,377,546
-------------
Net investment loss ............................... (6,082,087)
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ............. 72,981,586
Increase in unrealized appreciation on investments ......... 114,457,604
-------------
Net realized and unrealized gain on investments ......... 187,439,190
-------------
Net increase in net assets resulting from operations . $ 181,357,103
=============
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Year ended Year ended
August 31, August 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ........................................................ $(6,082,087) $(4,857,254)
Net realized gain from investment transactions ............................. 72,981,586 48,006,720
Increase (decrease) in unrealized appreciation on investments .............. 114,457,604 (105,477,799)
------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 181,357,103 (62,328,333)
------------ -----------
Distributions to shareholders from
Net realized gain from investment transactions ............................. (28,932,671) (30,366,960)
------------ -----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ....... 756,974 92,716,745
------------ -----------
Total increase in net assets ......................................... 153,181,406 21,452
------------ -----------
NET ASSETS
Beginning of period ........................................................... 460,307,496 460,286,044
------------ -----------
End of period ............................................................ $613,488,902 $460,307,496
============ ============
(a) A summary of capital share activity follows:
Year ended Year ended
August 31, 1997 August 31, 1996
----------------------------- -----------------------------
Shares Value Shares Value
----------------------------- -----------------------------
Shares sold 3,447,946 $64,609,895 6,577,730 $118,581,825
Shares issued for reinvestment
of distributions 1,565,933 26,934,053 1,453,621 27,517,060
---------- ----------- ---------- ------------
5,013,879 91,543,948 8,031,351 146,098,885
Shares redeemed (4,938,898) (90,786,974) (3,002,515) (53,382,140
---------- ----------- ---------- ------------
Net increase 74,981 $756,974 5,028,836 $92,716,745
========== =========== ========== ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
- ------------------------------------------------------------------------------------------------------------------------------------
For the period from
January 4, 1993
(commencement of
Year ended Year ended Year ended Year ended operations)
August 31, August 31, August 31, August 31, to August 31,
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $16.88 $20.70 $13.58 $11.86 $10.00
Income (loss) from investment operations
Net investmento loss (0.22) (0.18) (0.15) (0.05) (0.01)
Net realized and unrealized gain (loss)
on investments 6.84 (2.53) 7.27 1.98 1.87
---- ----- ---- ---- ----
Total from investment operations 6.62 (2.71) 7.12 1.93 1.86
---- ----- ---- ---- ----
Distributions to shareholders from
Net investment income 0.00 0.00 0.00 (0.16) 0.00
Net realized gain from investment transaction (1.06) (1.11) 0.00 (0.05) 0.00
----- ----- ---- ----- ----
Total distributions (1.06) (1.11) 0.00 (0.21) 0.00
----- ----- ---- ----- ----
Net asset value, end of period $22.44 $16.88 $20.70 $13.58 $11.86
====== ====== ====== ====== ======
Total return (a) 41.14 % (12.81)% 52.45 % 16.42 % 29.76 %(b)
===== ====== ===== ===== =====
Ratios/supplemental data
Net assets, end of period $613,488,902 $460,307,496 $460,286,044 $179,222,758 $25,421,085
============ ============ ============ ============ ===========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.42 % 1.42 % 1.43 % 1.57 % 2.29 %(b)
After expense reimbursements and waived fees 1.42 % 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 (1.17)% (1.05)% (1.07)% (0.87)% (1.22)%(b)
After expense reimbursements and waived fees (1.17)% (1.05)% (1.07)% 0.79 % (0.47)%(b)
Portfolio turnover rate 115.51 % 110.04 % 75.42 % 66.03 % 45.95 %(b)
Average broker commissions per share (c) $0.0568
(a) Total return does not reflect payment of a sales charge.
(b) Annualized.
(c) Represents total commission paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Chesapeake Growth Fund (the "Fund") is a diversified series of shares of
beneficial interest of the Gardner Lewis Investment Trust (the "Trust"). The
Trust is an open-end investment company which was organized in 1992 as a
Massachusetts Business Trust and is registered under the Investment Company Act
of 1940, (the "Act") as amended. The Fund began operations on January 4, 1993.
The investment objective of The Fund is to seek capital appreciation through
investments in equity securities, consisting primarily of common and preferred
stocks and securities convertible into common stocks. The following is a summary
of significant accounting policies followed by the Fund:
A. Security Valuation - The Fund's investments in securities are carried at
value. Securities listed on an exchange or quoted on a national market
system are valued at the last sales price as of 4:00 p.m. New York time.
Other securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued at the
most recent bid price. Securities for which market quotations are not
readily available, if any, are valued by using an independent pricing
service or by following procedures approved by the Board of Trustees.
Short-term investments are valued at cost which approximates value.
B. Federal Income Taxes - No provision has been made for federal income taxes
since it is the policy of the Fund to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to
make sufficient distributions of taxable income to relieve it from all
federal income taxes.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and income tax purposes primarily because of losses
incurred subsequent to October 31, which are deferred for income tax
purposes. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. Also, due to the timing
of dividend distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains were recorded by
the Fund.
C. Investment Transactions - Investment transactions are recorded on the trade
date. Realized gains and losses are determined using the specific
identification cost method. Interest income is recorded daily on an accrual
basis. Dividend income is 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. Distributions to shareholders are
recorded on the ex-dividend date. In addition, distributions may be made
annually in November out of net realized gains through October 31 of that
year. The Fund may make a supplemental distribution subsequent to the end
of its fiscal year ending August 31.
E. Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
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 Act.
NOTE 2 - INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
Pursuant to an investment advisory agreement, Gardner Lewis Asset Management
(the "Advisor") provides the Fund with a continuous program of supervision of
the Fund's assets, including the composition of its portfolio, and furnishes
advice and recommendations with respect to investments, investment policies, and
the purchase and sale of securities. As compensation for its services, the
Advisor receives a fee at the annual rate of 1.25% of the Fund's average daily
net assets.
The Fund's administrator, The Nottingham Company, (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, for
the period from September 1, 1996 through February 28, 1997, the Administrator
received a fee at the annual rate of 0.20% of the Fund's first $25 million of
average daily net assets, 0.15% of the next $25 million, and 0.075% of average
daily net assets over $50 million. For the period from March 1, 1997 through
August 31, 1997, the Administrator receives a fee at the annual rate of 0.20% of
the Fund's first $25 million of average daily net assets, 0.15% of the next $25
million, and 0.10% of average daily net assets over $50 million. The
Administrator also receives a monthly fee of $1,750 for accounting and
recordkeeping services. Additionally, the Administrator charges the Fund for
servicing of shareholder accounts and registration of the Fund's shares. The
Administrator also charges for certain expenses involved with the daily
valuation of portfolio securities.
Currently, the Fund does not offer its shares for sale in states which require
limitations to be placed on its expenses.
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's
principal underwriter and distributor. The Distributor receives any sales
charges imposed on purchases of shares and re-allocates a portion of such
charges to dealers through whom the sale was made, if any. For the year ended
August 31, 1997, the Distributor retained sales charges in the amount of $1,480.
Certain Trustees and officers of the Trust are also officers of the Advisor or
the Administrator.
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
NOTE 3 - DEFERRED ORGANIZATION EXPENSES
Expenses totaling $39,700 incurred in connection with its organization and the
registration of its shares have been assumed by the Fund.
The organization expenses are being amortized over a period of sixty months.
Investors purchasing shares of the Fund bear such expenses only as they are
amortized against the Fund's investment income.
NOTE 4 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments other than short-term investments aggregated
$586,883,533 and $613,242,126, respectively, for the year ended August 31, 1997.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Gardner Lewis Investment Trust:
We have audited the accompanying statement of assets and liabilities of The
Chesapeake Growth Fund (a portfolio of Gardner Lewis Investment Trust),
including the portfolio of investments, as of August 31, 1997, and the related
statements of operations for the year then ended, and the statements of changes
in net assets and financial highlights for the two years 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 audits. The financial
highlights for the three years in the period ended August 31, 1995 were audited
by other auditors, whose reports thereon dated September 29, 1995, expressed an
unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
August 31, 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 audits provide a reasonable basis for our
opinion.
In our opinion, the 1997 and 1996 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of The Chesapeake Growth Fund as of August 31, 1997, the results of its
operations for the year then ended, the changes in its net assets and its
financial highlights for the two years then ended in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
September 19, 1997
