As filed with the Securities and Exchange Commission on June 30, 1998
Securities Act File No. 33-53800
Investment Company Act File No. 811-7324
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Post-Effective Amendment No. 17
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 18
GARDNER LEWIS INVESTMENT TRUST
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
Telephone (919) 972-9922
AGENT FOR SERVICE:
C. Frank Watson III, Secretary
105 North Washington Street
Post Office Drawer 69
Rocky Mount, North Carolina 27802-0069
It is proposed that this filing will become effective:
|X| Immediately upon filing pursuant |_| on _________, 1997 pursuant
to Rule 485(b), or to Rule 485(b), or
|_| 60 days after filing pursuant |_| on _________, 1997 pursuant to
to Rule 485(a)(1), or Rule 485(a)(1), or
|_| 75 days after filing pursuant |_| on _________, 1997 pursuant to
to Rule 485(a)(2), or Rule 485(a)(2)
________________________________________________________________________________
This filing also includes the Prospectus and Statement of Additional Information
of The Chesapeake Aggressive Growth Fund, which are incorporated herein by
reference to Post-Effective Amendment No. 16 to the Registrant's Registration
Statement on Form N-1A filed with the Commission on December 31, 1997.
<PAGE>
PART A
Cusip Number 36559B401
PROSPECTUS NASDAQ Symbol CHESX
________________________________________________________________________________
THE CHESAPEAKE GROWTH FUND
INSTITUTIONAL SHARES
________________________________________________________________________________
The investment objective of The Chesapeake Growth Fund (the "Fund") is to seek
capital appreciation through investments in equity securities of medium and
large capitalization companies, consisting primarily of common and preferred
stocks and securities convertible into common stocks. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this Prospectus. The
Fund has a net asset value that will fluctuate in accordance with the value of
its portfolio securities. An investor may invest, reinvest or redeem shares at
any time.
This Prospectus relates to shares ("Institutional Shares") representing
interests in the Fund. The Institutional Shares are designed to provide
institutional clients with core growth investment management by Gardner Lewis
Asset Management. The Institutional Shares are offered to institutional
investors without any sales or redemption charges or shareholder servicing or
distribution fees. See "Prospectus Summary - Offering Price."
INVESTMENT ADVISOR
Gardner Lewis Asset Management
Chadds Ford, Pennsylvania
The Fund is a diversified series of the Gardner Lewis Investment Trust (the
"Trust"), a registered open-end management investment company. This Prospectus
sets forth concisely the information about the Fund that a prospective investor
should know before investing. Investors should read this Prospectus and retain
it for future reference. Additional information about the Fund has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge. You may request the Statement of Additional
Information, which is incorporated in this Prospectus by reference, by writing
the Fund at Post Office Box 4365, Rocky Mount, North Carolina 27803-0365, or by
calling 1-800-430-3863. The SEC also maintains an Internet Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
Investment in the Fund involves risks, including the possible loss of principal.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, and such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is June
30, 1998.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................ 2
FEE TABLE................................................................. 3
FINANCIAL HIGHLIGHTS...................................................... 3
INVESTMENT OBJECTIVE AND POLICIES......................................... 5
RISK FACTORS.............................................................. 7
INVESTMENT LIMITATIONS.................................................... 8
FEDERAL INCOME TAXES...................................................... 8
DIVIDENDS AND DISTRIBUTIONS............................................... 9
HOW SHARES ARE VALUED..................................................... 10
HOW SHARES MAY BE PURCHASED............................................... 10
HOW SHARES MAY BE REDEEMED................................................ 12
MANAGEMENT OF THE FUND.................................................... 14
OTHER INFORMATION......................................................... 16
This Prospectus is not an offering of the securities described herein in any
state in which the offering is unauthorized. No sales representative, dealer or
other person is authorized to give any information or make any representations
other than those contained in this Prospectus.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this Prospectus or to reject purchase orders. All orders
to purchase shares are subject to acceptance by the Fund and are not binding
until confirmed or accepted in writing.
<PAGE>
PROSPECTUS SUMMARY
The Fund. The Chesapeake Growth Fund (the "Fund") (formerly called "The
Chesapeake Fund") is a diversified series of the Gardner Lewis Investment Trust
(the "Trust"), a registered open-end management investment company organized as
a Massachusetts business trust. This Prospectus relates to Institutional Shares
of the Fund. See "Other Information - Description of Shares."
Offering Price. The Institutional Shares are offered to institutional investors
at net asset value without a sales charge. The Institutional Shares are not
subject to any 12b-1 distribution or shareholder service fees. The minimum
initial investment is $1,000,000. The minimum subsequent investment is $5,000.
See "How Shares May be Purchased."
Investment Objective and Special Risk Considerations. The investment objective
of the Fund is to seek capital appreciation through investments in equity
securities of medium and large capitalization companies, consisting primarily of
common and preferred stocks and securities convertible into common stocks.
Realization of current income is not a significant investment consideration, and
any income realized will be incidental to the Fund's objective. See "Investment
Objective and Policies." The Fund is not intended to be a complete investment
program, and there can be no assurance that the Fund will achieve its investment
objective. While the Fund will invest primarily in common stocks traded in U.S.
securities markets, some of the Fund's investments may include foreign
securities, illiquid securities, and securities purchased subject to a
repurchase agreement or on a "when-issued" basis, which involve certain risks.
The Fund's portfolio may also contain a significant amount of securities of
medium capitalization companies, which may exhibit more volatility than
securities of large capitalization companies. See "Risk Factors."
Manager. Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment policies, Gardner Lewis Asset
Management of Chadds Ford, Pennsylvania (the "Advisor") manages the Fund's
investments. The Advisor currently manages approximately $3.5 billion in assets.
For its advisory services, the Advisor receives a monthly fee based on the
Fund's daily net assets at the annual rate of 1.00%. See "Management of the Fund
The Advisor."
Dividends. Income dividends, if any, are paid at least annually; capital gains,
if any, are distributed at least annually or retained for reinvestment by the
Fund. Dividends and capital gains distributions are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder
elects to receive cash. See "Dividends and Distributions."
Distributor. Capital Investment Group, Inc. (the "Distributor") serves as
distributor of shares of the Fund. See "How Shares May Be Purchased -
Distributor."
Redemption of Shares. There is no charge for redemptions, other than possible
charges associated with wire transfers of redemption proceeds. Shares may be
redeemed at any time at the net asset value next determined after receipt of a
redemption request by the Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How Shares May Be Redeemed."
<PAGE>
FEE TABLE
The following table sets forth certain information in connection with the
expenses of the Institutional Shares of the Fund for the current fiscal year.
The information is intended to assist the investor in understanding the various
costs and expenses borne by the Institutional Shares of the Fund, and therefore
indirectly by its investors, the payment of which will reduce an investor's
return on an annual basis.
Shareholder Transaction Expenses for Institutional Shares
Maximum sales load imposed on purchases
(as a percentage of offering price).... None
Maximum sales load imposed
on reinvested dividends................ None
Maximum deferred sales load............. None
Redemption fees*........................ None
Exchange fee............................ None
Annual Fund Operating Expenses for Institutional Shares
(as a percentage of average net assets)
Investment advisory fees...........1.00%
12b-1 fees.........................None
Other expenses.....................0.19%
----
Total operating expenses1..........1.19%
====
* The Fund in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring redemption
proceeds. The Custodian currently charges the Fund $10.00 per transaction for
wiring redemption proceeds.
EXAMPLE: You would pay the following expense on a $1,000 investment in
Institutional Shares of the Fund, whether or not you redeem at the end of the
period, assming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$12 $38 $65 $144
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 The "Total operating expenses" shown above are based upon actual total
operating expenses incurred by the Institutional Shares of the Fund for the
fiscal year ended February 28, 1998, including amounts of Fund expenses paid
by a broker in connection with a brokerage/service arrangement with the
Fund. After reflecting the Fund expenses paid by the broker in connection
with such brokerage/service arrangement, the actual net operating expenses
incurred by the Institutional Shares of the Fund for the fiscal year ended
February 28, 1998, were 1.16% of average daily net assets of the
Institutional Shares. There can be no assurance that the Fund's
brokerage/service arrangement will continue in the future.
See "Management of the Fund" below for more information about the fees and costs
of operating the Fund. The assumed 5% annual return in the example is required
by the Securities and Exchange Commission. The hypothetical rate of return is
not intended to be representative of past or future performance of the Fund; the
actual rate of return for the Fund may be greater or less than 5%.
FINANCIAL HIGHLIGHTS
The shares of the Fund are divided into multiple Classes representing interests
in the Fund. This Prospectus relates to Institutional Shares. See "Other
Information - Description of Shares." The financial data included in the table
below for the fiscal years ended February 28, 1998 and 1997 has been audited by
Deloitte & Touche LLP, independent auditors, whose report covering such period
is included in the Statement of Additional Information. The financial data for
the prior fiscal periods was audited by other independent auditors. This
information should be read in conjunction with the Fund's latest audited
financial statements and notes thereto, which are also included in the Statement
of Additional Information, a copy of which may be obtained at no charge by
calling the Fund. Further information about the performance of the Fund is
contained in the Annual Report of the Fund, a copy of which may be obtained at
no charge by calling the Fund.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Institutional Shares
(For a Share Outstanding Throughout the Period)
======================================================= =============== =============== =============== ===============
Year Year Year Period
Ended Ended Ended Ended
2/28/98 2/28/97 2/29/96 2/28/95(a)
======================================================= =============== =============== =============== ===============
Net Asset Value, Beginning of Period $16.26 $14.45 $11.31 $10.00
======================================================= --------------- --------------- --------------- ---------------
Income (loss) from investment operations
Net investment loss (0.15) (0.13) (0.05) (0.04)
Net realized and unrealized gain on investments 4.22 1.94 3.38 1.35
---- ---- ---- ----
======================================================= --------------- --------------- --------------- ---------------
Total from investment operations 4.07 1.81 3.33 1.31
---- ---- ---- ----
======================================================= --------------- --------------- --------------- ---------------
Distributions to shareholders from
Net investment income 0.00 0.00 (0.11) 0.00
Net realized gain from investment transactions (1.94) 0.00 (0.08) 0.00
Tax return of capital (0.53) 0.00 0.00 0.00
---- ---- ---- ----
======================================================= --------------- --------------- --------------- ---------------
Total distributions (2.47) 0.00 (0.19) 0.00
---- ---- ---- ----
======================================================= --------------- --------------- --------------- ---------------
Net Asset Value, End of Period $17.86 $16.26 $14.45 $11.31
===== ===== ===== =====
======================================================= --------------- --------------- --------------- ---------------
Total return 25.25% 12.53% 29.66% 13.12%(d)
===== ===== ===== =====
======================================================= --------------- --------------- --------------- ---------------
Ratios/supplemental data
Net assets, end of period (000's) $92,858 $77,858 $80,252 $15,088
====== ====== ====== ======
======================================================= --------------- --------------- --------------- ---------------
Ratio of expenses to average net assets
Before expense reimbursements 1.19% 1.23% 1.65% 2.75%(b)
After expense reimbursements 1.16% 1.22% 1.49% 1.73%(b)
======================================================= --------------- --------------- --------------- ---------------
Ratio of net investment loss to average net assets
Before expense reimbursements (0.90)% (0.85)% (0.98)% (1.80)%(b)
After expense reimbursements (0.88)% (0.84)% (0.82)% (0.78)%(b)
======================================================= =============== =============== =============== ===============
Portfolio turnover rate 105.60% 126.44% 99.33% 64.92%
Average commission rate paid (c) $0.0576 $0.0600 --- ---
======================================================= =============== =============== =============== ===============
</TABLE>
(a) For the period from April 6, 1994 (commencement of operations) to February
28, 1995.
(b) Annualized.
(c) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(d) Aggregate return. Not annualized.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of the Fund is to seek capital
appreciation through investments in equity securities of medium and large
capitalization companies, consisting primarily of common and preferred stocks
and securities convertible into common stocks. Realization of current income
will not be a significant investment consideration, and any such income realized
should be considered incidental to the Fund's objective. The Fund's investment
objective and fundamental investment limitations described herein may not be
altered without the prior approval of a majority of the Fund's shareholders.
Investment Selection. The Fund's portfolio will include equity securities which
the Advisor feels show superior prospects for growth. The Advisor will focus
attention on proven medium and large capitalization companies which, in the view
of the Advisor, exhibit internal changes such as a promising new product, new
distribution strategy, new manufacturing technology, or new management team or
management philosophy. Many of the portfolio companies will be responsible for
technological breakthroughs and/or unique solutions to market needs. Investing
in companies which are undergoing internal change, such as implementing new
strategies or introducing new technologies, may involve greater than average
risk due to their unproven nature. By focusing upon internal rather than
external factors, the Fund will seek to minimize the risk associated with
macro-economic forces such as changes in commodity prices, currency exchange
rates and interest rates.
In selecting portfolio companies, the Advisor uses analysis which includes the
growth rate in earnings, financial performance, management strengths and
weaknesses, and current market valuation in relation to earnings growth as well
as historic and comparable company valuations. The Advisor also analyzes the
level and nature of the company's debt, cash flow, working capital and the
quality of the company's assets. Typically companies included in the Fund's
portfolio will show strong earnings growth versus the previous year's comparable
period. Companies that the Advisor determines have excessive levels of debt are
generally avoided.
By developing and maintaining contacts with management, customers, competitors
and suppliers of current and potential portfolio companies, the Advisor attempts
to invest in those companies undergoing positive changes that have not yet been
recognized by "Wall Street" analysts and the financial press. Lack of
recognition of these changes often causes securities to be less efficiently
priced. The Advisor believes these companies offer unique and potentially
superior investment opportunities. The Advisor favors portfolio companies whose
price when purchased is between 8 and 15 times projected earnings for the coming
year.
While portfolio securities are generally acquired for the long term, they may be
sold under any of the following circumstances:
a) the anticipated price appreciation has been achieved or is no longer
probable;
b) the company's fundamentals appear, in the analysis of the Advisor, to
be deteriorating;
c) general market expectations regarding the company's future performance
exceed those expectations held by the Advisor;
d) alternative investments offer, in the view of the Advisor, superior
potential for appreciation.
The equity securities in which the Fund may invest include common stock,
convertible preferred stock, straight preferred stock, participating and
non-participating preferred stock, and investment grade convertible bonds. All
securities will be traded on domestic and foreign securities exchanges or on the
over-the-counter markets. Up to 10% of the Fund's total assets may consist of
foreign securities and sponsored ADRs.
Under normal conditions, at least 90% of the Fund's total assets will be
invested in equity securities. As a temporary defensive measure, however, when
the Advisor determines that market conditions so warrant, the Fund may invest up
to 100% of the Fund's total assets in investment grade bonds, U.S. Government
Securities, repurchase agreements, or money market instruments. When the Fund
invests its assets in investment grade bonds, U.S. Government Securities or
money market instruments as a temporary defensive measure, it is not pursuing
its stated investment objective. Under normal circumstances, however, the Fund
will also hold money market or repurchase agreement instruments for funds
awaiting investment, to accumulate cash for anticipated purchases of portfolio
securities, to allow for shareholder redemptions, and to provide for Fund
operating expenses.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Money Market Instruments. Money market instruments may be purchased for
temporary defensive purposes, to accumulate cash for anticipated purchases of
portfolio securities and to provide for shareholder redemptions and operating
expenses of the Fund. Money market instruments mature in thirteen months or less
from the date of purchase and may include U.S. Government Securities, corporate
debt securities (including those subject to repurchase agreements), bankers
acceptances and certificates of deposit of domestic branches of U.S. banks, and
commercial paper (including variable amount demand master notes) rated in one of
the two highest rating categories by any of the nationally recognized
statistical rating organizations or if not rated, of equivalent quality in the
Advisor's opinion. The Advisor may, when it believes that unusually volatile or
unstable economic and market conditions exist, depart from the Fund's investment
approach and assume temporarily a defensive portfolio posture, increasing the
Fund's percentage investment in money market instruments, even to the extent
that 100% of the Fund's total assets may be so invested.
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
that reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during which the repurchase agreement is in effect.
Delivery pursuant to the resale typically will occur within one to seven days of
the purchase. The Fund will not enter into any repurchase agreement that will
cause more than 10% of its net assets to be invested in repurchase agreements
that extend beyond seven days. In the event of the bankruptcy of the other party
to a repurchase agreement, the Fund could experience delays in recovering its
cash or the securities lent. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could experience a loss. 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 1940 Act.
Foreign Securities. The Fund may invest up to 10% of its total assets in foreign
securities and sponsored ADRs. The same factors would be considered in selecting
foreign securities as with domestic securities. Foreign securities investment
presents special consideration not typically associated with investment in
domestic securities. Foreign taxes may reduce income. Currency exchange rates
and regulations may cause fluctuations in the value of foreign securities.
Foreign securities are subject to different regulatory environments than in the
United States and, compared to the United States, there may be a lack of uniform
accounting, auditing and financial reporting standards, less volume and
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial, or social
instability, or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions and it is possible that such restrictions could be imposed
again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will generally limit foreign investments to those traded domestically as
sponsored American Depository Receipts ("ADRs"). ADRs are receipts issued by a
U.S. bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in the
over-the-counter market. The prices of ADRs are denominated in U.S. dollars
while the underlying security may be denominated in a foreign currency. To the
extent the Fund invests in other foreign securities, it will generally limit
such investments to foreign securities traded on foreign securities exchanges.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
RISK FACTORS
Investment Policies and Techniques. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Fund and the specific securities and investment
techniques that may be employed by the Fund, including the risks associated with
repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
Fluctuations in Value. To the extent that the major portion of the Fund's
portfolio consists of common stocks, it may be expected that its net asset value
will be subject to greater fluctuation than a portfolio containing mostly fixed
income securities. Given that a significant portion of the Fund's assets may be
invested in equity securities of medium capitalization companies, that portion
of the Fund's portfolio may exhibit more volatility than the portion of the
Fund's portfolio invested in large capitalization companies. Because there is
risk in any investment, there can be no assurance that the Fund will achieve its
investment objective.
Portfolio Turnover. The Fund sells portfolio securities without regard to the
length of time they have been held in order to take advantage of new investment
opportunities. Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and the reinvestment in other securities. Portfolio
turnover may also have capital gains tax consequences. See "Portfolio turnover
rate" in the table under "Financial Highlights."
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. The Fund will not invest in restricted securities, which cannot be sold
to the public without registration under the federal securities laws. Unless
registered for sale, restricted securities can only be sold in privately
negotiated transactions or pursuant to an exemption from registration.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain fundamental
investment limitations. Some of these restrictions are that the Fund will not:
(1) issue senior securities, borrow money or pledge its assets; (2) make loans
of money or securities, except that the Fund may invest in repurchase agreements
(but repurchase agreements having a maturity of longer than seven days, together
with other illiquid securities, are limited to 10% of the Fund's net assets);
(3) invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) write, purchase or sell puts, calls, warrants or combinations
thereof, or purchase or sell commodities, commodities contracts, futures
contracts or related options, or invest in oil, gas or mineral leases or
exploration programs, or real estate; (5) invest more than 5% of the value of
its total assets in the securities of any one issuer nor hold more than 10% of
the voting stock of any issuer; (6) invest in restricted securities; (7) invest
more than 10% of the Fund's total assets in foreign securities, including
sponsored ADRs; and (8) invest more than 25% of the Fund's total assets in the
securities of issuers in any one industry. See "Investment Limitations" in the
Fund's Statement of Additional Information for a complete list of investment
limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Fund's Prospectus, or in
the Statement of Additional Information, as being fundamental, is
non-fundamental. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of the Fund's portfolio securities generally will not
constitute a violation of such limitation. If the limitation on illiquid
securities is exceeded, however, through a change in values, net assets, or
other circumstances, the Fund would take appropriate steps to protect liquidity
by changing its portfolio.
FEDERAL INCOME TAXES
Taxation of the Fund. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Fund, as a separate
regulated investment company. Each series of the Trust, including the Fund,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Fund will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Fund, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Fund, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar-year basis, and capital gain net
income, using an October 31 year-end measuring period. The Fund intends to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
Taxation of Shareholders. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Fund or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund.
Capital gain distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Dividends and capital gain
distributions paid by the Fund shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
The sale of shares of the Fund is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Fund of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Fund is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Fund has not complied with the applicable statutory and IRS
requirements, the Fund is generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends and distribute capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the same
Class of the Fund at the net asset value per share next determined. Reinvested
dividends and capital gains are exempt from any sales load. Shareholders wishing
to receive their dividends or capital gains in cash may make their request in
writing to the Fund at 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365. That request must be received by the Fund
prior to the record date to be effective as to the next dividend. If cash
payment is requested, checks will be mailed within five business days after the
distribution of the dividends or capital gains, as applicable. Each shareholder
of the Fund will receive a quarterly summary of his or her account, including
information as to reinvested dividends from the Fund. Tax consequences to
shareholders of dividends and distributions are the same if received in cash or
in additional shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. The Fund's net investment
income available for distribution to holders of Institutional Shares will be
reduced by the amount of any expenses allocated to the Institutional Shares.
HOW SHARES ARE VALUED
Net asset value for each Class of Shares of the Fund is determined at the time
trading closes on the New York Stock Exchange (currently 4:00 p.m., New York
time, Monday through Friday), except on business holidays when the New York
Stock Exchange is closed. The net asset value of the shares of the Fund for
purposes of pricing sales and redemptions is equal to the total market value of
its investments and other assets, less all of its liabilities, divided by the
number of its outstanding shares. Net asset value is determined separately for
each Class of Shares of the Fund and reflects any liabilities allocated to a
particular Class as well as the general liabilities of the Fund.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the latest quoted bid price. Unlisted
securities for which market quotations are readily available are valued at the
latest quoted sales price, if available, at the time of valuation, otherwise, at
the latest quoted bid price. Temporary cash investments with maturities of 60
days or less will be valued at amortized cost, which approximates market value.
Securities for which no current quotations are readily available are valued at
fair value as determined in good faith using methods approved by the Board of
Trustees of the Trust. Securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Fund by calling 1-800-430-3863, or by writing to the Fund at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Fund. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
the Fund's public offering price next determined after your order is received by
the Fund in proper form as indicated herein.
The minimum initial investment is $1,000,000. The minimum subsequent investment
is $5,000. The Fund may, in the Advisor's sole discretion, accept certain
accounts with less than the stated minimum initial investment. You may invest in
the following ways:
Purchases by Mail. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The Chesapeake Growth Fund, Institutional Shares, 107
North Washington Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. Subsequent investments in an existing account in the Fund may be
made at any time by sending a check payable to the Fund, to the address stated
above. Please enclose the stub of your account statement and include the amount
of the investment, the name of the account for which the investment is to be
made and the account number. Please remember to add a reference to
"Institutional Shares" to your check to ensure proper credit to your account.
Purchases by Wire. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-430-3863 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund, federal funds and registration instructions should be wired through
the Federal Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For The Chesapeake Growth Fund
Institutional Shares
Acct #2000000862068
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the Fund
immediately after the initial wire as described under "Purchases by Mail" above.
Investors should be aware that some banks may impose a wire service fee.
General. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any application or
investment. Orders received by the Fund and effective prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m., New York time,
Monday through Friday, exclusive of business holidays) will purchase shares at
the net asset value determined at that time. Orders received by the Fund and
effective after the close of trading, or on a day when the New York Stock
Exchange is not open for business, will purchase shares at the net asset value
next determined. For orders placed through a qualified broker-dealer, such firm
is responsible for promptly transmitting purchase orders to the Fund. Investors
may be charged a fee if they effect transactions in the Fund shares through a
broker or agent.
The Fund may enter into agreements with one or more brokers or other agents,
including discount brokers and other brokers associated with investment
programs, including mutual fund "supermarkets," and agents for qualified
employee benefit plans, pursuant to which such brokers or other agents may be
authorized to accept on the Fund's behalf purchase and redemption orders that
are in "good form." Such brokers or other agents may be authorized to designate
other intermediaries to accept purchase and redemption orders on the Fund's
behalf. Under such circumstances, the Fund will be deemed to have received a
purchase or redemption order when an authorized broker, agent, or, if
applicable, other designee, accepts the order. Such orders will be priced at the
Fund's net asset value next determined after they are accepted by an authorized
broker, agent, or other designee. The Fund may pay fees to such brokers or other
agents for their services, including without limitation, administrative,
accounting, and recordkeeping services.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is canceled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
The Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Fund, that your taxpayer identification number is correct and
that you are not currently subject to backup withholding or you are exempt from
backup withholding. For individuals, your taxpayer identification number is your
social security number.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622 (the "Distributor"), is the national distributor for the
Fund under a Distribution Agreement with the Trust. The Distributor may sell
Fund shares to or through qualified securities dealers or others.
The Distributor, at its expense, may provide additional compensation to dealers
in connection with sales of shares of the Fund. Compensation may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding the Fund, and/or other dealer-sponsored special events. In
some instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell a significant amount of
such shares. Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Dealers may not
use sales of the Fund shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by the Fund or its shareholders.
Exchange Feature. Investors will have the privilege of exchanging shares of the
Fund for shares of any other series of the Trust established by Advisor. An
exchange involves the simultaneous redemption of shares of one series and
purchase of shares of another series at the respective closing net asset value
next determined after a request for redemption has been received plus applicable
sales charge, if any, and is a taxable transaction. Each series of the Trust
will have a different investment objective, which may be of interest to
investors in each series. Shares of the Fund may be exchanged for shares of any
other series of the Trust affiliated with the Advisor at the net asset value
plus the percentage difference between that series' sales charge and the sales
charge previously paid in connection with the shares being exchanged. For
example, if a 2% sales charge was paid on shares that are exchanged into a
series with a 3% sales charge, there would be an additional sales charge of 1%
on the exchange. Exchanges may only be made by investors in states where shares
of the other series are qualified for sale. An investor may direct the Fund to
exchange his shares by writing to the Fund at its principal office. The request
must be signed exactly as the investor's name appears on the account, and it
must also provide the account number, number of shares to be exchanged, the name
of the series to which the exchange will take place and a statement as to
whether the exchange is a full or partial redemption of existing shares.
Notwithstanding the foregoing, exchanges of shares may only be within the same
class or type of class of shares involved. For example, Investor Shares may not
be exchanged for Institutional or Super-Institutional Shares, and Investor
Shares may not be exchanged among the various Classes of Investor Shares (i.e.,
Series C Shares may not be exchanged for Series A or Series D Shares and Series
D Shares may not be exchanged for Series A Shares). Notwithstanding the
foregoing, unless otherwise determined by the Fund, an investor may not exchange
shares of the Fund for shares of The Chesapeake Aggressive Growth Fund, another
series of the Trust affiliated with the Advisor, unless such investor has an
existing account with such Fund.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Fund. Such a pattern may, at the discretion of the Advisor, be limited by the
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of the Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
series into which the shareholder will be making an exchange, as described in
the prospectus for that other series. The Board of Trustees of the Trust
reserves the right to suspend or terminate, or amend the terms of, the exchange
privilege upon 60 days written notice to the shareholders.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Fund will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Stock Certificates. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of the Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the Fund's
portfolio securities. Redemption orders received in proper form, as indicated
herein, by the Fund, whether by mail or telephone, prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m. New York time, Monday
through Friday), will redeem shares at the net asset value determined at that
time. Redemption orders received in proper form by the Fund after the close of
trading, or on a day when the New York Stock Exchange is not open for business,
will redeem shares at the net asset value next determined. There is no charge
for redemptions from the Fund other than possible charges for wiring redemption
proceeds. You may also redeem your shares through a broker-dealer or other
institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $1,000,000 (due to redemptions, exchanges
or transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $1,000,000 or more during
the notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-430-3863, or write to the address shown below.
Regular Mail Redemptions. Your request should be addressed to The Chesapeake
Growth Fund, Institutional Shares, 107 North Washington Street, Post Office Box
4365, Rocky Mount, North Carolina 27803-0365. Your request for redemption must
include:
1) Your letter of instruction specifying the account number, and the number
of shares or dollar amount to be redeemed. This request must be signed by
all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, the Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next determined after
the receipt of the request for redemption will be used in processing the
redemption. The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Telephone and Bank Wire Redemptions. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. The Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and
4) Shareholder signature as it appears on the application then on file with
the Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. Shareholders can choose to have
redemption proceeds mailed to them at their address of record, their bank, or to
any other authorized person, or they can have the proceeds sent by bank wire to
their bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days on which the bank is not open for business. Shareholders can change
redemption instructions anytime by filing a letter including new redemption
instructions with the Fund. (See "Signature Guarantees" below.) The Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market changes, telephone redemption privileges may be difficult to implement.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges by the Custodian for wire redemptions. The Custodian currently
charges $10.00 per transaction for wiring redemption proceeds. If this cost is
passed through to redeeming shareholders by the Fund, the charge will be
deducted automatically from the shareholder's account by redemption of shares in
the account. The shareholder's bank or brokerage firm may also impose a charge
for processing the wire. If wire transfer of funds is impossible or impractical,
the redemption proceeds will be sent by mail to the designated account.
Shareholders may redeem shares, subject to the procedures outlined above, by
calling the Fund at 1-800-430-3863. Redemption proceeds will only be sent to the
bank account or person named in the Fund Shares Application currently on file
with the Fund. Telephone redemption privileges authorize the Fund to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and, if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$1,000,000 or more at current net asset value may establish a Systematic
Withdrawal Plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter as specified, the Fund will automatically
redeem sufficient shares from the account to meet the specified withdrawal
amount. Call or write the Fund for an application form. See the Statement of
Additional Information for further details.
Signature Guarantees. To protect an account and the Fund from fraud, signature
guarantees are required to authorize a change in registration, or standing
instructions, for your account. Signature guarantees are required for (1) change
of registration requests, (2) requests to establish or change exchange
privileges or telephone redemption service other than through the initial
account application, and (3) requests for redemptions in excess of $50,000.
Signature guarantees are acceptable from a member bank of the Federal Reserve
System, a savings and loan institution, credit union (if authorized under state
law), registered broker-dealer, securities exchange or association clearing
agency, and must appear on the written request for redemption, establishment or
change in exchange privileges, or change of registration.
MANAGEMENT OF THE FUND
Trustees and Officers. The Fund is a diversified series of the Gardner Lewis
Investment Trust (the "Trust"), a registered open-end management investment
company organized as a Massachusetts business trust. The Board of Trustees of
the Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its and the Fund's day-to-day operations.
The Advisor. Subject to the authority of the Board of Trustees, Gardner Lewis
Asset Management (the "Advisor") provides the Fund with a continuous program of
supervision of the Fund's assets, including the composition of its portfolio,
and furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Delaware corporation in 1990 and converted to a
Pennsylvania limited partnership in 1994, is controlled by W. Whitfield Gardner.
The Advisor currently serves as investment advisor to approximately $3.5 billion
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation. The
Advisor's address is 285 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania
19317.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 1.00% of the average daily net asset
value of the Fund. For the fiscal year ended February 28, 1998, the Advisor was
paid investment advisory fees of $2,532,147.
The Advisor supervises and implements the investment activities of the Fund,
including making specific decisions as to the purchase and sale of portfolio
investments. Among the responsibilities of the Advisor under the Advisory
Agreement is the selection of brokers and dealers through whom transactions in
the Fund's portfolio investments will be effected. The Advisor attempts to
obtain the best execution for all such transactions. If it is believed that more
than one broker is able to provide the best execution, the Advisor will consider
the receipt of quotations and other market services and of research, statistical
and other data and the sale of shares of the Fund in selecting a broker. The
Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. See Note 1 to the Fee Table. The Advisor may
also utilize a brokerage firm affiliated with the Trust or the Advisor if it
believes it can obtain the best execution of transactions from such broker.
Research services obtained through Fund brokerage transactions may be used by
the Advisor for its other clients and, conversely, the Fund may benefit from
research services obtained through the brokerage transactions of the Advisor's
other clients. For further information, see "Investment Objective and Policies -
Investment Transactions" in the Statement of Additional Information.
W. Whitfield Gardner and John L. Lewis, IV, principals of the Advisor and
executive officers of the Trust, have been responsible for day-to-day management
of the Fund's portfolio since its inception in 1994. They have been with the
Advisor since its inception. Additional information about these gentlemen is set
forth in the Statement of Additional Information under "Management of the Fund -
Trustees and Officers."
The Administrator. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069. Subject to the
authority of the Board of Trustees, the services the Administrator provides to
the Fund include coordinating and monitoring any third parties furnishing
services to the Fund; providing the necessary office space, equipment and
personnel to perform administrative and clerical functions for the Fund; and
preparing, filing and distributing proxy materials, periodic reports to
shareholders, registration statements and other documents. For its
administrative services, the Administrator is entitled to receive from the Fund
a fee based on the average daily net assets of the Fund, in addition to a base
monthly fee for accounting and recordkeeping services. The Administrator also
performs certain accounting and pricing services for the Fund as pricing agent,
including the daily calculation of the Fund's net asset value, for which it
receives certain charges and is reimbursed for out-of-pocket expenses.
The Administrator was incorporated as a North Carolina corporation in 1988. With
its predecessors and affiliates, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III is the firm's Managing
Director and controlling shareholder.
The Transfer Agent. North Carolina Shareholder Services, LLC (the "Transfer
Agent") serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent, subject to the authority of the Board of
Trustees, provides transfer agency services pursuant to an agreement with the
Administrator, which has been approved by the Trust. The Transfer Agent
maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent, and performs other
shareholder servicing functions. The Fund is charged a recordkeeping fee based
on the number of shareholders in the Fund and an annual fee for shareholder
administration services.
The Transfer Agent, whose address is 107 North Washington Street, Post Office
Box 4365, Rocky Mount, North Carolina 27803-0365, was established as a North
Carolina limited liability company in 1997. John D. Marriott, Jr., is the firm's
controlling member.
The Custodian. First Union National Bank of North Carolina (the "Custodian"),
Two First Union Center, Charlotte, North Carolina 28288-1151, serves as
Custodian of the Fund's assets. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties.
Other Expenses. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, Administrator, and Transfer
Agent, the fees and expenses of Trustees, outside auditing and legal expenses,
all taxes and corporate fees payable by the Fund, Securities and Exchange
Commission fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
the Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable. Any expenses relating only to a particular Class of
Shares of the Fund will be borne solely by such Class.
OTHER INFORMATION
Description of Shares. The Trust was organized as a Massachusetts business trust
on August 12, 1992, under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Fund, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." Pursuant
to its authority under the Declaration of Trust, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of five Classes
("Series A, Series C, and Series D Investor Shares," "Institutional Shares," and
Super-Institutional Shares") representing equal pro rata interests in the Fund,
except that the Classes bear different expenses that reflect the differences in
services provided to them. Investor Shares are sold with a sale charge (except
for Series C Shares) and bear potential distribution expenses and service fees
at different levels. Institutional and Super-Institutional Shares are sold
without a sales charge and bear no shareholder servicing or distribution fees.
The Super-Institutional Shares, however, receive fewer investor services than
the Institutional and Investor Shares due to the size and nature of accounts
holding Super-Institutional Shares. As a result of different charges, fees, and
expenses between the Classes, the total return on the Fund's Investor Shares
will generally be lower than the total return on the Institutional and
Super-Institutional Shares, and the total return on the Institutional Shares
will generally be lower than the total return on the Super-Institutional Shares.
Standardized total return quotations will be computed separately for each Class
of Shares of the Fund.
THIS PROSPECTUS RELATES TO THE FUND'S INSTITUTIONAL SHARES AND DESCRIBES ONLY
THE POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS PERTAINING TO THE
INSTITUTIONAL SHARES. THE FUND ALSO ISSUES A CLASS OF SUPER-INSTITUTIONAL SHARES
AND THREE CLASSES OF INVESTOR SHARES. SUCH OTHER CLASSES MAY HAVE DIFFERENT
SALES CHARGES AND EXPENSES, WHICH MAY AFFECT PERFORMANCE. INVESTORS MAY CALL THE
FUND AT 1-800-430-3863 TO OBTAIN MORE INFORMATION CONCERNING OTHER CLASSES
AVAILABLE TO THEM THROUGH THEIR SALES REPRESENTATIVE. INVESTORS MAY OBTAIN
INFORMATION CONCERNING OTHER CLASSES FROM THEIR SALES REPRESENTATIVE, THE
DISTRIBUTOR, THE FUND, OR ANY OTHER PERSON WHICH IS OFFERING OR MAKING AVAILABLE
TO THEM THE SECURITIES OFFERED IN THIS PROSPECTUS.
When issued, the shares of each series of the Trust, including the Fund, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of a least 10% of the outstanding shares of the Trust. The
term of office of each Trustee is of unlimited duration. The holders of at least
two-thirds of the outstanding shares of the Trust may remove a Trustee from that
position either by declaration in writing filed with the Custodian or by votes
cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (fund) or
class, except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of the
shareholders of a particular series or class. Matters affecting an individual
series, such as the Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
Reporting to Shareholders. The Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
the Fund will be audited by independent accountants. In addition, the Fund will
send to each shareholder having an account directly with the Fund a quarterly
statement showing transactions in the account, the total number of shares owned
and any dividends or distributions paid. Inquiries regarding the Fund may be
directed in writing to 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365 or by calling 1-800-430-3863.
Calculation of Performance Data. From time to time the Fund may advertise its
average annual total return for each Class of Shares. The "average annual total
return" refers to the average annual compounded rates of return over 1-, 5-, and
10-year periods that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment. The
calculation assumes the reinvestment of all dividends and distributions,
includes all recurring fees that are charged to all shareholder accounts and
deducts all nonrecurring charges at the end of each period. The calculation
further assumes the maximum sales load is deducted from the initial payment. If
the Fund has been operating less than 1, 5 or 10 years, the time period during
which the Fund has been operating is substituted.
In addition, the Fund may advertise other total return performance data other
than average annual total return for each Class of Shares. This data shows as a
percentage rate of return encompassing all elements of return (i.e. income and
capital appreciation or depreciation); it assumes reinvestment of all dividends
and capital gain distributions. Such other total return data may be quoted for
the same or different periods as those for which average annual total return is
quoted. This data may consist of a cumulative percentage rate of return, actual
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in the Fund for
various periods.
The total return of the Fund could be increased to the extent the Advisor may
waive a portion of its fees or may reimburse a portion of the Fund's expenses.
Total return figures are based on the historical performance of the Fund, show
the performance of a hypothetical investment, and are not intended to indicate
future performance. The Fund's quotations may from time to time be used in
advertisements, sales literature, shareholder reports, or other communications.
For further information, see "Additional Information on Performance" in the
Statement of Additional Information.
<PAGE>
________________________________________________________________________________
THE CHESAPEAKE GROWTH FUND
INSTITUTIONAL SHARES
________________________________________________________________________________
PROSPECTUS
June 30, 1998
THE CHESAPEAKE GROWTH FUND
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
CUSTODIAN
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
<PAGE>
Cusip Number 36559B609
PROSPECTUS
________________________________________________________________________________
THE CHESAPEAKE GROWTH FUND
SUPER-INSTITUTIONAL SHARES
________________________________________________________________________________
The investment objective of The Chesapeake Growth Fund (the "Fund") is to seek
capital appreciation through investments in equity securities of medium and
large capitalization companies, consisting primarily of common and preferred
stocks and securities convertible into common stocks. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this Prospectus. The
Fund has a net asset value that will fluctuate in accordance with the value of
its portfolio securities. An investor may invest, reinvest or redeem shares at
any time.
This Prospectus relates to shares ("Super-Institutional Shares") representing
interests in the Fund. The Super-Institutional Shares are designed to provide
institutional clients purchasing substantial amounts of shares in the Fund with
core growth investment management by Gardner Lewis Asset Management. The
Super-Institutional Shares are offered to institutional investors described
herein without any sales or redemption charges or shareholder servicing or
distribution fees. See "Prospectus Summary - Offering Price."
INVESTMENT ADVISOR
Gardner Lewis Asset Management
Chadds Ford, Pennsylvania
The Fund is a diversified series of the Gardner Lewis Investment Trust (the
"Trust"), a registered open-end management investment company. This Prospectus
sets forth concisely the information about the Fund that a prospective investor
should know before investing. Investors should read this Prospectus and retain
it for future reference. Additional information about the Fund has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge. You may request the Statement of Additional
Information, which is incorporated in this Prospectus by reference, by writing
the Fund at Post Office Box 4365, Rocky Mount, North Carolina 27803-0365, or by
calling 1-800-430-3863. The SEC also maintains an Internet Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
Investment in the Fund involves risks, including the possible loss of principal.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, and such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is June
30, 1998.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY......................................................... 2
FEE TABLE.................................................................. 3
FINANCIAL HIGHLIGHTS....................................................... 3
INVESTMENT OBJECTIVE AND POLICIES.......................................... 5
RISK FACTORS............................................................... 7
INVESTMENT LIMITATIONS..................................................... 8
FEDERAL INCOME TAXES....................................................... 8
DIVIDENDS AND DISTRIBUTIONS................................................ 9
HOW SHARES ARE VALUED...................................................... 10
HOW SHARES MAY BE PURCHASED................................................ 10
HOW SHARES MAY BE REDEEMED................................................. 12
MANAGEMENT OF THE FUND..................................................... 13
OTHER INFORMATION.......................................................... 15
This Prospectus is not an offering of the securities described herein in any
state in which the offering is unauthorized. No sales representative, dealer or
other person is authorized to give any information or make any representations
other than those contained in this Prospectus.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this Prospectus or to reject purchase orders. All orders
to purchase shares are subject to acceptance by the Fund and are not binding
until confirmed or accepted in writing.
<PAGE>
PROSPECTUS SUMMARY
The Fund. The Chesapeake Growth Fund (the "Fund") (formerly called "The
Chesapeake Fund") is a diversified series of the Gardner Lewis Investment Trust
(the "Trust"), a registered open-end management investment company organized as
a Massachusetts business trust. This Prospectus relates to Super-Institutional
Shares of the Fund. See "Other Information - Description of Shares."
Offering Price. The Super-Institutional Shares are offered to institutional
investors at net asset value without a sales charge. The Super-Institutional
Shares are not subject to any 12b-1 distribution or shareholder service fees.
The minimum initial investment is $50,000,000. The minimum subsequent investment
is $100,000. See "How Shares May be Purchased."
Investment Objective and Special Risk Considerations. The investment objective
of the Fund is to seek capital appreciation through investments in equity
securities of medium and large capitalization companies, consisting primarily of
common and preferred stocks and securities convertible into common stocks.
Realization of current income is not a significant investment consideration, and
any income realized will be incidental to the Fund's objective. See "Investment
Objective and Policies." The Fund is not intended to be a complete investment
program, and there can be no assurance that the Fund will achieve its investment
objective. While the Fund will invest primarily in common stocks traded in U.S.
securities markets, some of the Fund's investments may include foreign
securities, illiquid securities, and securities purchased subject to a
repurchase agreement or on a "when-issued" basis, which involve certain risks.
The Fund's portfolio may also contain a significant amount of securities of
medium capitalization companies, which may exhibit more volatility than
securities of large capitalization companies. See "Risk Factors."
Manager. Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment policies, Gardner Lewis Asset
Management of Chadds Ford, Pennsylvania (the "Advisor") manages the Fund's
investments. The Advisor currently manages approximately $3.5 billion in assets.
For its advisory services, the Advisor receives a monthly fee based on the
Fund's daily net assets at the annual rate of 1.00%. See "Management of the Fund
The Advisor."
Dividends. Income dividends, if any, are paid at least annually; capital gains,
if any, are distributed at least annually or retained for reinvestment by the
Fund. Dividends and capital gains distributions are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder
elects to receive cash. See "Dividends and Distributions."
Distributor. Capital Investment Group, Inc. (the "Distributor") serves as
distributor of shares of the Fund. See "How Shares May Be Purchased -
Distributor."
Redemption of Shares. There is no charge for redemptions, other than possible
charges associated with wire transfers of redemption proceeds. Shares may be
redeemed at any time at the net asset value next determined after receipt of a
redemption request by the Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How Shares May Be Redeemed."
<PAGE>
FEE TABLE
The following table sets forth certain information in connection with the
expenses of the Super-Institutional Shares of the Fund for the current fiscal
year. The information is intended to assist the investor in understanding the
various costs and expenses borne by the Super-Institutional Shares of the Fund,
and therefore indirectly by its investors, the payment of which will reduce an
investor's return on an annual basis.
Shareholder Transaction Expenses for Super-Institutional Shares
Maximum sales load imposed on purchases
(as a percentage of offering price).... None
Maximum sales load imposed
on reinvested dividends................ None
Maximum deferred sales load.............. None
Redemption fees*......................... None
Exchange fee............................. None
Annual Fund Operating Expenses for Super-Institutional Shares
(as a percentage of average net assets)
Investment advisory fees...........1.00%
12b-1 fees.........................None
Other expenses.....................0.06%
----
Total operating expenses (1).......1.06%
====
* The Fund in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring redemption
proceeds. The Custodian currently charges the Fund $10.00 per transaction for
wiring redemption proceeds.
EXAMPLE: You would pay the following expense on a $1,000 investment in
Super-Institutional Shares of the Fund, whether or not you redeem at the end of
the period, assuming a 5% annual return:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$11 $34 $58 $129
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 The "Total operating expenses" shown above are based upon actual total
operating expenses incurred by the Super-Institutional Shares of the Fund
for the fiscal year ended February 28, 1998, including amounts of Fund
expenses paid by a broker in connection with a brokerage/service arrangement
with the Fund. After reflecting the Fund expenses paid by the broker in
connection with such brokerage/service arrangement, the actual net operating
expenses incurred by the Super-Institutional Shares of the Fund for the
fiscal year ended February 28, 1998, were 1.04% of average daily net assets
of the Super-Institutional Shares. There can be no assurance that the Fund's
brokerage/service arrangement will continue in the future.
See "Management of the Fund" below for more information about the fees and costs
of operating the Fund. The assumed 5% annual return in the example is required
by the Securities and Exchange Commission. The hypothetical rate of return is
not intended to be representative of past or future performance of the Fund; the
actual rate of return for the Fund may be greater or less than 5%.
FINANCIAL HIGHLIGHTS
The shares of the Fund are divided into multiple Classes representing interests
in the Fund. This Prospectus relates to Super-Institutional Shares. See "Other
Information - Description of Shares." The financial data included in the table
below for the fiscal year ended February 28, 1998, and the fiscal period ended
February 28, 1997, has been audited by Deloitte & Touche LLP, independent
auditors, whose report covering such period is included in the Statement of
Additional Information. This information should be read in conjunction with the
Fund's latest audited financial statements and notes thereto, which are also
included in the Statement of Additional Information, a copy of which may be
obtained at no charge by calling the Fund. Further information about the
performance of the Fund is contained in the Annual Report of the Fund, a copy of
which may be obtained at no charge by calling the Fund.
Super-Institutional Shares
(For a Share Outstanding Throughout the Period)
==================================================== ============ ============
Year Period
Ended Ended
2/28/98 2/28/97(a)
==================================================== ============ ============
Net Asset Value, Beginning of Period $16.29 $15.53
==================================================== ------------ ------------
Income (loss) from investment operations
Net investment loss (0.12) (0.07)
Net realized and unrealized gain on investments 4.22 0.83
---- ----
==================================================== ------------ ------------
Total from investment operations 4.10 0.76
---- ----
==================================================== ------------ ------------
Distributions to shareholders from
Net investment income 0.00 0.00
Net realized gain from investment transactions (1.94) 0.00
Tax return of capital (0.53) 0.00
---- ----
==================================================== ------------ ------------
Total distributions (2.47) 0.00
---- ----
==================================================== ------------ ------------
Net Asset Value, End of Period $17.92 $16.29
===== =====
==================================================== ------------ ------------
Total return 25.40% 4.89%(d)
===== ====
==================================================== ------------ ------------
Ratios/supplemental data
Net assets, end of period (000's) $118,246 $94,340
======= ======
==================================================== ------------ ------------
Ratio of expenses to average net assets
Before expense reimbursements 1.06% 1.08%(b)
After expense reimbursements 1.04% 1.04%(b)
==================================================== ------------ ------------
Ratio of net investment loss to average net assets
Before expense reimbursements (0.77)% (0.75)%(b)
After expense reimbursements (0.75)% (0.72)%(b)
==================================================== ============ ============
Portfolio turnover rate 105.60% 126.44%
Average commission rate paid (c) $0.0576 $0.0600
==================================================== ============ ============
(a) For the period from June 12, 1996 (commencement of operations) to February
28, 1997.
(b) Annualized.
(c) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
(d) Aggregate return. Not annualized.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of the Fund is to seek capital
appreciation through investments in equity securities of medium and large
capitalization companies, consisting primarily of common and preferred stocks
and securities convertible into common stocks. Realization of current income
will not be a significant investment consideration, and any such income realized
should be considered incidental to the Fund's objective. The Fund's investment
objective and fundamental investment limitations described herein may not be
altered without the prior approval of a majority of the Fund's shareholders.
Investment Selection. The Fund's portfolio will include equity securities which
the Advisor feels show superior prospects for growth. The Advisor will focus
attention on proven medium and large capitalization companies which, in the view
of the Advisor, exhibit internal changes such as a promising new product, new
distribution strategy, new manufacturing technology, or new management team or
management philosophy. Many of the portfolio companies will be responsible for
technological breakthroughs and/or unique solutions to market needs. Investing
in companies which are undergoing internal change, such as implementing new
strategies or introducing new technologies, may involve greater than average
risk due to their unproven nature. By focusing upon internal rather than
external factors, the Fund will seek to minimize the risk associated with
macro-economic forces such as changes in commodity prices, currency exchange
rates and interest rates.
In selecting portfolio companies, the Advisor uses analysis which includes the
growth rate in earnings, financial performance, management strengths and
weaknesses, and current market valuation in relation to earnings growth as well
as historic and comparable company valuations. The Advisor also analyzes the
level and nature of the company's debt, cash flow, working capital and the
quality of the company's assets. Typically companies included in the Fund's
portfolio will show strong earnings growth versus the previous year's comparable
period. Companies that the Advisor determines have excessive levels of debt are
generally avoided.
By developing and maintaining contacts with management, customers, competitors
and suppliers of current and potential portfolio companies, the Advisor attempts
to invest in those companies undergoing positive changes that have not yet been
recognized by "Wall Street" analysts and the financial press. Lack of
recognition of these changes often causes securities to be less efficiently
priced. The Advisor believes these companies offer unique and potentially
superior investment opportunities. The Advisor favors portfolio companies whose
price when purchased is between 8 and 15 times projected earnings for the coming
year.
While portfolio securities are generally acquired for the long term, they may be
sold under any of the following circumstances:
a) the anticipated price appreciation has been achieved or is no longer
probable;
b) the company's fundamentals appear, in the analysis of the Advisor, to
be deteriorating;
c) general market expectations regarding the company's future performance
exceed those expectations held by the Advisor;
d) alternative investments offer, in the view of the Advisor, superior
potential for appreciation.
The equity securities in which the Fund may invest include common stock,
convertible preferred stock, straight preferred stock, participating and
non-participating preferred stock, and investment grade convertible bonds. All
securities will be traded on domestic and foreign securities exchanges or on the
over-the-counter markets. Up to 10% of the Fund's total assets may consist of
foreign securities and sponsored ADRs.
Under normal conditions, at least 90% of the Fund's total assets will be
invested in equity securities. As a temporary defensive measure, however, when
the Advisor determines that market conditions so warrant, the Fund may invest up
to 100% of the Fund's total assets in investment grade bonds, U.S. Government
Securities, repurchase agreements, or money market instruments. When the Fund
invests its assets in investment grade bonds, U.S. Government Securities or
money market instruments as a temporary defensive measure, it is not pursuing
its stated investment objective. Under normal circumstances, however, the Fund
will also hold money market or repurchase agreement instruments for funds
awaiting investment, to accumulate cash for anticipated purchases of portfolio
securities, to allow for shareholder redemptions, and to provide for Fund
operating expenses.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Money Market Instruments. Money market instruments may be purchased for
temporary defensive purposes, to accumulate cash for anticipated purchases of
portfolio securities and to provide for shareholder redemptions and operating
expenses of the Fund. Money market instruments mature in thirteen months or less
from the date of purchase and may include U.S. Government Securities, corporate
debt securities (including those subject to repurchase agreements), bankers
acceptances and certificates of deposit of domestic branches of U.S. banks, and
commercial paper (including variable amount demand master notes) rated in one of
the two highest rating categories by any of the nationally recognized
statistical rating organizations or if not rated, of equivalent quality in the
Advisor's opinion. The Advisor may, when it believes that unusually volatile or
unstable economic and market conditions exist, depart from the Fund's investment
approach and assume temporarily a defensive portfolio posture, increasing the
Fund's percentage investment in money market instruments, even to the extent
that 100% of the Fund's total assets may be so invested.
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
that reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during which the repurchase agreement is in effect.
Delivery pursuant to the resale typically will occur within one to seven days of
the purchase. The Fund will not enter into any repurchase agreement that will
cause more than 10% of its net assets to be invested in repurchase agreements
that extend beyond seven days. In the event of the bankruptcy of the other party
to a repurchase agreement, the Fund could experience delays in recovering its
cash or the securities lent. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could experience a loss. 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 1940 Act.
Foreign Securities. The Fund may invest up to 10% of its total assets in foreign
securities and sponsored ADRs. The same factors would be considered in selecting
foreign securities as with domestic securities. Foreign securities investment
presents special consideration not typically associated with investment in
domestic securities. Foreign taxes may reduce income. Currency exchange rates
and regulations may cause fluctuations in the value of foreign securities.
Foreign securities are subject to different regulatory environments than in the
United States and, compared to the United States, there may be a lack of uniform
accounting, auditing and financial reporting standards, less volume and
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial, or social
instability, or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions and it is possible that such restrictions could be imposed
again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will generally limit foreign investments to those traded domestically as
sponsored American Depository Receipts ("ADRs"). ADRs are receipts issued by a
U.S. bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in the
over-the-counter market. The prices of ADRs are denominated in U.S. dollars
while the underlying security may be denominated in a foreign currency. To the
extent the Fund invests in other foreign securities, it will generally limit
such investments to foreign securities traded on foreign securities exchanges.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
RISK FACTORS
Investment Policies and Techniques. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Fund and the specific securities and investment
techniques that may be employed by the Fund, including the risks associated with
repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
Fluctuations in Value. To the extent that the major portion of the Fund's
portfolio consists of common stocks, it may be expected that its net asset value
will be subject to greater fluctuation than a portfolio containing mostly fixed
income securities. Given that a significant portion of the Fund's assets may be
invested in equity securities of medium capitalization companies, that portion
of the Fund's portfolio may exhibit more volatility than the portion of the
Fund's portfolio invested in large capitalization companies. Because there is
risk in any investment, there can be no assurance that the Fund will achieve its
investment objective.
Portfolio Turnover. The Fund sells portfolio securities without regard to the
length of time they have been held in order to take advantage of new investment
opportunities. Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and the reinvestment in other securities. Portfolio
turnover may also have capital gains tax consequences. See "Portfolio turnover
rate" in the table under "Financial Highlights."
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. The Fund will not invest in restricted securities, which cannot be sold
to the public without registration under the federal securities laws. Unless
registered for sale, restricted securities can only be sold in privately
negotiated transactions or pursuant to an exemption from registration.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain fundamental
investment limitations. Some of these restrictions are that the Fund will not:
(1) issue senior securities, borrow money or pledge its assets; (2) make loans
of money or securities, except that the Fund may invest in repurchase agreements
(but repurchase agreements having a maturity of longer than seven days, together
with other illiquid securities, are limited to 10% of the Fund's net assets);
(3) invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) write, purchase or sell puts, calls, warrants or combinations
thereof, or purchase or sell commodities, commodities contracts, futures
contracts or related options, or invest in oil, gas or mineral leases or
exploration programs, or real estate; (5) invest more than 5% of the value of
its total assets in the securities of any one issuer nor hold more than 10% of
the voting stock of any issuer; (6) invest in restricted securities; (7) invest
more than 10% of the Fund's total assets in foreign securities, including
sponsored ADRs; and (8) invest more than 25% of the Fund's total assets in the
securities of issuers in any one industry. See "Investment Limitations" in the
Fund's Statement of Additional Information for a complete list of investment
limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Fund's Prospectus, or in
the Statement of Additional Information, as being fundamental, is
non-fundamental. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of the Fund's portfolio securities generally will not
constitute a violation of such limitation. If the limitation on illiquid
securities is exceeded, however, through a change in values, net assets, or
other circumstances, the Fund would take appropriate steps to protect liquidity
by changing its portfolio.
FEDERAL INCOME TAXES
Taxation of the Fund. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Fund, as a separate
regulated investment company. Each series of the Trust, including the Fund,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Fund will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Fund, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Fund, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar-year basis, and capital gain net
income, using an October 31 year-end measuring period. The Fund intends to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
Taxation of Shareholders. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Fund or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund.
Capital gain distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Dividends and capital gain
distributions paid by the Fund shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
The sale of shares of the Fund is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Fund of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Fund is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Fund has not complied with the applicable statutory and IRS
requirements, the Fund is generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends and distribute capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the same
Class of the Fund at the net asset value per share next determined. Reinvested
dividends and capital gains are exempt from any sales load. Shareholders wishing
to receive their dividends or capital gains in cash may make their request in
writing to the Fund at 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365. That request must be received by the Fund
prior to the record date to be effective as to the next dividend. If cash
payment is requested, checks will be mailed within five business days after the
distribution of the dividends or capital gains, as applicable. Each shareholder
of the Fund will receive a quarterly summary of his or her account, including
information as to reinvested dividends from the Fund. Tax consequences to
shareholders of dividends and distributions are the same if received in cash or
in additional shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. The Fund's net investment
income available for distribution to holders of Super-Institutional Shares will
be reduced by the amount of any expenses allocated to the Super-Institutional
Shares.
HOW SHARES ARE VALUED
Net asset value for each Class of Shares of the Fund is determined at the time
trading closes on the New York Stock Exchange (currently 4:00 p.m., New York
time, Monday through Friday), except on business holidays when the New York
Stock Exchange is closed. The net asset value of the shares of the Fund for
purposes of pricing sales and redemptions is equal to the total market value of
its investments and other assets, less all of its liabilities, divided by the
number of its outstanding shares. Net asset value is determined separately for
each Class of Shares of the Fund and reflects any liabilities allocated to a
particular Class as well as the general liabilities of the Fund.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the latest quoted bid price. Unlisted
securities for which market quotations are readily available are valued at the
latest quoted sales price, if available, at the time of valuation, otherwise, at
the latest quoted bid price. Temporary cash investments with maturities of 60
days or less will be valued at amortized cost, which approximates market value.
Securities for which no current quotations are readily available are valued at
fair value as determined in good faith using methods approved by the Board of
Trustees of the Trust. Securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Fund by calling 1-800-430-3863, or by writing to the Fund at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Fund. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
the Fund's public offering price next determined after your order is received by
the Fund in proper form as indicated herein.
The minimum initial investment is $50,000,000. The minimum subsequent investment
is $100,000. The Fund may, in the Advisor's sole discretion, accept certain
accounts with less than the stated minimum initial investment. You may invest in
the following ways:
Purchases by Mail. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The Chesapeake Growth Fund, Super-Institutional Shares,
107 North Washington Street, Post Office Box 4365, Rocky Mount, North Carolina
27803-0365. Subsequent investments in an existing account in the Fund may be
made at any time by sending a check payable to the Fund, to the address stated
above. Please enclose the stub of your account statement and include the amount
of the investment, the name of the account for which the investment is to be
made and the account number. Please remember to add a reference to
"Super-Institutional Shares" to your check to ensure proper credit to your
account.
Purchases by Wire. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-430-3863 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund, federal funds and registration instructions should be wired through
the Federal Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For The Chesapeake Growth Fund
Super-Institutional Shares
Acct #2000000862068
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the Fund
immediately after the initial wire as described under "Purchases by Mail" above.
Investors should be aware that some banks may impose a wire service fee.
General. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any application or
investment. Orders received by the Fund and effective prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m., New York time,
Monday through Friday, exclusive of business holidays) will purchase shares at
the net asset value determined at that time. Orders received by the Fund and
effective after the close of trading, or on a day when the New York Stock
Exchange is not open for business, will purchase shares at the net asset value
next determined. For orders placed through a qualified broker-dealer, such firm
is responsible for promptly transmitting purchase orders to the Fund. Investors
may be charged a fee if they effect transactions in the Fund shares through a
broker or agent.
The Fund may enter into agreements with one or more brokers or other agents,
including discount brokers and other brokers associated with investment
programs, including mutual fund "supermarkets," and agents for qualified
employee benefit plans, pursuant to which such brokers or other agents may be
authorized to accept on the Fund's behalf purchase and redemption orders that
are in "good form." Such brokers or other agents may be authorized to designate
other intermediaries to accept purchase and redemption orders on the Fund's
behalf. Under such circumstances, the Fund will be deemed to have received a
purchase or redemption order when an authorized broker, agent, or, if
applicable, other designee, accepts the order. Such orders will be priced at the
Fund's net asset value next determined after they are accepted by an authorized
broker, agent, or other designee. The Fund may pay fees to such brokers or other
agents for their services, including without limitation, administrative,
accounting, and recordkeeping services.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is canceled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
The Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Fund, that your taxpayer identification number is correct and
that you are not currently subject to backup withholding or you are exempt from
backup withholding. For individuals, your taxpayer identification number is your
social security number.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622 (the "Distributor"), is the national distributor for the
Fund under a Distribution Agreement with the Trust. The Distributor may sell
Fund shares to or through qualified securities dealers or others.
The Distributor, at its expense, may provide additional compensation to dealers
in connection with sales of shares of the Fund. Compensation may include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding the Fund, and/or other dealer-sponsored special events. In
some instances, this compensation may be made available only to certain dealers
whose representatives have sold or are expected to sell a significant amount of
such shares. Compensation may include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Dealers may not
use sales of the Fund shares to qualify for this compensation to the extent such
may be prohibited by the laws of any state or any self-regulatory agency, such
as the National Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by the Fund or its shareholders.
Stock Certificates. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of the Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the Fund's
portfolio securities. Redemption orders received in proper form, as indicated
herein, by the Fund, whether by mail or telephone, prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m. New York time, Monday
through Friday), will redeem shares at the net asset value determined at that
time. Redemption orders received in proper form by the Fund after the close of
trading, or on a day when the New York Stock Exchange is not open for business,
will redeem shares at the net asset value next determined. There is no charge
for redemptions from the Fund other than possible charges for wiring redemption
proceeds. You may also redeem your shares through a broker-dealer or other
institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $10,000,000 (due to redemptions, exchanges
or transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $10,000,000 or more during
the notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-430-3863, or write to the address shown below.
Regular Mail Redemptions. Your request should be addressed to The Chesapeake
Growth Fund, Super-Institutional Shares, 107 North Washington Street, Post
Office Box 4365, Rocky Mount, North Carolina 27803-0365. Your request for
redemption must include:
1) Your letter of instruction specifying the account number, and the number
of shares or dollar amount to be redeemed. This request must be signed by
all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, the Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next determined after
the receipt of the request for redemption will be used in processing the
redemption. The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Telephone and Bank Wire Redemptions. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. The Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and 4)
Shareholder signature as it appears on the application then on file with
the Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. Shareholders can choose to have
redemption proceeds mailed to them at their address of record, their bank, or to
any other authorized person, or they can have the proceeds sent by bank wire to
their bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days on which the bank is not open for business. Shareholders can change
redemption instructions anytime by filing a letter including new redemption
instructions with the Fund. (See "Signature Guarantees" below.) The Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market changes, telephone redemption privileges may be difficult to implement.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges by the Custodian for wire redemptions. The Custodian currently
charges $10.00 per transaction for wiring redemption proceeds. If this cost is
passed through to redeeming shareholders by the Fund, the charge will be
deducted automatically from the shareholder's account by redemption of shares in
the account. The shareholder's bank or brokerage firm may also impose a charge
for processing the wire. If wire transfer of funds is impossible or impractical,
the redemption proceeds will be sent by mail to the designated account.
Shareholders may redeem shares, subject to the procedures outlined above, by
calling the Fund at 1-800-430-3863. Redemption proceeds will only be sent to the
bank account or person named in the Fund Shares Application currently on file
with the Fund. Telephone redemption privileges authorize the Fund to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and, if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Signature Guarantees. To protect an account and the Fund from fraud, signature
guarantees are required to authorize a change in registration, or standing
instructions, for your account. Signature guarantees are required for (1) change
of registration requests, (2) requests to establish or change exchange
privileges or telephone redemption service other than through the initial
account application, and (3) requests for redemptions in excess of $50,000.
Signature guarantees are acceptable from a member bank of the Federal Reserve
System, a savings and loan institution, credit union (if authorized under state
law), registered broker-dealer, securities exchange or association clearing
agency, and must appear on the written request for redemption, establishment or
change in exchange privileges, or change of registration.
MANAGEMENT OF THE FUND
Trustees and Officers. The Fund is a diversified series of the Gardner Lewis
Investment Trust (the "Trust"), a registered open-end management investment
company organized as a Massachusetts business trust. The Board of Trustees of
the Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its and the Fund's day-to-day operations.
The Advisor. Subject to the authority of the Board of Trustees, Gardner Lewis
Asset Management (the "Advisor") provides the Fund with a continuous program of
supervision of the Fund's assets, including the composition of its portfolio,
and furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Delaware corporation in 1990 and converted to a
Pennsylvania limited partnership in 1994, is controlled by W. Whitfield Gardner.
The Advisor currently serves as investment advisor to approximately $3.5 billion
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation. The
Advisor's address is 285 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania
19317.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 1.00% of the average daily net asset
value of the Fund. For the fiscal year ended February 28, 1998, the Advisor was
paid investment advisory fees of $2,532,147.
The Advisor supervises and implements the investment activities of the Fund,
including making specific decisions as to the purchase and sale of portfolio
investments. Among the responsibilities of the Advisor under the Advisory
Agreement is the selection of brokers and dealers through whom transactions in
the Fund's portfolio investments will be effected. The Advisor attempts to
obtain the best execution for all such transactions. If it is believed that more
than one broker is able to provide the best execution, the Advisor will consider
the receipt of quotations and other market services and of research, statistical
and other data and the sale of shares of the Fund in selecting a broker. The
Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. See Note 1 to the Fee Table. The Advisor may
also utilize a brokerage firm affiliated with the Trust or the Advisor if it
believes it can obtain the best execution of transactions from such broker.
Research services obtained through Fund brokerage transactions may be used by
the Advisor for its other clients and, conversely, the Fund may benefit from
research services obtained through the brokerage transactions of the Advisor's
other clients. For further information, see "Investment Objective and Policies -
Investment Transactions" in the Statement of Additional Information.
W. Whitfield Gardner and John L. Lewis, IV, principals of the Advisor and
executive officers of the Trust, have been responsible for day-to-day management
of the Fund's portfolio since its inception in 1994. They have been with the
Advisor since its inception. Additional information about these gentlemen is set
forth in the Statement of Additional Information under "Management of the Fund -
Trustees and Officers."
The Administrator. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069. Subject to the
authority of the Board of Trustees, the services the Administrator provides to
the Fund include coordinating and monitoring any third parties furnishing
services to the Fund; providing the necessary office space, equipment and
personnel to perform administrative and clerical functions for the Fund; and
preparing, filing and distributing proxy materials, periodic reports to
shareholders, registration statements and other documents. For its
administrative services, the Administrator is entitled to receive from the Fund
a fee based on the average daily net assets of the Fund. The Administrator also
performs certain accounting and pricing services for the Fund as pricing agent,
including the daily calculation of the Fund's net asset value, for which it
receives certain charges and is reimbursed for out-of-pocket expenses.
The Administrator was incorporated as a North Carolina corporation in 1988. With
its predecessors and affiliates, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III is the firm's Managing
Director and controlling shareholder.
The Transfer Agent. North Carolina Shareholder Services, LLC (the "Transfer
Agent") serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent, subject to the authority of the Board of
Trustees, provides transfer agency services pursuant to an agreement with the
Administrator, which has been approved by the Trust. The Transfer Agent
maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent, and performs other
shareholder servicing functions.
The Transfer Agent, whose address is 107 North Washington Street, Post Office
Box 4365, Rocky Mount, North Carolina 27803-0365, was established as a North
Carolina limited liability company in 1997. John D. Marriott, Jr., is the firm's
controlling member.
The Custodian. First Union National Bank of North Carolina (the "Custodian"),
Two First Union Center, Charlotte, North Carolina 28288-1151, serves as
Custodian of the Fund's assets. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties.
Other Expenses. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, Administrator, and Transfer
Agent, the fees and expenses of Trustees, outside auditing and legal expenses,
all taxes and corporate fees payable by the Fund, Securities and Exchange
Commission fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
the Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable. Any expenses relating only to a particular Class of
Shares of the Fund will be borne solely by such Class.
OTHER INFORMATION
Description of Shares. The Trust was organized as a Massachusetts business trust
on August 12, 1992, under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Fund, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." Pursuant
to its authority under the Declaration of Trust, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of five Classes
("Series A, Series C, and Series D Investor Shares," "Institutional Shares," and
Super-Institutional Shares") representing equal pro rata interests in the Fund,
except that the Classes bear different expenses that reflect the differences in
services provided to them. Investor Shares are sold with a sale charge (except
for Series C Shares) and bear potential distribution expenses and service fees
at different levels. Institutional and Super-Institutional Shares are sold
without a sales charge and bear no shareholder servicing or distribution fees.
The Super-Institutional Shares, however, receive fewer investor services than
the Institutional and Investor Shares due to the size and nature of accounts
holding Super-Institutional Shares. As a result of different charges, fees, and
expenses between the Classes, the total return on the Fund's Investor Shares
will generally be lower than the total return on the Institutional and
Super-Institutional Shares, and the total return on the Institutional Shares
will generally be lower than the total return on the Super-Institutional Shares.
Standardized total return quotations will be computed separately for each Class
of Shares of the Fund.
THIS PROSPECTUS RELATES TO THE FUND'S SUPER-INSTITUTIONAL SHARES AND DESCRIBES
ONLY THE POLICIES, OPERATIONS, CONTRACTS, AND OTHER MATTERS PERTAINING TO THE
SUPER-INSTITUTIONAL SHARES. THE FUND ALSO ISSUES A CLASS OF INSTITUTIONAL SHARES
AND THREE CLASSES OF INVESTOR SHARES. SUCH OTHER CLASSES MAY HAVE DIFFERENT
SALES CHARGES AND EXPENSES, WHICH MAY AFFECT PERFORMANCE. INVESTORS MAY CALL THE
FUND AT 1-800-430-3863 TO OBTAIN MORE INFORMATION CONCERNING OTHER CLASSES
AVAILABLE TO THEM THROUGH THEIR SALES REPRESENTATIVE. INVESTORS MAY OBTAIN
INFORMATION CONCERNING OTHER CLASSES FROM THEIR SALES REPRESENTATIVE, THE
DISTRIBUTOR, THE FUND, OR ANY OTHER PERSON WHICH IS OFFERING OR MAKING AVAILABLE
TO THEM THE SECURITIES OFFERED IN THIS PROSPECTUS.
When issued, the shares of each series of the Trust, including the Fund, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of a least 10% of the outstanding shares of the Trust. The
term of office of each Trustee is of unlimited duration. The holders of at least
two-thirds of the outstanding shares of the Trust may remove a Trustee from that
position either by declaration in writing filed with the Custodian or by votes
cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (fund) or
class, except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of the
shareholders of a particular series or class. Matters affecting an individual
series, such as the Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
Reporting to Shareholders. The Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
the Fund will be audited by independent accountants. In addition, the Fund will
send to each shareholder having an account directly with the Fund a quarterly
statement showing transactions in the account, the total number of shares owned
and any dividends or distributions paid. Inquiries regarding the Fund may be
directed in writing to 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365 or by calling 1-800-430-3863.
Calculation of Performance Data. From time to time the Fund may advertise its
average annual total return for each Class of Shares. The "average annual total
return" refers to the average annual compounded rates of return over 1-, 5-, and
10-year periods that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment. The
calculation assumes the reinvestment of all dividends and distributions,
includes all recurring fees that are charged to all shareholder accounts and
deducts all nonrecurring charges at the end of each period. The calculation
further assumes the maximum sales load is deducted from the initial payment. If
the Fund has been operating less than 1, 5 or 10 years, the time period during
which the Fund has been operating is substituted.
In addition, the Fund may advertise other total return performance data other
than average annual total return for each Class of Shares. This data shows as a
percentage rate of return encompassing all elements of return (i.e. income and
capital appreciation or depreciation); it assumes reinvestment of all dividends
and capital gain distributions. Such other total return data may be quoted for
the same or different periods as those for which average annual total return is
quoted. This data may consist of a cumulative percentage rate of return, actual
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in the Fund for
various periods.
The total return of the Fund could be increased to the extent the Advisor may
waive a portion of its fees or may reimburse a portion of the Fund's expenses.
Total return figures are based on the historical performance of the Fund, show
the performance of a hypothetical investment, and are not intended to indicate
future performance. The Fund's quotations may from time to time be used in
advertisements, sales literature, shareholder reports, or other communications.
For further information, see "Additional Information on Performance" in the
Statement of Additional Information.
<PAGE>
________________________________________________________________________________
THE CHESAPEAKE GROWTH FUND
SUPER-INSTITUTIONAL SHARES
________________________________________________________________________________
PROSPECTUS
June 30, 1998
THE CHESAPEAKE GROWTH FUND
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
CUSTODIAN
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
<PAGE>
Investor Class A Cusip Number 36559B203
PROSPECTUS Investor Class C Cusip Number 36559B500
Investor Class D Cusip Number 36559B302
________________________________________________________________________________
THE CHESAPEAKE GROWTH FUND
INVESTOR SHARES
________________________________________________________________________________
The investment objective of The Chesapeake Growth Fund (the "Fund") is to seek
capital appreciation through investments in equity securities of medium and
large capitalization companies, consisting primarily of common and preferred
stocks and securities convertible into common stocks. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this Prospectus. The
Fund has a net asset value that will fluctuate in accordance with the value of
its portfolio securities. An investor may invest, reinvest or redeem shares at
any time.
This Prospectus relates to three Classes of shares from which investors may
choose representing interests in the Fund: Series A Investor Shares ("Series A
Shares"), Series C Investor Shares ("Series C Shares"), and Series D Investor
Shares ("Series D Shares" and, collectively with Series A Shares and Series C
Shares, "Investor Shares"). Series A and Series D Shares are sold with a sales
charge. Series C Shares are sold without a sales charge. The Investor Shares are
offered to the general public. See "Prospectus Summary - Offering Price."
INVESTMENT ADVISOR
Gardner Lewis Asset Management
Chadds Ford, Pennsylvania
The Fund is a diversified series of the Gardner Lewis Investment Trust (the
"Trust"), a registered open-end management investment company. This Prospectus
sets forth concisely the information about the Fund that a prospective investor
should know before investing. Investors should read this Prospectus and retain
it for future reference. Additional information about the Fund has been filed
with the Securities and Exchange Commission (the "SEC") and is available upon
request and without charge. You may request the Statement of Additional
Information, which is incorporated in this Prospectus by reference, by writing
the Fund at Post Office Box 4365, Rocky Mount, North Carolina 27803-0365, or by
calling 1-800-430-3863. The SEC also maintains an Internet Web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
Investment in the Fund involves risks, including the possible loss of principal.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, and such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is June
30, 1998.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY........................................................ 2
FEE TABLE................................................................. 3
FINANCIAL HIGHLIGHTS...................................................... 4
INVESTMENT OBJECTIVE AND POLICIES......................................... 6
RISK FACTORS.............................................................. 7
INVESTMENT LIMITATIONS.................................................... 8
FEDERAL INCOME TAXES...................................................... 8
DIVIDENDS AND DISTRIBUTIONS............................................... 9
HOW SHARES ARE VALUED..................................................... 9
HOW SHARES MAY BE PURCHASED............................................... 9
HOW SHARES MAY BE REDEEMED................................................ 13
MANAGEMENT OF THE FUND.................................................... 14
OTHER INFORMATION......................................................... 16
This Prospectus is not an offering of the securities described herein in any
state in which the offering is unauthorized. No sales representative, dealer or
other person is authorized to give any information or make any representations
other than those contained in this Prospectus.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this Prospectus or to reject purchase orders. All orders
to purchase shares are subject to acceptance by the Fund and are not binding
until confirmed or accepted in writing.
<PAGE>
PROSPECTUS SUMMARY
The Fund. The Chesapeake Growth Fund (the "Fund") (formerly called "The
Chesapeake Fund") is a diversified series of the Gardner Lewis Investment Trust
(the "Trust"), a registered open-end management investment company organized as
a Massachusetts business trust. This Prospectus relates to Investor Shares of
the Fund. See "Other Information - Description of Shares."
Offering Price. The Investor Shares are offered to the general public at net
asset value plus a 3% sales charge for Series A Shares and a 1.5% sales charge
for Series D Shares, which sales charge is reduced on purchases involving larger
amounts. The Series C Shares are offered at net asset value without a sales
charge. The Investor Shares are also subject to potential 12b-1 distribution and
service fees annually of up to 0.25%, 0.75%, and 0.50%, respectively, of the
average net assets of the Series A, Series C, and Series D Shares, respectively.
See "Distributor and Distribution Fee" below. The minimum initial investment is
$25,000. The minimum subsequent investment is $500. See "How Shares May be
Purchased."
Investment Objective and Special Risk Considerations. The investment objective
of the Fund is to seek capital appreciation through investments in equity
securities of medium and large capitalization companies, consisting primarily of
common and preferred stocks and securities convertible into common stocks.
Realization of current income is not a significant investment consideration, and
any income realized will be incidental to the Fund's objective. See "Investment
Objective and Policies." The Fund is not intended to be a complete investment
program, and there can be no assurance that the Fund will achieve its investment
objective. While the Fund will invest primarily in common stocks traded in U.S.
securities markets, some of the Fund's investments may include foreign
securities, illiquid securities, and securities purchased subject to a
repurchase agreement or on a "when-issued" basis, which involve certain risks.
The Fund's portfolio may also contain a significant amount of securities of
medium capitalization companies, which may exhibit more volatility than
securities of large capitalization companies. See "Risk Factors."
Manager. Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment policies, Gardner Lewis Asset
Management of Chadds Ford, Pennsylvania (the "Advisor") manages the Fund's
investments. The Advisor currently manages approximately $3.5 billion in assets.
For its advisory services, the Advisor receives a monthly fee based on the
Fund's daily net assets at the annual rate of 1.00%. See "Management of the Fund
The Advisor."
Dividends. Income dividends, if any, are paid at least annually; capital gains,
if any, are distributed at least annually or retained for reinvestment by the
Fund. Dividends and capital gains distributions are automatically reinvested in
additional shares of the same Class at net asset value unless the shareholder
elects to receive cash. See "Dividends and Distributions."
Distributor and Distribution Fee. Capital Investment Group, Inc. (the
"Distributor") serves as distributor of shares of the Fund. For its services,
which include payments to qualified securities dealers for sales of Fund shares,
the Distributor receives commissions consisting of the portion of the sales
charge for Series A and Series D Shares remaining after the discounts it allows
to securities dealers. Under the Fund's Distribution Plan with respect to each
class of Investor Shares, expenditures by the Fund for distribution activities
and service fees annually may not exceed 0.25%, 0.75%, and 0.50%, respectively,
of the average net assets of the Series A, Series C, and Series D Shares,
respectively.
See "How Shares May Be Purchased - Sales Charges" and "- Distribution Plan."
Redemption of Shares. There is no charge for redemptions, other than possible
charges associated with wire transfers of redemption proceeds. Shares may be
redeemed at any time at the net asset value next determined after receipt of a
redemption request by the Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How Shares May Be Redeemed."
<PAGE>
FEE TABLE
The following table sets forth certain information in connection with the
expenses of the Investor Shares of the Fund for the current fiscal year. The
information is intended to assist the investor in understanding the various
costs and expenses borne by the Investor Shares of the Fund, and therefore
indirectly by its investors, the payment of which will reduce an investor's
return on an annual basis.
Shareholder Transaction Expenses for Investor Shares
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------
Series A Series C Series D
---------------------------------------------
Maximum sales load imposed on purchases
(as a percentage of offering price) 3.00%1 None 1.50%1
Maximum sales load imposed
on reinvested dividends........... None None None
Maximum deferred sales load........ None None None
Redemption fees*................... None None None
Exchange fee....................... None None None
</TABLE>
Annual Fund Operating Expenses for Investor Shares
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Series A Series C Series D
Investment advisory fees........... 1.00% 1.00% 1.00%
12b-1 fees2........................ 0.25% 0.75% 0.50%
Other expenses..................... 0.30% 1.36% 0.72%
------ ------ ------
Total operating expenses3........ 1.55% 3.11% 2.22%
====== ====== ======
</TABLE>
* The Fund in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring redemption
proceeds. The Custodian currently charges the Fund $10.00 per transaction for
wiring redemption proceeds.
EXAMPLE: You would pay the following expenses (including the maximum initial
sales charge) on a $1,000 investment in Investor Shares of the Fund, whether or
not you redeem at the end of the period, assuming a 5% annual return:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Series A $45 $77 $112 $209
Series C $31 $96 $163 $342
Series D $37 $83 $132 $267
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 Reduced for larger purchases. See "How Shares May Be Purchased - Sales
Charges."
2 The Fund has adopted a Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act"), with respect
to each Class of Investor Shares, which provides that the Fund may pay
certain distribution expenses and service fees annually with respect to the
Investor Shares up to 0.25%, 0.75%, and 0.50%, respectively, of the average
net assets of the Series A, Series C, and Series D Shares, respectively.
See "How Shares May Be Purchased - Distribution Plan." Long-term
shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of Securities
Dealers.
3 The "Total operating expenses" shown above are based upon actual total
operating expenses incurred by the Investor Shares of the Fund for the
fiscal year ended February 28, 1998, including amounts of Fund expenses
paid by a broker in connection with a brokerage/service arrangement with
the Fund. After reflecting the Fund expenses paid by the broker in
connection with such brokerage/service arrangement, the actual net
operating expenses incurred by the Investor Shares of the Fund for the
fiscal year ended February 28, 1998, were 1.52%, 3.05%, and 2.18% of
average daily net assets of the Series A, Series C, and Series D Investor
Shares, respectively. There can be no assurance that the Fund's
brokerage/service arrangement will continue in the future.
See "How Shares May Be Purchased" and "Management of the Fund" below for more
information about the fees and costs of operating the Fund. The assumed 5%
annual return in the example is required by the Securities and Exchange
Commission. The hypothetical rate of return is not intended to be representative
of past or future performance of the Fund; the actual rate of return for the
Fund may be greater or less than 5%.
FINANCIAL HIGHLIGHTS
The shares of the Fund are divided into multiple Classes representing interests
in the Fund. This Prospectus relates to Investor Shares. See "Other Information
- - Description of Shares." The financial data included in the table below for the
fiscal years ended February 28, 1998 and 1997 has been audited by Deloitte &
Touche LLP, independent auditors, whose report covering such period is included
in the Statement of Additional Information. The financial data for the prior
fiscal period was audited by other independent auditors. This information should
be read in conjunction with the Fund's latest audited financial statements and
notes thereto, which are also included in the Statement of Additional
Information, a copy of which may be obtained at no charge by calling the Fund.
Further information about the performance of the Fund is contained in the Annual
Report of the Fund, a copy of which may be obtained at no charge by calling the
Fund.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Continued)
----------------------------------- ----------------------------------
Series A Series C
----------------------------------- ----------------------------------
For the For the
period from period from
Apr 7, 1995 Apr 7, 1995
Year ended Year ended (comm of op) Year ended Yearended (comm of op)
Feb 28, Feb 28, to Feb 29, Feb 28, Feb 28, to Feb 29,
1998 1997 1996 1998 1997 1996
-------- -------- --------- --------- -------- --------
Net asset value, beginning of period..................... $16.18 $14.42 $11.79 $15.97 $14.34 $11.79
Income from investment operations
Net investment income loss......................... (0.21) (0.18) (0.06) (0.52) (0.29) (0.12)
Net realized and unrealized gain on investments.... 4.19 1.94 2.88 4.14 1.92 2.86
-------- -------- --------- --------- -------- --------
Total from investment operations................ 3.98 1.76 2.82 3.62 1.63 2.74
-------- -------- --------- --------- -------- --------
Distributions to shareholders from
Net investment income.............................. (0.00) 0.00 (0.11) (0.00) 0.00 (0.11)
Tax return of capital.............................. (0.53) 0.00 0.00 (0.53) 0.00 0.00
Net realized gain from investment transactions..... (1.94) 0.00 (0.08) (1.94) 0.00 (0.08)
-------- -------- --------- --------- -------- --------
Total distributions............................. (2.47) 0.00 (0.19) (2.47) 0.00 (0.19)
-------- -------- --------- --------- -------- --------
Net asset value, end of period........................... $17.69 $16.18 $14.42 $17.12 $15.97 $14.34
======== ======== ========= ========= ======== ========
Total return (a)......................................... 4.80% 12.21% 23.86%(d) 22.95% 11.30% 23.18%(d)
======== ======== ========= ========= ======== ========
Ratios/supplemental data
Net assets, end of period (000's)..................... $40,924 $39,376 $32,549 $4,541 $9,192 $7,908
======== ======== ========= ========= ======== ========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees...... 1.55% 1.54% 1.88%(b) 3.11% 2.34% 2.38%(b)
After expense reimbursements and waived fees....... 1.52% 1.53% 1.71%(b) 3.05% 2.33% 2.18%(b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees...... (1.27)% (1.16)% (1.20)%(b) (2.84)% (1.97)% (1.77)%(b)
After expense reimbursements and waived fees....... (1.24)% (1.15)% (1.04)%(b) (2.78)% (1.96)% (1.57)%(b)
Portfolio turnover rate............................... 105.60% 126.44% 99.33% 105.60% 126.64% 99.33%
Average broker commission per share (c)............... $0.0576 $0.0600 - $0.0576 $0.0600 -
(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 share purchased or sold on which
commissions were charged.
(d) Aggregate return. Not annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Continued)
---------------------------------
Series D
---------------------------------
For the
period from
Apr 7, 1995
Year ended Year ended (comm of op)
Feb 28, Feb 28, Feb 29,
1998 1997 1996
----------------------------------
Net asset value, beginning of period..................... $16.09 $14.41 $11.79
Income from investment operations
Net investment income loss......................... (0.32) (0.29) (0.11)
Net realized and unrealized gain on investments.... 4.15 1.97 2.92
----------- -------- --------
Total from investment operations................ 3.83 1.68 2.81
----------- -------- --------
Distributions to shareholders from
Net investment income.............................. (0.00) 0.00 (0.11)
Tax return of capital.............................. (0.53) 0.00 0.00
Net realized gain from investment transactions..... (1.94) 0.00 (0.08)
----------- -------- --------
Total distributions............................. (2.47) 0.00 (0.19)
----------- -------- --------
Net asset value, end of period........................... $17.45 $16.09 $14.41
=========== ======== ========
Total return (a)......................................... 24.06% 11.59% 23.77%(d)
=========== ======== ========
Ratios/supplemental data
Net assets, end of period (000's)..................... $11,448 $10,774 $11,929
=========== ======== ========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees...... 2.22% 2.02% 2.13% (b)
After expense reimbursements and waived fees....... 2.18% 2.01% 1.73% (b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees...... (1.94)% (1.64)% (1.54)% (b)
After expense reimbursements and waived fees....... (1.89)% (1.63)% (1.14)% (b)
Portfolio turnover rate............................... 105.60% 126.44 % 99.33%
Average broker commission per share (c)............... $0.0576 $0.0600 -
(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 share purchased or sold on which
commissions were charged.
(d) Aggregate return. Not annualized.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of the Fund is to seek capital
appreciation through investments in equity securities of medium and large
capitalization companies, consisting primarily of common and preferred stocks
and securities convertible into common stocks. Realization of current income
will not be a significant investment consideration, and any such income realized
should be considered incidental to the Fund's objective. The Fund's investment
objective and fundamental investment limitations described herein may not be
altered without the prior approval of a majority of the Fund's shareholders.
Investment Selection. The Fund's portfolio will include equity securities which
the Advisor feels show superior prospects for growth. The Advisor will focus
attention on proven medium and large capitalization companies which, in the view
of the Advisor, exhibit internal changes such as a promising new product, new
distribution strategy, new manufacturing technology, or new management team or
management philosophy. Many of the portfolio companies will be responsible for
technological breakthroughs and/or unique solutions to market needs. Investing
in companies which are undergoing internal change, such as implementing new
strategies or introducing new technologies, may involve greater than average
risk due to their unproven nature. By focusing upon internal rather than
external factors, the Fund will seek to minimize the risk associated with
macro-economic forces such as changes in commodity prices, currency exchange
rates and interest rates.
In selecting portfolio companies, the Advisor uses analysis which includes the
growth rate in earnings, financial performance, management strengths and
weaknesses, and current market valuation in relation to earnings growth as well
as historic and comparable company valuations. The Advisor also analyzes the
level and nature of the company's debt, cash flow, working capital and the
quality of the company's assets. Typically companies included in the Fund's
portfolio will show strong earnings growth versus the previous year's comparable
period. Companies that the Advisor determines have excessive levels of debt are
generally avoided.
By developing and maintaining contacts with management, customers, competitors
and suppliers of current and potential portfolio companies, the Advisor attempts
to invest in those companies undergoing positive changes that have not yet been
recognized by "Wall Street" analysts and the financial press. Lack of
recognition of these changes often causes securities to be less efficiently
priced. The Advisor believes these companies offer unique and potentially
superior investment opportunities. The Advisor favors portfolio companies whose
price when purchased is between 8 and 15 times projected earnings for the coming
year.
While portfolio securities are generally acquired for the long term, they may be
sold under any of the following circumstances:
a) the anticipated price appreciation has been achieved or is no longer
probable;
b) the company's fundamentals appear, in the analysis of the Advisor, to
be deteriorating;
c) general market expectations regarding the company's future performance
exceed those expectations held by the Advisor; d) alternative
investments offer, in the view of the Advisor, superior potential for
appreciation.
The equity securities in which the Fund may invest include common stock,
convertible preferred stock, straight preferred stock, participating and
non-participating preferred stock, and investment grade convertible bonds. All
securities will be traded on domestic and foreign securities exchanges or on the
over-the-counter markets. Up to 10% of the Fund's total assets may consist of
foreign securities and sponsored ADRs.
Under normal conditions, at least 90% of the Fund's total assets will be
invested in equity securities. As a temporary defensive measure, however, when
the Advisor determines that market conditions so warrant, the Fund may invest up
to 100% of the Fund's total assets in investment grade bonds, U.S. Government
Securities, repurchase agreements, or money market instruments. When the Fund
invests its assets in investment grade bonds, U.S. Government Securities or
money market instruments as a temporary defensive measure, it is not pursuing
its stated investment objective. Under normal circumstances, however, the Fund
will also hold money market or repurchase agreement instruments for funds
awaiting investment, to accumulate cash for anticipated purchases of portfolio
securities, to allow for shareholder redemptions, and to provide for Fund
operating expenses.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Money Market Instruments. Money market instruments may be purchased for
temporary defensive purposes, to accumulate cash for anticipated purchases of
portfolio securities and to provide for shareholder redemptions and operating
expenses of the Fund. Money market instruments mature in thirteen months or less
from the date of purchase and may include U.S. Government Securities, corporate
debt securities (including those subject to repurchase agreements), bankers
acceptances and certificates of deposit of domestic branches of U.S. banks, and
commercial paper (including variable amount demand master notes) rated in one of
the two highest rating categories by any of the nationally recognized
statistical rating organizations or if not rated, of equivalent quality in the
Advisor's opinion. The Advisor may, when it believes that unusually volatile or
unstable economic and market conditions exist, depart from the Fund's investment
approach and assume temporarily a defensive portfolio posture, increasing the
Fund's percentage investment in money market instruments, even to the extent
that 100% of the Fund's total assets may be so invested.
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
that reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during which the repurchase agreement is in effect.
Delivery pursuant to the resale typically will occur within one to seven days of
the purchase. The Fund will not enter into any repurchase agreement that will
cause more than 10% of its net assets to be invested in repurchase agreements
that extend beyond seven days. In the event of the bankruptcy of the other party
to a repurchase agreement, the Fund could experience delays in recovering its
cash or the securities lent. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could experience a loss. 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 1940 Act.
Foreign Securities. The Fund may invest up to 10% of its total assets in foreign
securities and sponsored ADRs. The same factors would be considered in selecting
foreign securities as with domestic securities. Foreign securities investment
presents special consideration not typically associated with investment in
domestic securities. Foreign taxes may reduce income. Currency exchange rates
and regulations may cause fluctuations in the value of foreign securities.
Foreign securities are subject to different regulatory environments than in the
United States and, compared to the United States, there may be a lack of uniform
accounting, auditing and financial reporting standards, less volume and
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial, or social
instability, or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions and it is possible that such restrictions could be imposed
again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will generally limit foreign investments to those traded domestically as
sponsored American Depository Receipts ("ADRs"). ADRs are receipts issued by a
U.S. bank or trust company evidencing ownership of securities of a foreign
issuer. ADRs may be listed on a national securities exchange or may trade in the
over-the-counter market. The prices of ADRs are denominated in U.S. dollars
while the underlying security may be denominated in a foreign currency. To the
extent the Fund invests in other foreign securities, it will generally limit
such investments to foreign securities traded on foreign securities exchanges.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
RISK FACTORS
Investment Policies and Techniques. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Fund and the specific securities and investment
techniques that may be employed by the Fund, including the risks associated with
repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
Fluctuations in Value. To the extent that the major portion of the Fund's
portfolio consists of common stocks, it may be expected that its net asset value
will be subject to greater fluctuation than a portfolio containing mostly fixed
income securities. Given that a significant portion of the Fund's assets may be
invested in equity securities of medium capitalization companies, that portion
of the Fund's portfolio may exhibit more volatility than the portion of the
Fund's portfolio invested in large capitalization companies. Because there is
risk in any investment, there can be no assurance that the Fund will achieve its
investment objective.
Portfolio Turnover. The Fund sells portfolio securities without regard to the
length of time they have been held in order to take advantage of new investment
opportunities. Portfolio turnover generally involves some expense to the Fund,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and the reinvestment in other securities. Portfolio
turnover may also have capital gains tax consequences. See "Portfolio turnover
rate" in the table under "Financial Highlights."
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities. Illiquid securities are those that may not be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. Under the supervision of the
Board of Trustees, the Advisor determines the liquidity of the Fund's
investments. The absence of a trading market can make it difficult to ascertain
a market value for illiquid investments. Disposing of illiquid securities before
maturity may be time consuming and expensive, and it may be difficult or
impossible for the Fund to sell illiquid investments promptly at an acceptable
price. The Fund will not invest in restricted securities, which cannot be sold
to the public without registration under the federal securities laws. Unless
registered for sale, restricted securities can only be sold in privately
negotiated transactions or pursuant to an exemption from registration.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so. The Fund may
realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain fundamental
investment limitations. Some of these restrictions are that the Fund will not:
(1) issue senior securities, borrow money or pledge its assets; (2) make loans
of money or securities, except that the Fund may invest in repurchase agreements
(but repurchase agreements having a maturity of longer than seven days, together
with other illiquid securities, are limited to 10% of the Fund's net assets);
(3) invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) write, purchase or sell puts, calls, warrants or combinations
thereof, or purchase or sell commodities, commodities contracts, futures
contracts or related options, or invest in oil, gas or mineral leases or
exploration programs, or real estate; (5) invest more than 5% of the value of
its total assets in the securities of any one issuer nor hold more than 10% of
the voting stock of any issuer; (6) invest in restricted securities; (7) invest
more than 10% of the Fund's total assets in foreign securities, including
sponsored ADRs; and (8) invest more than 25% of the Fund's total assets in the
securities of issuers in any one industry. See "Investment Limitations" in the
Fund's Statement of Additional Information for a complete list of investment
limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Fund's Prospectus, or in
the Statement of Additional Information, as being fundamental, is
non-fundamental. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of the Fund's portfolio securities generally will not
constitute a violation of such limitation. If the limitation on illiquid
securities is exceeded, however, through a change in values, net assets, or
other circumstances, the Fund would take appropriate steps to protect liquidity
by changing its portfolio.
FEDERAL INCOME TAXES
Taxation of the Fund. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Fund, as a separate
regulated investment company. Each series of the Trust, including the Fund,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Fund will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Fund, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Fund, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar-year basis, and capital gain net
income, using an October 31 year-end measuring period. The Fund intends to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
Taxation of Shareholders. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Fund or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund.
Capital gain distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Dividends and capital gain
distributions paid by the Fund shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
The sale of shares of the Fund is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Fund of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Fund is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Fund has not complied with the applicable statutory and IRS
requirements, the Fund is generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income,
if any, in the form of dividends and distribute capital gains, if any, at least
once each year. The Fund may, however, determine either to distribute or to
retain all or part of any long-term capital gains in any year for reinvestment.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the same
Class of the Fund at the net asset value per share next determined. Reinvested
dividends and capital gains are exempt from any sales load. Shareholders wishing
to receive their dividends or capital gains in cash may make their request in
writing to the Fund at 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365. That request must be received by the Fund
prior to the record date to be effective as to the next dividend. If cash
payment is requested, checks will be mailed within five business days after the
distribution of the dividends or capital gains, as applicable. Each shareholder
of the Fund will receive a quarterly summary of his or her account, including
information as to reinvested dividends from the Fund. Tax consequences to
shareholders of dividends and distributions are the same if received in cash or
in additional shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains. The Fund's net investment
income available for distribution to holders of Investor Shares will be reduced
by the amount of any expenses allocated to the Investor Shares, and any expenses
allocated among the Classes of the Investor Shares, including the distribution
and service fees under the Fund's Distribution Plan, which vary depending on the
particular Class of the Investor Shares.
HOW SHARES ARE VALUED
Net asset value for each Class of Shares of the Fund is determined at the time
trading closes on the New York Stock Exchange (currently 4:00 p.m., New York
time, Monday through Friday), except on business holidays when the New York
Stock Exchange is closed. The net asset value of the shares of the Fund for
purposes of pricing sales and redemptions is equal to the total market value of
its investments and other assets, less all of its liabilities, divided by the
number of its outstanding shares. Net asset value is determined separately for
each Class of Shares of the Fund and reflects any liabilities allocated to a
particular Class as well as the general liabilities of the Fund.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the latest quoted bid price. Unlisted
securities for which market quotations are readily available are valued at the
latest quoted sales price, if available, at the time of valuation, otherwise, at
the latest quoted bid price. Temporary cash investments with maturities of 60
days or less will be valued at amortized cost, which approximates market value.
Securities for which no current quotations are readily available are valued at
fair value as determined in good faith using methods approved by the Board of
Trustees of the Trust. Securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities.
The net asset value of each Class of Shares will be affected by expenses accrued
and payable by such Class. Because the distribution and service fees
attributable to the Investor Shares vary depending on the particular Class of
the Investor Shares in question, the net income attributable to and the
dividends payable by the Series C Shares will be lower than the net income
attributable to and the dividends payable by the Series A and Series D Shares,
and the net income attributable to and the dividends payable by the Series D
Shares will be lower than the net income attributable to and the dividends
payable by the Series A Shares.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Fund by calling 1-800-430-3863, or by writing to the Fund at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Fund. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
the Fund's public offering price next determined after your order is received by
the Fund in proper form as indicated herein.
The minimum initial investment is $25,000. The minimum subsequent investment is
$500. The Fund may, in the Advisor's sole discretion, accept certain accounts
with less than the stated minimum initial investment. You may invest in the
following ways:
Purchases by Mail. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The Chesapeake Growth Fund, Investor Shares, 107 North
Washington Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365.
Subsequent investments in an existing account in the Fund may be made at any
time by sending a check payable to the Fund, to the address stated above. Please
enclose the stub of your account statement and include the amount of the
investment, the name of the account for which the investment is to be made and
the account number. Please remember to add a reference to "Series A," "Series
C," or "Series D" to your check to ensure proper credit to your account.
Purchases by Wire. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-430-3863 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund, federal funds and registration instructions should be wired through
the Federal Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For The Chesapeake Growth Fund
Series A, C, or D Investor Shares
Acct #2000000862068
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the Fund
immediately after the initial wire as described under "Purchases by Mail" above.
Investors should be aware that some banks may impose a wire service fee.
General. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any application or
investment. Orders received by the Fund and effective prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m., New York time,
Monday through Friday, exclusive of business holidays) will purchase shares at
the public offering price determined at that time. Orders received by the Fund
and effective after the close of trading, or on a day when the New York Stock
Exchange is not open for business, will purchase shares at the public offering
price next determined. For orders placed through a qualified broker-dealer, such
firm is responsible for promptly transmitting purchase orders to the Fund.
Investors may be charged a fee if they effect transactions in the Fund shares
through a broker or agent.
The Fund may enter into agreements with one or more brokers or other agents,
including discount brokers and other brokers associated with investment
programs, including mutual fund "supermarkets," and agents for qualified
employee benefit plans, pursuant to which such brokers or other agents may be
authorized to accept on the Fund's behalf purchase and redemption orders that
are in "good form." Such brokers or other agents may be authorized to designate
other intermediaries to accept purchase and redemption orders on the Fund's
behalf. Under such circumstances, the Fund will be deemed to have received a
purchase or redemption order when an authorized broker, agent, or, if
applicable, other designee, accepts the order. Such orders will be priced at the
Fund's public offering price next determined after they are accepted by an
authorized broker, agent, or other designee. The Fund may pay fees to such
brokers or other agents for their services, including without limitation,
administrative, accounting, and recordkeeping services.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is canceled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
The Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Fund, that your taxpayer identification number is correct and
that you are not currently subject to backup withholding or you are exempt from
backup withholding. For individuals, your taxpayer identification number is your
social security number.
Sales Charges. The public offering price of Investor Shares of the Fund equals
net asset value plus a sales charge for Series A and Series D Shares. Series C
Shares are sold without a sales charge. Capital Investment Group, Inc. (the
"Distributor") receives this sales charge as Distributor and may reallow it in
the form of dealer discounts and brokerage commissions as follows:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales Sales
Charge As Charge As Dealers Discounts
% of Net % of Public and Brokerage
Amount of Transaction Amount Offering Commissions as % of
At Public Offering Price Invested Price Public Offering Price
Series A Shares
Less than $250,000........................... 3.09% 3.00% 2.80%
$250,000 but less than $500,000.............. 2.04% 2.00% 1.80%
$500,000 or more............................. 1.01% 1.00% 0.90%
Series D Shares
Less than $250,000........................... 1.52% 1.50% 1.35%
$250,000 but less than $500,000.............. 1.01% 1.00% 0.90%
$500,000 or more............................. 0.50% 0.50% 0.45%
</TABLE>
At times the Distributor may reallow the entire sales charge to selected
dealers. From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. Pursuant to the
terms of the Distribution Agreement, the sales charge payable to the Distributor
and the dealer discounts may be suspended, terminated or amended. Dealers who
receive 90% or more of the sales charge may be deemed to be "underwriters" under
the federal securities laws.
The dealer discounts and brokerage commissions schedule above applies to all
dealers who have agreements with the Distributor. The Distributor, at its
expense, may also provide additional compensation to dealers in connection with
sales of shares of the Fund. Compensation may include financial assistance to
dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding the Fund,
and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Fund or its shareholders.
Reduced Sales Charges
Concurrent Purchases. For purposes of qualifying for a lower sales charge
for Series A or Series D Shares, investors have the privilege of combining
concurrent purchases of the Fund and any other series of the Trust affiliated
with the Advisor and sold with a sales charge. For example, if a shareholder
concurrently purchases shares in another series of the Trust affiliated with the
Advisor and sold with a sales charge at the total public offering price of
$250,000, and Series A Shares in the Fund at the total public offering price of
$250,000, the sales charge would be that applicable to a $500,000 purchase as
shown in the appropriate table above. This privilege may be modified or
eliminated at any time or from time to time by the Trust without notice thereof.
Rights of Accumulation. Pursuant to the right of accumulation, investors
are permitted to purchase shares at the public offering price applicable to the
total of (a) the total public offering price of the Series A or Series D Shares
of the Fund then being purchased plus (b) an amount equal to the then current
net asset value of the purchaser's combined holdings of the shares of all of the
series of the Trust affiliated with the Advisor of the same Class and sold with
a sales charge. To receive the applicable public offering price pursuant to the
right of accumulation, investors must, at the time of purchase, provide
sufficient information to permit confirmation of qualification, and confirmation
of the purchase is subject to such verification. This right of accumulation may
be modified or eliminated at any time or from time to time by the Trust without
notice.
Letters of Intent. Investors may qualify for a lower sales charge for
Series A or Series D Shares by executing a letter of intent. A letter of intent
allows an investor to purchase Series A or Series D Shares of the Fund (as
applicable) over a 13-month period at reduced sales charges based on the total
amount intended to be purchased of the applicable Class plus an amount equal to
the then current net asset value of the purchaser's combined holdings of the
shares of all of the series of the Trust affiliated with the Advisor of the same
Class and sold with a sales charge. Thus, a letter of intent permits an investor
to establish a total investment goal to be achieved by any number of purchases
over a 13-month period. Each investment made during the period receives the
reduced sales charge applicable to the total amount of the intended investment.
The letter of intent does not obligate the investor to purchase, or the Fund to
sell, the indicated amount. If such amount is not invested within the period,
the investor must pay the difference between the sales charge applicable to the
purchases made and the charges previously paid. If such difference is not paid
by the investor, the Distributor is authorized by the investor to liquidate a
sufficient number of shares held by the investor to pay the amount due. On the
initial purchase of shares, if required (or subsequent purchases, if necessary)
shares equal to at least five percent of the amount indicated in the letter of
intent will be held in escrow during the 13-month period (while remaining
registered in the name of the investor) for this purpose. The value of any
shares redeemed or otherwise disposed of by the investor prior to termination or
completion of the letter of intent will be deducted from the total purchases
made under such letter of intent.
A 90-day back-dating period can be used to include earlier purchases of the
applicable Class at the investor's cost (without a retroactive downward
adjustment of the sales charge); the 13-month period would then begin on the
date of the first purchase during the 90-day period. No retroactive adjustment
will be made if purchases exceed the amount indicated in the letter of intent.
Investors must notify the Fund or the Distributor whenever a purchase is being
made pursuant to a letter of intent.
Investors electing to purchase shares pursuant to a letter of intent should
carefully read the letter of intent, which is included in the Fund Shares
Application accompanying this Prospectus or is otherwise available from the Fund
or the Distributor. This letter of intent option may be modified or eliminated
at any time or from time to time by the Trust without notice.
Reinvestments. Investors may reinvest, without a sales charge, proceeds
from a redemption of Series A or Series D Shares of the Fund in either Series A
or Series D Shares of the Fund (as applicable) or in shares of another series of
the Trust affiliated with the Advisor of the same Class and sold with a sales
charge, within 90 days after the redemption. If the other class charges a sales
charge higher than the sales charge the investor paid in connection with the
shares redeemed, the investor must pay the difference. In addition, the shares
of the class to be acquired must be registered for sale in the investor's state
of residence. The amount that may be so reinvested may not exceed the amount of
the redemption proceeds, and a written order for the purchase of such shares
must be received by the Fund or the Distributor within 90 days after the
effective date of the redemption.
If an investor realizes a gain on the redemption, the reinvestment will not
affect the amount of any federal capital gains tax payable on the gain. If an
investor realizes a loss on the redemption, the reinvestment may cause some or
all of the loss to be disallowed as a tax deduction, depending on the number of
shares purchased by reinvestment and the period of time that has elapsed after
the redemption, although for tax purposes, the amount disallowed is added to the
cost of the shares acquired upon the reinvestment.
Purchases by Related Parties and Groups. Reductions in sales charges apply
to purchases by a single "person," including an individual, members of a family
unit, consisting of a husband, wife and children under the age of 21 purchasing
securities for their own account, or a trustee or other fiduciary purchasing for
a single fiduciary account or single trust estate.
Reductions in sales charges also apply to purchases by individual members of a
"qualified group." The reductions are based on the aggregate dollar value of
shares purchased by all members of the qualified group and still owned by the
group plus the shares currently being purchased. For purposes of this paragraph,
a qualified group consists of a "company," as defined in the 1940 Act, which has
been in existence for more than six months and which has a primary purpose other
than acquiring shares of the Fund at a reduced sales charge, and the "related
parties" of such company. For purposes of this paragraph, a "related party" of a
company is: (i) any individual or other company who directly or indirectly owns,
controls, or has the power to vote five percent or more of the outstanding
voting securities of such company; (ii) any other company of which such company
directly or indirectly owns, controls, or has the power to vote five percent of
more of its outstanding voting securities; (iii) any other company under common
control with such company; (iv) any executive officer, director or partner of
such company or of a related party; and (v) any partnership of which such
company is a partner.
Sales at Net Asset Value. The Fund may sell shares at a purchase price
equal to the net asset value of such shares, without a sales charge, to
Trustees, officers, and employees of the Trust, the Fund, and the Advisor, and
to employees and principals of related organizations and their families and
certain parties related thereto, including clients and related accounts of the
Advisor. In addition, the Fund may sell shares at a purchase price equal to the
net asset value of such shares, without a sales charge, to investment advisors,
financial planners and their clients who are charged a management, consulting or
other fee for their services; and clients of such investment advisors or
financial planners who place trades for their own accounts if the accounts are
linked to the master account of such investment advisor or financial planner on
the books and records of the broker or agent. The public offering price of
shares of the Fund may also be reduced to net asset value per share in
connection with the acquisition of the assets of or merger or consolidation with
a personal holding company or a public or private investment company.
Distribution Plan. Capital Investment Group, Inc., Post Office Box 32249,
Raleigh, North Carolina 27622 (the "Distributor"), is the national distributor
for the Fund under a Distribution Agreement with the Trust. The Distributor may
sell Fund shares to or through qualified securities dealers or others.
The Trust has adopted a Distribution Plan (the "Plan") for each Class of the
Investor Shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Under the
Plan the Fund may reimburse any expenditures to finance any activity primarily
intended to result in sale of the Investor Shares of the Fund or the servicing
of shareholder accounts, including, but not limited to, the following: (i)
payments to the Distributor, securities dealers, and others for the sale of
Investor Shares of the Fund; (ii) payment of compensation to and expenses of
personnel who engage in or support distribution of Investor Shares of the Fund
or who render shareholder support services not otherwise provided by the
Administrator or Custodian; and (iii) formulation and implementation of
marketing and promotional activities. The categories of expenses for which
reimbursement is made are approved by the Board of Trustees of the Trust.
Expenditures by the Fund pursuant to the Plan are accrued based on the Investor
Shares' average daily net assets (of the particular Class in question) and may
not exceed 0.25%, 0.75%, 0.50%, respectively, of the average net assets of the
Series A, Series C, and Series D Shares, respectively, for each year elapsed
subsequent to adoption of the Plan. Such expenditures paid as service fees to
any person who sells Fund shares may not exceed 0.25% of the Investor Shares'
average annual net asset value of such shares of the particular Class in
question.
The Plan may not be amended to increase materially the amount to be spent under
the Plan without shareholder approval. The continuation of the Plan must be
approved by the Board of Trustees annually. At least quarterly the Board of
Trustees must review a written report of amounts expended pursuant to the Plan
and the purposes for which such expenditures were made.
The Fund incurred $101,946, $41,669, and $62,905 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, 1998.
Choosing Among Investor Shares
Investors who purchase Investor Shares must specify at the time of purchase
whether they are purchasing Series A, Series C, or Series D Shares Investor
Shares. Investors should understand the differences between each such Class of
Investor Shares before purchasing Investor Shares.
As described under "How Shares May Be Purchased - Sales Charges," the Series A
Shares are sold subject to a maximum sales charge of 3%, as compared to a
maximum sales charge of 1.5% for sales of Series D Shares and no sales charge
for Series C Shares. The sales charge is reduced or may be waived in some cases.
Series A Shares, however, bear potential distribution and service fees under the
Distribution Plan of up to 0.25% of the Series A Shares' average net assets
annually, as compared to potential distribution and service fees under the
Distribution Plan for the other Classes of Investor Shares of up to 0.50% and
0.75%, respectively, of the Series D and Series C Shares' average net assets
annually, respectively. See "How Shares May Be Purchased - Distribution Plan."
Before deciding among the three Classes of Investor Shares of the Fund, an
investor should carefully consider the amount and intended length of his or her
investment in Investor Shares. Specifically, an investor should consider whether
the accumulated distribution and servicing fees applicable to Series C or Series
D Shares (and the lower sales charge for Series D Shares) would be less than the
sales charge and accumulated distribution and servicing fees applicable to
Series A Shares purchased at the same time and held for the same period, and the
extent to which the differences between those amounts would be offset by the
higher returns associated with Series A Shares. A similar analysis should be
made between Series C Shares and Series D Shares. Because the operating expenses
of Series C and Series D Shares will be greater than those of Series A Shares,
and the operating expenses of Series C Shares will be greater than those of
Series D Shares, the dividends on Series A Shares will be higher than the
dividends on Series C and Series D Shares, and the dividends on Series D Shares
will be higher than the dividends on Series C Shares. However, since the sales
charge is deducted at the time of purchase of Series A or Series D Shares, not
all of the purchase amount will purchase Series A or Series D Shares.
Consequently, the same initial investment will purchase more Series C or Series
D Shares than Series A Shares, and more Series C Shares than Series D Shares.
Because of reductions in the sales charge for purchases of Series A or Series D
Shares aggregating $250,000 or more, it may be advantageous for investors
purchasing large quantities of Investor Shares to purchase Series A or Series D
Shares. Investors who may qualify for any exemption from the sales charge
ordinarily payable with respect to purchases of Investor Shares should purchase
Series A Shares. In addition, because the accumulated higher operating expenses
of Series C and Series D Shares may exceed the amount of the sales charge and
distribution and servicing fees associated with Series A Shares, investors who
intend to hold their Investor Shares for an extended period of time should
consider purchasing Series A Shares.
Investors who would not qualify for a reduction in the sales charge for
purchases of Series A or Series D Shares may decide that it is more advantageous
to have the entire purchase amount invested immediately in Series C Shares
notwithstanding the higher operating expenses associated with Series C Shares.
These higher operating expenses may be offset by any return an investor receives
from the additional Series C Shares received as a result of not having to pay a
sales charge. However, an investor should understand that the Fund's future
return cannot be predicted, and that there is no assurance that such return, if
any, would compensate for the higher operating expenses associated with Series C
Shares.
Exchange Feature. Investors will have the privilege of exchanging shares of the
Fund for shares of any other series of the Trust established by Advisor. An
exchange involves the simultaneous redemption of shares of one series and
purchase of shares of another series at the respective closing net asset value
next determined after a request for redemption has been received plus applicable
sales charge, if any, and is a taxable transaction. Each series of the Trust
will have a different investment objective, which may be of interest to
investors in each series. Shares of the Fund may be exchanged for shares of any
other series of the Trust affiliated with the Advisor at the net asset value
plus the percentage difference between that series' sales charge and the sales
charge previously paid in connection with the shares being exchanged. For
example, if a 2% sales charge was paid on shares that are exchanged into a
series with a 3% sales charge, there would be an additional sales charge of 1%
on the exchange. Exchanges may only be made by investors in states where shares
of the other series are qualified for sale. An investor may direct the Fund to
exchange his shares by writing to the Fund at its principal office. The request
must be signed exactly as the investor's name appears on the account, and it
must also provide the account number, number of shares to be exchanged, the name
of the series to which the exchange will take place and a statement as to
whether the exchange is a full or partial redemption of existing shares.
Notwithstanding the foregoing, exchanges of shares may only be within the same
class or type of class of shares involved. For example, Investor Shares may not
be exchanged for Institutional or Super-Institutional Shares, and Investor
Shares may not be exchanged among the various Classes of Investor Shares (i.e.,
Series C Shares may not be exchanged for Series A or Series D Shares and Series
D Shares may not be exchanged for Series A Shares). Notwithstanding the
foregoing, unless otherwise determined by the Fund, an investor may not exchange
shares of the Fund for shares of The Chesapeake Aggressive Growth Fund, another
series of the Trust affiliated with the Advisor, unless such investor has an
existing account with such Fund.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Fund. Such a pattern may, at the discretion of the Advisor, be limited by the
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of the Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
series into which the shareholder will be making an exchange, as described in
the prospectus for that other series. The Board of Trustees of the Trust
reserves the right to suspend or terminate, or amend the terms of, the exchange
privilege upon 60 days written notice to the shareholders.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Fund will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Stock Certificates. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of the Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the Fund's
portfolio securities. Redemption orders received in proper form, as indicated
herein, by the Fund, whether by mail or telephone, prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m. New York time, Monday
through Friday), will redeem shares at the net asset value determined at that
time. Redemption orders received in proper form by the Fund after the close of
trading, or on a day when the New York Stock Exchange is not open for business,
will redeem shares at the net asset value next determined. There is no charge
for redemptions from the Fund other than possible charges for wiring redemption
proceeds. You may also redeem your shares through a broker-dealer or other
institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $25,000 (due to redemptions, exchanges or
transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $25,000 or more during the
notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-430-3863, or write to the address shown below.
Regular Mail Redemptions. Your request should be addressed to The Chesapeake
Growth Fund, Investor Shares, 107 North Washington Street, Post Office Box 4365,
Rocky Mount, North Carolina 27803-0365. Your request for redemption must
include:
1) Your letter of instruction specifying the account number, and the number of
shares or dollar amount to be redeemed. This request must be signed by all
registered shareholders in the exact names in which they are registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, the Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 15 days from the date
of purchase) may be reduced or avoided if the purchase is made by certified
check or wire transfer. In all cases the net asset value next determined after
the receipt of the request for redemption will be used in processing the
redemption. The Fund may suspend redemption privileges or postpone the date of
payment (i) during any period that the New York Stock Exchange is closed, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission (the "Commission"), (ii) during any period
when an emergency exists as defined by the rules of the Commission as a result
of which it is not reasonably practicable for the Fund to dispose of securities
owned by it, or to fairly determine the value of its assets, and (iii) for such
other periods as the Commission may permit.
Telephone and Bank Wire Redemptions. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. The Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX# 919-972-1908). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and 4)
Shareholder signature as it appears on the application then on file with
the Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. Shareholders can choose to have
redemption proceeds mailed to them at their address of record, their bank, or to
any other authorized person, or they can have the proceeds sent by bank wire to
their bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days on which the bank is not open for business. Shareholders can change
redemption instructions anytime by filing a letter including new redemption
instructions with the Fund. (See "Signature Guarantees" below.) The Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market changes, telephone redemption privileges may be difficult to implement.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges by the Custodian for wire redemptions. The Custodian currently
charges $10.00 per transaction for wiring redemption proceeds. If this cost is
passed through to redeeming shareholders by the Fund, the charge will be
deducted automatically from the shareholder's account by redemption of shares in
the account. The shareholder's bank or brokerage firm may also impose a charge
for processing the wire. If wire transfer of funds is impossible or impractical,
the redemption proceeds will be sent by mail to the designated account.
Shareholders may redeem shares, subject to the procedures outlined above, by
calling the Fund at 1-800-430-3863. Redemption proceeds will only be sent to the
bank account or person named in the Fund Shares Application currently on file
with the Fund. Telephone redemption privileges authorize the Fund to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and, if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$10,000 or more at current net asset value may establish a Systematic Withdrawal
Plan to receive a monthly or quarterly check in a stated amount not less than
$100. Each month or quarter as specified, the Fund will automatically redeem
sufficient shares from the account to meet the specified withdrawal amount. Call
or write the Fund for an application form. See the Statement of Additional
Information for further details.
Signature Guarantees. To protect an account and the Fund from fraud, signature
guarantees are required to authorize a change in registration, or standing
instructions, for your account. Signature guarantees are required for (1) change
of registration requests, (2) requests to establish or change exchange
privileges or telephone redemption service other than through the initial
account application, and (3) requests for redemptions in excess of $50,000.
Signature guarantees are acceptable from a member bank of the Federal Reserve
System, a savings and loan institution, credit union (if authorized under state
law), registered broker-dealer, securities exchange or association clearing
agency, and must appear on the written request for redemption, establishment or
change in exchange privileges, or change of registration.
MANAGEMENT OF THE FUND
Trustees and Officers. The Fund is a diversified series of the Gardner Lewis
Investment Trust (the "Trust"), a registered open-end management investment
company organized as a Massachusetts business trust. The Board of Trustees of
the Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its and the Fund's day-to-day operations.
The Advisor. Subject to the authority of the Board of Trustees, Gardner Lewis
Asset Management (the "Advisor") provides the Fund with a continuous program of
supervision of the Fund's assets, including the composition of its portfolio,
and furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Delaware corporation in 1990 and converted to a
Pennsylvania limited partnership in 1994, is controlled by W. Whitfield Gardner.
The Advisor currently serves as investment advisor to approximately $3.5 billion
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to individuals,
banks and thrift institutions, pension and profit sharing plans, trusts,
estates, charitable organizations and corporations since its formation. The
Advisor's address is 285 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania
19317.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 1.00% of the average daily net asset
value of the Fund. For the fiscal year ended February 28, 1998, the Advisor was
paid investment advisory fees of $2,532,147.
The Advisor supervises and implements the investment activities of the Fund,
including making specific decisions as to the purchase and sale of portfolio
investments. Among the responsibilities of the Advisor under the Advisory
Agreement is the selection of brokers and dealers through whom transactions in
the Fund's portfolio investments will be effected. The Advisor attempts to
obtain the best execution for all such transactions. If it is believed that more
than one broker is able to provide the best execution, the Advisor will consider
the receipt of quotations and other market services and of research, statistical
and other data and the sale of shares of the Fund in selecting a broker. The
Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. See Note 3 to the Fee Table. The Advisor may
also utilize a brokerage firm affiliated with the Trust or the Advisor if it
believes it can obtain the best execution of transactions from such broker.
Research services obtained through Fund brokerage transactions may be used by
the Advisor for its other clients and, conversely, the Fund may benefit from
research services obtained through the brokerage transactions of the Advisor's
other clients. For further information, see "Investment Objective and Policies -
Investment Transactions" in the Statement of Additional Information.
W. Whitfield Gardner and John L. Lewis, IV, principals of the Advisor and
executive officers of the Trust, have been responsible for day-to-day management
of the Fund's portfolio since its inception in 1994. They have been with the
Advisor since its inception. Additional information about these gentlemen is set
forth in the Statement of Additional Information under "Management of the Fund -
Trustees and Officers."
The Administrator. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069. Subject to the
authority of the Board of Trustees, the services the Administrator provides to
the Fund include coordinating and monitoring any third parties furnishing
services to the Fund; providing the necessary office space, equipment and
personnel to perform administrative and clerical functions for the Fund; and
preparing, filing and distributing proxy materials, periodic reports to
shareholders, registration statements and other documents. For its
administrative services, the Administrator is entitled to receive from the Fund
a fee based on the average daily net assets of the Fund, in addition to a base
monthly fee for accounting and recordkeeping services. The Administrator also
performs certain accounting and pricing services for the Fund as pricing agent,
including the daily calculation of the Fund's net asset value, for which it
receives certain charges and is reimbursed for out-of-pocket expenses.
The Administrator was incorporated as a North Carolina corporation in 1988. With
its predecessors and affiliates, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III is the firm's Managing
Director and controlling shareholder.
The Transfer Agent. North Carolina Shareholder Services, LLC (the "Transfer
Agent") serves as the Fund's transfer, dividend paying, and shareholder
servicing agent. The Transfer Agent, subject to the authority of the Board of
Trustees, provides transfer agency services pursuant to an agreement with the
Administrator, which has been approved by the Trust. The Transfer Agent
maintains the records of each shareholder's account, answers shareholder
inquiries concerning accounts, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent, and performs other
shareholder servicing functions. The Fund is charged a recordkeeping fee based
on the number of shareholders in the Fund and an annual fee for shareholder
administration services.
The Transfer Agent, whose address is 107 North Washington Street, Post Office
Box 4365, Rocky Mount, North Carolina 27803-0365, was established as a North
Carolina limited liability company in 1997. John D. Marriott, Jr., is the firm's
controlling member.
The Custodian. First Union National Bank of North Carolina (the "Custodian"),
Two First Union Center, Charlotte, North Carolina 28288-1151, serves as
Custodian of the Fund's assets. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties.
Other Expenses. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, Administrator, and Transfer
Agent, the fees and expenses of Trustees, outside auditing and legal expenses,
all taxes and corporate fees payable by the Fund, Securities and Exchange
Commission fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
the Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable. Any expenses relating only to a particular Class of
Shares of the Fund will be borne solely by such Class.
OTHER INFORMATION
Description of Shares. The Trust was organized as a Massachusetts business trust
on August 12, 1992, under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Fund, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust." Pursuant
to its authority under the Declaration of Trust, the Board of Trustees has
authorized the issuance of an unlimited number of shares in each of five Classes
("Series A, Series C, and Series D Investor Shares," "Institutional Shares," and
Super-Institutional Shares") representing equal pro rata interests in the Fund,
except that the Classes bear different expenses that reflect the differences in
services provided to them. Investor Shares are sold with a sale charge (except
for Series C Shares) and bear potential distribution expenses and service fees
at different levels. See "How Shares May Be Purchased - Sales Charges" and " -
Distribution Plan." Institutional and Super-Institutional Shares are sold
without a sales charge and bear no shareholder servicing or distribution fees.
The Super-Institutional Shares, however, receive fewer investor services than
the Institutional and Investor Shares due to the size and nature of accounts
holding Super-Institutional Shares. As a result of different charges, fees, and
expenses between the Classes, the total return on the Fund's Investor Shares
will generally be lower than the total return on the Institutional and
Super-Institutional Shares, the total return on the Fund's Series C Shares will
generally be lower than the total return on the Series A and Series D Shares,
and the total return on the Series D Shares will generally be lower than the
total return on the Series A Shares. Standardized total return quotations will
be computed separately for each Class of Shares of the Fund.
THIS PROSPECTUS RELATES TO THE FUND'S INVESTOR SHARES (INCLUDING THE THREE
CLASSES OF INVESTOR SHARES) AND DESCRIBES ONLY THE POLICIES, OPERATIONS,
CONTRACTS, AND OTHER MATTERS PERTAINING TO THE INVESTOR SHARES. THE FUND ALSO
ISSUES A CLASS OF INSTITUTIONAL SHARES AND A CLASS OF SUPER-INSTITUTIONAL
SHARES. SUCH OTHER CLASSES MAY HAVE DIFFERENT SALES CHARGES AND EXPENSES, WHICH
MAY AFFECT PERFORMANCE. INVESTORS MAY CALL THE FUND AT 1-800-430-3863 TO OBTAIN
MORE INFORMATION CONCERNING OTHER CLASSES AVAILABLE TO THEM THROUGH THEIR SALES
REPRESENTATIVE. INVESTORS MAY OBTAIN INFORMATION CONCERNING OTHER CLASSES FROM
THEIR SALES REPRESENTATIVE, THE DISTRIBUTOR, THE FUND, OR ANY OTHER PERSON WHICH
IS OFFERING OR MAKING AVAILABLE TO THEM THE SECURITIES OFFERED IN THIS
PROSPECTUS.
When issued, the shares of each series of the Trust, including the Fund, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of a least 10% of the outstanding shares of the Trust. The
term of office of each Trustee is of unlimited duration. The holders of at least
two-thirds of the outstanding shares of the Trust may remove a Trustee from that
position either by declaration in writing filed with the Custodian or by votes
cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (fund) or
class, except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of the
shareholders of a particular series or class. Matters affecting an individual
series, such as the Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
Reporting to Shareholders. The Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
the Fund will be audited by independent accountants. In addition, the Fund will
send to each shareholder having an account directly with the Fund a quarterly
statement showing transactions in the account, the total number of shares owned
and any dividends or distributions paid. Inquiries regarding the Fund may be
directed in writing to 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365 or by calling 1-800-430-3863.
Calculation of Performance Data. From time to time the Fund may advertise its
average annual total return for each Class of Shares. The "average annual total
return" refers to the average annual compounded rates of return over 1-, 5-, and
10-year periods that would equate an initial amount invested at the beginning of
a stated period to the ending redeemable value of the investment. The
calculation assumes the reinvestment of all dividends and distributions,
includes all recurring fees that are charged to all shareholder accounts and
deducts all nonrecurring charges at the end of each period. The calculation
further assumes the maximum sales load is deducted from the initial payment. If
the Fund has been operating less than 1, 5 or 10 years, the time period during
which the Fund has been operating is substituted.
In addition, the Fund may advertise other total return performance data other
than average annual total return for each Class of Shares. This data shows as a
percentage rate of return encompassing all elements of return (i.e. income and
capital appreciation or depreciation); it assumes reinvestment of all dividends
and capital gain distributions. Such other total return data may be quoted for
the same or different periods as those for which average annual total return is
quoted. This data may consist of a cumulative percentage rate of return, actual
year-by-year rates or any combination thereof. Cumulative total return
represents the cumulative change in value of an investment in the Fund for
various periods.
The total return of the Fund could be increased to the extent the Advisor may
waive a portion of its fees or may reimburse a portion of the Fund's expenses.
Total return figures are based on the historical performance of the Fund, show
the performance of a hypothetical investment, and are not intended to indicate
future performance. The Fund's quotations may from time to time be used in
advertisements, sales literature, shareholder reports, or other communications.
For further information, see "Additional Information on Performance" in the
Statement of Additional Information.
<PAGE>
________________________________________________________________________________
THE CHESAPEAKE GROWTH FUND
INVESTOR SHARES
________________________________________________________________________________
PROSPECTUS
June 30, 1998
THE CHESAPEAKE GROWTH FUND
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
CUSTODIAN
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
<PAGE>
PROSPECTUS Cusip Number 36559B708
________________________________________________________________________________
THE CHESAPEAKE CORE GROWTH FUND
A No Load Fund
________________________________________________________________________________
The investment objective of The Chesapeake Core Growth Fund (the "Fund") is to
seek capital appreciation through investments in equity securities, consisting
primarily of common and preferred stocks and securities convertible into common
stocks. The Fund follows the same investment policies and principles of other
funds managed by Gardner Lewis Asset Management (the "Advisor"), while investing
primarily in those securities of the largest 1000 companies domiciled in the
United States. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this Prospectus. The Fund has a net asset value that will fluctuate
in accordance with the value of its portfolio securities. An investor may
invest, reinvest, or redeem shares at any time. The shares of the Fund, which
are designed to provide investors with core growth investment management by the
Advisor, are offered without any sales or redemption charges or shareholder
servicing or distribution fees.
INVESTMENT ADVISOR
Gardner Lewis Asset Management
Chadds Ford, Pennsylvania
The Fund is a no load diversified series of the Gardner Lewis Investment Trust
(the "Trust"), a registered open-end management investment company. This
Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Investors should read this
Prospectus and retain it for future reference. Additional information about the
Fund has been filed with the Securities and Exchange Commission (the "SEC") and
is available upon request and without charge. You may request the Statement of
Additional Information, which is incorporated in this Prospectus by reference,
by writing the Fund at Post Office Box 4365, Rocky Mount, North Carolina
27803-0365, or by calling 1-800-430-3863. The SEC also maintains an Internet Web
site (http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference, and other information regarding the Fund.
Investment in the Fund involves risks, including the possible loss of principal.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any financial institution, and such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus and the Statement of Additional Information is June
30, 1998.
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY......................................................... 2
FEE TABLE.................................................................. 3
FINANCIAL HIGHLIGHTS....................................................... 4
INVESTMENT OBJECTIVE AND POLICIES.......................................... 5
RISK FACTORS............................................................... 7
INVESTMENT LIMITATIONS..................................................... 8
FEDERAL INCOME TAXES....................................................... 8
DIVIDENDS AND DISTRIBUTIONS................................................ 9
HOW SHARES ARE VALUED...................................................... 10
HOW SHARES MAY BE PURCHASED................................................ 10
HOW SHARES MAY BE REDEEMED................................................. 12
MANAGEMENT OF THE FUND..................................................... 14
OTHER INFORMATION.......................................................... 15
This Prospectus is not an offering of the securities described herein in any
state in which the offering is unauthorized. No sales representative, dealer or
other person is authorized to give any information or make any representations
other than those contained in this Prospectus.
The Fund reserves the right in its sole discretion to withdraw all or any part
of the offering made by this Prospectus or to reject purchase orders. All orders
to purchase shares are subject to acceptance by the Fund and are not binding
until confirmed or accepted in writing.
<PAGE>
PROSPECTUS SUMMARY
The Fund. The Chesapeake Core Growth Fund (the "Fund") is a no load diversified
series of the Gardner Lewis Investment Trust (the "Trust"), a registered
open-end management investment company organized as a Massachusetts business
trust. See "Other Information - Description of Shares."
Offering Price. Shares of the Fund are offered to investors at net asset value
without a sales charge. The shares are not subject to any 12b-1 distribution or
shareholder service fees. The minimum initial investment is $25,000. The minimum
subsequent investment is $500 ($100 for those participating in the Automatic
Investment Plan). See "How Shares May be Purchased."
Investment Objective and Policies. The investment objective of the Fund is to
seek capital appreciation through investments in equity securities, consisting
primarily of common and preferred stocks and securities convertible into common
stocks. Realization of current income is not a significant investment
consideration, and any income realized will be incidental to the Fund's
objective. The Fund follows the same investment policies and principles of other
funds managed by the Advisor, while investing primarily in those securities of
the largest 1000 companies domiciled in the United States. See "Investment
Objective and Policies." The Fund is not intended to be a complete investment
program, and there can be no assurance that the Fund will achieve its investment
objective.
Special Risk Considerations. While the Fund will invest primarily in common
stocks traded in U.S. securities markets, some of the Fund's investments may
include foreign securities (in the form traded on domestic U.S. exchanges),
illiquid securities, real estate securities, and securities purchased subject to
a repurchase agreement or on a "when-issued" basis, which involve certain risks.
The Fund may borrow only under certain limited conditions (included to meet
redemption requests) and not to purchase securities. It is not the intent of the
Fund to borrow except for temporary cash requirements. Borrowing, if done, would
tend to exaggerate the effects of market and interest rate fluctuations on the
Fund's net asset value until repaid. See "Risk Factors."
Advisor. Subject to the general supervision of the Trust's Board of Trustees and
in accordance with the Fund's investment policies, Gardner Lewis Asset
Management of Chadds Ford, Pennsylvania (the "Advisor") serves as investment
advisor to the Fund. The Advisor currently manages approximately $3.5 billion in
assets. For its advisory services, the Advisor receives a monthly fee based on
the Fund's daily net assets at the annual rate of 1.00%. See "Management of the
Fund - The Advisor."
Dividends. Income dividends, if any, are generally paid at least annually;
capital gains, if any, are distributed at least annually or retained for
reinvestment by the Fund. Dividends and capital gains distributions are
automatically reinvested in additional shares of the Fund at net asset value
unless the shareholder elects to receive cash. See "Dividends and
Distributions."
Distributor. Capital Investment Group, Inc. (the "Distributor") serves as
distributor of shares of the Fund. See "How Shares May Be Purchased -
Distributor."
Redemption of Shares. There is no charge for redemptions, other than possible
charges associated with wire transfers of redemption proceeds. Shares may be
redeemed at any time at the net asset value next determined after receipt of a
redemption request by the Fund. A shareholder who submits appropriate written
authorization may redeem shares by telephone. See "How Shares May Be Redeemed."
<PAGE>
FEE TABLE
The following table sets forth certain information in connection with the
expenses of the Fund anticipated for the current fiscal year. The information is
intended to assist the investor in understanding the various costs and expenses
borne by the Fund, and therefore indirectly by its investors, the payment of
which will reduce an investor's return on an annual basis.
Shareholder Transaction Expenses
Maximum sales load imposed on purchases
(as a percentage of offering price).........................None
Maximum sales load imposed on
reinvested dividends........................................None
Maximum deferred sales load....................................None
Redemption fees*...............................................None
Exchange fee...................................................None
* The Fund in its discretion may choose to pass through to redeeming
shareholders any charges imposed by the Custodian for wiring
redemption proceeds. The Custodian currently charges the Fund $10.00
per transaction for wiring redemption proceeds.
Annual Fund Operating Expenses
After Fee Waivers and Expense Reimbursements1
(as a percentage of average net assets)
Investment advisory fees 1....................................0.00%
12b-1 fees....................................................None
Other expenses 1..............................................1.24%
Total operating expenses 1....................................1.24%
EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Fund, whether or not you redeem at the end of the period, assuming a 5% annual
return:
1 Year 3 Years
------ -------
$13 $39
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
1 The "Total operating expenses" shown above are based upon actual operating
expenses of the Fund for the fiscal period ended February 28, 1998, which,
after fee waivers and expense reimbursements, were 1.24% of the average
daily net assets of the Fund. Absent such waivers and reimbursements, the
"Investment advisory fees" and "Total operating expenses" for the Fund for
the fiscal period ended February 28, 1998 would have been 1.00% and 3.19%,
respectively, of the average daily net assets of the Fund. There can be no
assurance that the voluntary fee waivers and expense reimbursements by the
Advisor and Administrator to the Fund in the past will continue in the
future.
See "Management of the Fund" below for more information about the fees and costs
of operating the Fund. The assumed 5% annual return in the example is required
by the Securities and Exchange Commission. The hypothetical rate of return is
not intended to be representative of past or future performance of the Fund; the
actual rate of return for the Fund may be greater or less than 5%.
FINANCIAL HIGHLIGHTS
The financial data included in the table below has been derived from audited
financial statements of the Fund. The financial data for the fiscal period ended
February 28, 1998, has been audited by Deloitte & Touche LLP, independent
auditors, whose report covering such period is included in the Statement of
Additional Information. This information should be read in conjunction with the
Fund's latest audited annual financial statements and notes thereto, which are
also included in the Statement of Additional Information, a copy of which may be
obtained at no charge by calling the Fund. Further information about the
performance of the Fund is contained in the Annual Report of the Fund, a copy of
which may be obtained at no charge by calling the Fund.
(For a Share Outstanding Throughout the Period)
================================================================================
Period Ended
February 28,
1998*
================================================================================
Net Asset Value, Beginning of Period $10.00
================================================================================
Income (loss) from investment operations
Net investment loss (0.01)
Net realized and unrealized gain on investments 0.75
Total from investment operations 0.74
================================================================================
Distributions to shareholders
Distributions in excess of net investment income (0.02)
------
================================================================================
Net Asset Value, End of Period $10.72
======
================================================================================
Total return (a) 7.49%
================================================================================
Ratios/supplemental data
================================================================================
Net Assets, End of Period $6,048,268
================================================================================
Ratio of expenses to average net assets
Before expense reimbursements and
waived fees 3.19% (b)
After expense reimbursements and
waived fees 1.24% (b)
================================================================================
Ratio of net investment loss to average net assets
Before expense reimbursements and
waived fees (2.19)% (b)
After expense reimbursements and
waived fees (0.24)% (b)
================================================================================
Portfolio turnover rate 29.83%
================================================================================
Average commission rate paid (c) $0.0486
================================================================================
* For the period from September 29, 1997 (commencement of operations) to
February 28, 1998.
(a) Aggregate total return for the fiscal period.
(b) Annualized.
(c) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged.
INVESTMENT OBJECTIVE AND POLICIES
Investment Objective. The investment objective of the Fund is to seek capital
appreciation through investments in equity securities, consisting primarily of
common and preferred stocks and securities convertible into common stocks.
Realization of current income will not be a significant investment
consideration, and any such income realized should be considered incidental to
the Fund's objective. The Fund follows the same investment policies and
principles of other funds managed by the Advisor, while investing primarily in
those securities of the largest 1000 companies domiciled in the United States.
The Fund's investment objective and fundamental investment limitations may not
be altered without the prior approval of a majority of the Fund's shareholders.
Investment Policies. The Fund's portfolio will include equity securities which
the Advisor feels show superior prospects for growth. Under normal market
conditions, the portfolio will invest primarily in a universe of securities,
both domestic and foreign, with a range of market capitalizations approximated
by the 1,000 largest companies domiciled in the United States. Under normal
market conditions at least 80%, and typically more than 90%, of the portfolio
will be invested in these large capitalization companies. The remainder of the
portfolio will not be limited by market capitalization.
In selecting portfolio companies, the Advisor uses analysis which includes the
growth rate in earnings, financial performance, management strengths and
weaknesses, and current market valuation in relation to earnings growth as well
as historic and comparable company valuations. Typically companies included in
the Fund's portfolio will show strong earnings growth versus the previous year's
comparable period. Companies that the Advisor determines have excessive levels
of debt are generally avoided.
By developing and maintaining contacts with management, customers, competitors,
and suppliers of current and potential portfolio companies, the Advisor attempts
to invest in those companies undergoing positive changes that have not yet been
recognized by "Wall Street" analysts and the financial press. Lack of
recognition of these changes often causes securities to be less efficiently
priced. The Advisor believes these companies offer unique and potentially
superior investment opportunities. The Advisor favors portfolio companies whose
price earnings ratio when purchased is less than that company's projected
earnings growth rate for the coming year.
While portfolio securities are generally acquired for the long term, they may be
sold under any of the following circumstances:
a) the anticipated price appreciation, in the analysis of the Advisor,
has been achieved or is no longer probable;
b) the company's fundamentals appear, in the analysis of the Advisor, to
be deteriorating;
c) general market expectations regarding the company's future performance
exceed those expectations held by the Advisor;
d) alternative investments offer, in the view of the Advisor, superior
potential for appreciation.
The equity securities in which the Fund may invest include common stock,
convertible preferred stock, straight preferred stock, participating and
non-participating preferred stock, and investment grade convertible bonds. The
securities in which the Fund may invest will generally be traded on domestic
securities exchanges or on the over-the-counter markets. Any foreign securities
the Fund may acquire will be traded on domestic U.S. exchanges.
Under normal conditions, at least 90% of the Fund's total assets will be
invested in equity securities. As a temporary defensive measure, however, when
the Advisor determines that market conditions so warrant, the Fund may invest up
to 100% of the Fund's total assets in investment grade bonds, U.S. Government
Securities, repurchase agreements, or money market instruments. When the Fund
invests its assets in investment grade bonds, U.S. Government Securities,
repurchase agreements, or money market instruments as a temporary defensive
measure, it is not pursuing its stated investment objective. Under normal
circumstances, however, the Fund will also hold money market or repurchase
agreement instruments for funds awaiting investment, to accumulate cash for
anticipated purchases of portfolio securities, to allow for shareholder
redemptions, and to provide for Fund operating expenses.
To the extent the Fund invests in bonds and other debt securities, which will
not generally occur under normal market conditions (except for money market or
repurchase instruments as described above), the Fund will invest in investment
grade instruments (or, if unrated, of equivalent quality in the Advisor's
opinion). If the rating of any such security held by the Fund drops below
investment grade, such change will be considered by the Advisor as reason to
sell that security. For a description of the minimum ratings criteria for
investment grade debt securities, see "Appendix A-Description of Ratings" in the
Statement of Additional Information.
Money Market Instruments. Money market instruments may be purchased for
temporary defensive purposes, to accumulate cash for anticipated purchases of
portfolio securities and to provide for shareholder redemptions and operating
expenses of the Fund. Money market instruments mature in thirteen months or less
from the date of purchase and may include U.S. Government Securities, corporate
debt securities (including those subject to repurchase agreements), bankers
acceptances and certificates of deposit of domestic branches of U.S. banks, and
commercial paper (including variable amount demand master notes) rated in one of
the two highest rating categories by any of the nationally recognized
statistical rating organizations or if not rated, of equivalent quality in the
Advisor's opinion. The Advisor may, when it believes that unusually volatile or
unstable economic and market conditions exist, depart from the Fund's investment
approach and assume temporarily a defensive portfolio posture, increasing the
Fund's percentage investment in money market instruments, even to the extent
that 100% of the Fund's total assets may be so invested.
U.S. Government Securities. The Fund may invest a portion of the portfolio in
U.S. Government Securities, defined to be U.S. Government obligations such as
U.S. Treasury notes, U.S. Treasury bonds, and U.S. Treasury bills, obligations
guaranteed by the U.S. Government such as Government National Mortgage
Association ("GNMA") as well as obligations of U.S. Government authorities,
agencies and instrumentalities such as Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), Federal Home
Administration ("FHA"), Federal Farm Credit Bank ("FFCB"), Federal Home Loan
Bank ("FHLB"), Student Loan Marketing Association ("SLMA"), and The Tennessee
Valley Authority. U.S. Government Securities may be acquired subject to
repurchase agreements. While obligations of some U.S. Government sponsored
entities are supported by the full faith and credit of the U.S. Government (e.g.
GNMA), several are supported by the right of the issuer to borrow from the U.S.
Government (e.g. FNMA, FHLMC), and still others are supported only by the credit
of the issuer itself (e.g. SLMA, FFCB). No assurances can be given that the U.S.
Government will provide financial support to U.S. Government agencies or
instrumentalities in the future, other than as set forth above, since it is not
obligated to do so by law. The guarantee of the U.S. Government does not extend
to the yield or value of the Fund's shares.
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
agreement transaction occurs when the Fund acquires a security and
simultaneously resells it to the vendor (normally a member bank of the Federal
Reserve or a registered Government Securities dealer) for delivery on an agreed
upon future date. The repurchase price exceeds the purchase price by an amount
that reflects an agreed upon market interest rate earned by the Fund effective
for the period of time during which the repurchase agreement is in effect.
Delivery pursuant to the resale typically will occur within one to seven days of
the purchase. The Fund will not enter into any repurchase agreement that will
cause more than 10% of its net assets to be invested in repurchase agreements
that extend beyond seven days. In the event of the bankruptcy of the other party
to a repurchase agreement, the Fund could experience delays in recovering its
cash or the securities lent. To the extent that in the interim the value of the
securities purchased may have declined, the Fund could experience a loss. 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
(the "1940 Act").
Foreign Securities. The Fund may invest in foreign securities traded on domestic
U.S. exchanges. The same factors would be considered in selecting foreign
securities as with domestic securities. Foreign securities investment presents
special consideration not typically associated with investment in domestic
securities. Foreign taxes may reduce income. Currency exchange rates and
regulations may cause fluctuations in the value of foreign securities. Foreign
securities are subject to different regulatory environments than in the United
States and, compared to the United States, there may be a lack of uniform
accounting, auditing and financial reporting standards, less volume and
liquidity and more volatility, less public information, and less regulation of
foreign issuers. Countries have been known to expropriate or nationalize assets,
and foreign investments may be subject to political, financial, or social
instability, or adverse diplomatic developments. There may be difficulties in
obtaining service of process on foreign issuers and difficulties in enforcing
judgments with respect to claims under the U.S. securities laws against such
issuers. Favorable or unfavorable differences between U.S. and foreign economies
could affect foreign securities values. The U.S. Government has, in the past,
discouraged certain foreign investments by U.S. investors through taxation or
other restrictions, and it is possible that such restrictions could be imposed
again.
Because of the inherent risk of foreign securities over domestic issues, the
Fund will limit foreign investments to those traded on domestic U.S. exchanges,
including American Depository Receipts ("ADRs"). The prices of such securities
are denominated in U.S. dollars. ADRs are receipts issued by a U.S. bank or
trust company evidencing ownership of securities of a foreign issuer. ADRs may
be listed on a national securities exchange or may trade in the over-the-counter
market. The prices of ADRs are denominated in U.S. dollars while the underlying
security may be denominated in a foreign currency. To the extent the Fund
invests in other foreign securities, it will limit such investments to foreign
securities traded on domestic U.S. securities exchanges. Although the Fund is
not limited in the amount of these types of foreign securities it may acquire,
it is not presently expected that within the next 12 months the Fund will have
in excess of 10% of its assets in foreign securities.
Investment Companies. In order to achieve its investment objective, the Fund may
invest up to 10% of the value of its total assets in securities of other
investment companies whose investment objectives are consistent with the Fund's
investment objective. The Fund will not acquire securities of any one investment
company if, immediately thereafter, the Fund would own more than 3% of such
company's total outstanding voting securities, securities issued by such company
would have an aggregate value in excess of 5% of the Fund's total assets, or
securities issued by such company and securities held by the Fund issued by
other investment companies would have an aggregate value in excess of 10% of the
Fund's total assets. To the extent the Fund invests in other investment
companies, the shareholders of the Fund would indirectly pay a portion of the
operating costs of the underlying investment companies. These costs include
management, brokerage, shareholder servicing and other operational expenses.
Shareholders of the Fund would then indirectly pay higher operational costs than
if they owned shares of the underlying investment companies directly.
Real Estate Securities. The Fund will not invest in real estate or real estate
mortgage loans (including limited partnership interests), but may invest in
readily marketable securities secured by real estate or interests therein or
issued by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate investment trusts
("REITs"). REITs are generally publicly traded on the national stock exchanges
and in the over-the-counter market and have varying degrees of liquidity.
Although the Fund is not limited in the amount of these types of real estate
securities it may acquire, it is not presently expected that within the next 12
months the Fund will have in excess of 5% of its total assets in real estate
securities.
RISK FACTORS
Investment Policies and Techniques. Reference should be made to "Investment
Objective and Policies" above for a description of special risks presented by
the investment policies of the Fund and the specific securities and investment
techniques that may be employed by the Fund, including the risks associated with
repurchase agreements and foreign securities. A more complete discussion of
certain of these securities and investment techniques and their associated risks
is contained in the Statement of Additional Information.
Fluctuations in Value. To the extent that the major portion of the Fund's
portfolio consists of common stocks, it may be expected that its net asset value
will be subject to greater fluctuation than a portfolio containing mostly fixed
income securities. Because there is risk in any investment, there can be no
assurance that the Fund will achieve its investment objective.
Portfolio Turnover. The Fund sells portfolio securities without regard to the
length of time they have been held in order to take advantage of new investment
opportunities. The Fund's portfolio turnover generally is not expected to exceed
100% in any one year. Portfolio turnover generally involves some expense to the
Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and the reinvestment in other securities.
Portfolio turnover may also have capital gains tax consequences. See "Portfolio
turnover rate" in the table under "Financial Highlights".
Borrowing. The Fund may borrow, temporarily, up to 5% of its total assets for
extraordinary or emergency purposes and 15% of its total assets to meet
redemption requests, which might otherwise require untimely disposition of
portfolio holdings. To the extent the Fund borrows for these purposes, the
effects of market price fluctuations on the portfolio's net asset value will be
exaggerated. If, while such borrowing is in effect, the value of the Fund's
assets declines, the Fund could be forced to liquidate portfolio securities when
it is disadvantageous to do so. The Fund would incur interest and other
transaction costs in connection with borrowing. The Fund will borrow only from a
bank. The Fund will not make any further investments if the borrowing exceeds 5%
of its total assets until such time as repayment has been made to bring the
total borrowing below 5% of its total assets.
Forward Commitments and When-Issued Securities. The Fund may purchase
when-issued securities and commit to purchase securities for a fixed price at a
future date beyond customary settlement time. The Fund is required to hold and
maintain in a segregated account until the settlement date, cash, U.S.
Government Securities or high-grade debt obligations in an amount sufficient to
meet the purchase price. Purchasing securities on a when-issued or forward
commitment basis involves a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. In addition, no income
accrues to the purchaser of when-issued securities during the period prior to
issuance. Although the Fund would generally purchase securities on a when-issued
or forward commitment basis with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security or forward commitment
prior to settlement if the Advisor deems it appropriate to do so.
The Fund may realize short-term gains or losses upon such sales.
INVESTMENT LIMITATIONS
To limit the Fund's exposure to risk, the Fund has adopted certain investment
limitations. Some of these restrictions are that the Fund will not: (1) issue
senior securities, borrow money or pledge its assets, except that it may borrow
from banks as a temporary measure (a) for extraordinary or emergency purposes,
in amounts not exceeding 5% of the Fund's total assets, or (b) to meet
redemption requests, in amounts not exceeding 15% of its total assets (the Fund
will not make any investments if borrowing exceeds 5% of its total assets); (2)
make loans of money or securities, except that the Fund may invest in repurchase
agreements (but repurchase agreements having a maturity of longer than seven
days, together with other not readily marketable securities, are limited to 10%
of the Fund's net assets), money market instruments, and other debt securities;
(3) invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of bonds,
guarantors), if more than 5% of its total assets would be invested in such
securities; (4) purchase foreign securities other than those traded on domestic
U.S. exchanges; (5) with respect to 75% of its total assets, invest more than 5%
of its total assets at cost in the securities of any one issuer nor hold more
than 10% of the voting stock of any issuer; and (6) write, purchase, or sell
puts, calls, straddles, spreads, or combinations thereof, or purchase or sell
commodities, commodity contracts, futures contracts, or related options.
Investment restrictions (1), (2), (5), and (6) are fundamental investment
limitations that cannot be altered without the prior approval of a majority of
the Fund's shareholders. The other investment restrictions listed above are
non-fundamental and can be changed without shareholder approval. See "Investment
Limitations" in the Fund's Statement of Additional Information for a complete
list of investment limitations.
If the Board of Trustees of the Trust determines that the Fund's investment
objective can best be achieved by a substantive change in a non-fundamental
investment limitation, the Board can make such change without shareholder
approval and will disclose any such material changes in the then current
Prospectus. Any limitation that is not specified in the Fund's Prospectus, or in
the Statement of Additional Information, as being fundamental, is
non-fundamental. If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of the Fund's portfolio securities generally will not
constitute a violation of such limitation. If the limitation on illiquid
securities is exceeded, however, through a change in values, net assets, or
other circumstances, the Fund would take appropriate steps to protect liquidity
by changing its portfolio.
FEDERAL INCOME TAXES
Taxation of the Fund. The Internal Revenue Code of 1986, as amended (the
"Code"), treats each series in the Trust, including the Fund, as a separate
regulated investment company. Each series of the Trust, including the Fund,
intends to qualify or remain qualified as a regulated investment company under
the Code by distributing substantially all of its "net investment income" to
shareholders and meeting other requirements of the Code. For the purpose of
calculating dividends, net investment income consists of income accrued on
portfolio assets, less accrued expenses. Upon qualification, the Fund will not
be liable for federal income taxes to the extent earnings are distributed. The
Board of Trustees retains the right for any series of the Trust, including the
Fund, to determine for any particular year if it is advantageous not to qualify
as a regulated investment company. Regulated investment companies, such as each
series of the Trust, including the Fund, are subject to a non-deductible 4%
excise tax to the extent they do not distribute the statutorily required amount
of investment income, determined on a calendar-year basis, and capital gain net
income, using an October 31 year-end measuring period. The Fund intends to
declare or distribute dividends during the calendar year in an amount sufficient
to prevent imposition of the 4% excise tax.
For the fiscal period ended February 28, 1998, the Fund was considered a
"personal holding company" under the Code since 50% of the value of the Fund's
share were owned directly or indirectly by five or fewer individuals at certain
times during the last half of the fiscal period. As a personal holding company,
the Fund is subject to federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. For the fiscal period
ended February 28, 1998, however, no provision was made for federal income taxes
since substantially all taxable income was distributed to shareholders. For the
current fiscal year, the Fund anticipates that either it will qualify as a
regulated investment company under the Code or, if still considered a personal
holding company, it will distribute substantially all of its taxable income for
the current fiscal year to shareholders in order to avoid individual income
taxes.
Taxation of Shareholders. For federal income tax purposes, any dividends and
distributions from short-term capital gains that a shareholder receives in cash
from the Fund or which are re-invested in additional shares will be taxable
ordinary income. If a shareholder is not required to pay a tax on income, he
will not be required to pay federal income taxes on the amounts distributed to
him. A dividend declared in October, November or December of a year and paid in
January of the following year will be considered to be paid on December 31 of
the year of declaration.
Distributions paid by the Fund from long-term capital gains, whether received in
cash or reinvested in additional shares, are taxable as long-term capital gains,
regardless of the length of time an investor has owned shares in the Fund.
Capital gain distributions are made when the Fund realizes net capital gains on
sales of portfolio securities during the year. Dividends and capital gain
distributions paid by the Fund shortly after shares have been purchased,
although in effect a return of investment, are subject to federal income
taxation.
The sale of shares of the Fund is a taxable event and may result in a capital
gain or loss. Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between two mutual funds (or two series of a
mutual fund).
The Trust will inform shareholders of the Fund of the source of their dividends
and capital gains distributions at the time they are paid and, promptly after
the close of each calendar year, will issue an information return to advise
shareholders of the federal tax status of such distributions and dividends.
Dividends and distributions may also be subject to state and local taxes.
Shareholders should consult their tax advisors regarding specific questions as
to federal, state or local taxes.
Federal income tax law requires investors to certify that the social security
number or taxpayer identification number provided to the Fund is correct and
that the investor is not subject to 31% withholding for previous under-reporting
to the Internal Revenue Service (the "IRS"). Investors will be asked to make the
appropriate certification on their application to purchase shares. If a
shareholder of the Fund has not complied with the applicable statutory and IRS
requirements, the Fund is generally required by federal law to withhold and
remit to the IRS 31% of reportable payments (which may include dividends and
redemption amounts).
DIVIDENDS AND DISTRIBUTIONS
The Fund generally intends to distribute substantially all of its net investment
income, if any, in the form of dividends. The Fund may pay dividends, if any,
and distribute capital gains, if any, at least once each year. The Fund may,
however, determine either to distribute or to retain all or part of any
long-term capital gains in any year for reinvestment.
Unless a shareholder elects to receive cash, dividends and capital gains will be
automatically reinvested in additional full and fractional shares of the Fund at
the net asset value per share next determined. Shareholders wishing to receive
their dividends or capital gains in cash may make their request in writing to
the Fund at 107 North Washington Street, Post Office Box 4365, Rocky Mount,
North Carolina 27803-0365. That request must be received by the Fund prior to
the record date to be effective as to the next dividend. If cash payment is
requested, checks will be mailed within five business days after the
distribution of the dividends or capital gains, as applicable. Each shareholder
of the Fund will receive a quarterly summary of his or her account, including
information as to reinvested dividends from the Fund. Tax consequences to
shareholders of dividends and distributions are the same if received in cash or
in additional shares of the Fund.
In order to satisfy certain requirements of the Code, the Fund may declare
special year-end dividend and capital gains distributions during December. Such
distributions, if received by shareholders by January 31, are deemed to have
been paid by the Fund and received by shareholders on December 31 of the prior
year.
There is no fixed dividend rate, and there can be no assurance as to the payment
of any dividends or the realization of any gains.
HOW SHARES ARE VALUED
Net asset value is determined at the time trading closes on the New York Stock
Exchange (currently 4:00 p.m., New York time, Monday through Friday), except on
business holidays when the New York Stock Exchange is closed. The net asset
value of the shares of the Fund for purposes of pricing sales and redemptions is
equal to the total market value of its investments and other assets, less all of
its liabilities, divided by the number of its outstanding shares.
Securities that are listed on a securities exchange are valued at the last
quoted sales price at the time the valuation is made. Price information on
listed securities is taken from the exchange where the security is primarily
traded by the Fund. Securities that are listed on an exchange and which are not
traded on the valuation date are valued at the latest quoted bid price. Unlisted
securities for which market quotations are readily available are valued at the
latest quoted sales price, if available, at the time of valuation, otherwise, at
the latest quoted bid price. Temporary cash investments with maturities of 60
days or less will be valued at amortized cost, which approximates market value.
Securities for which no current quotations are readily available are valued at
fair value as determined in good faith using methods approved by the Board of
Trustees of the Trust. Securities may be valued on the basis of prices provided
by a pricing service when such prices are believed to reflect the fair market
value of such securities.
HOW SHARES MAY BE PURCHASED
Assistance in opening accounts and a purchase application may be obtained from
the Fund by calling 1-800-430-3863, or by writing to the Fund at the address
shown below for purchases by mail. Assistance is also available through any
broker-dealer authorized to sell shares in the Fund. Payment for shares
purchased may also be made through your account at the broker-dealer processing
your application and order to purchase. Your investment will purchase shares at
the Fund's net asset value next determined after your order is received by the
Fund in proper form as indicated herein.
The minimum initial investment is $25,000. The minimum subsequent investment is
$500 ($100 for those investing through the Automatic Investment Plan). The Fund
may, in the Advisor's sole discretion, accept certain accounts with less than
the stated minimum initial investment. You may invest in the following ways:
Purchases by Mail. Shares may be purchased initially by completing the
application accompanying this Prospectus and mailing it, together with a check
payable to the Fund, to The Chesapeake Core Growth Fund, 107 North Washington
Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365. Subsequent
investments in an existing account in the Fund may be made at any time by
sending a check payable to the Fund, to the address stated above. Please enclose
the stub of your account statement and include the amount of the investment, the
name of the account for which the investment is to be made and the account
number.
Purchases by Wire. To purchase shares by wiring federal funds, the Fund must
first be notified by calling 1-800-430-3863 to request an account number and
furnish the Fund with your tax identification number. Following notification to
the Fund, federal funds and registration instructions should be wired through
the Federal Reserve System to:
First Union National Bank of North Carolina
Charlotte, North Carolina
ABA # 053000219
For The Chesapeake Core Growth Fund
Acct #2000001067260
For further credit to (shareholder's name and SS# or EIN#)
It is important that the wire contain all the information and that the Fund
receive prior telephone notification to ensure proper credit. A completed
application with signature(s) of registrant(s) must be mailed to the Fund
immediately after the initial wire as described under "Purchases by Mail" above.
Investors should be aware that some banks may impose a wire service fee.
General. All purchases of shares are subject to acceptance and are not binding
until accepted. The Fund reserves the right to reject any application or
investment. Orders received by the Fund and effective prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m., New York time,
Monday through Friday) will purchase shares at the net asset value determined at
that time. Orders received by the Fund and effective after the close of trading,
or on a day when the New York Stock Exchange is not open for business, will
purchase shares at the net asset value next determined. For orders placed
through a qualified broker-dealer, such firm is responsible for promptly
transmitting purchase orders to the Fund. Investors may be charged a fee if they
effect transactions in the Fund shares through a broker or agent.
The Fund may enter into agreements with one or more brokers or other agents,
including discount brokers and other brokers associated with investment
programs, including mutual fund "supermarkets," and agents for qualified
employee benefit plans, pursuant to which such brokers or other agents may be
authorized to accept on the Fund's behalf purchase and redemption orders that
are in "good form." Such brokers or other agents may be authorized to designate
other intermediaries to accept purchase and redemption orders on the Fund's
behalf. Under such circumstances, the Fund will be deemed to have received a
purchase or redemption order when an authorized broker, agent, or, if
applicable, other designee, accepts the order. Such orders will be priced at the
Fund's net asset value next determined after they are accepted by an authorized
broker, agent, or other designee. The Fund may pay fees to such brokers or other
agents for their services, including without limitation, administrative,
accounting, and recordkeeping services.
If checks are returned unpaid due to nonsufficient funds, stop payment or other
reasons, the Trust will charge $20. To recover any such loss or charge, the
Trust reserves the right, without further notice, to redeem shares of any fund
of the Trust already owned by any purchaser whose order is canceled, and such a
purchaser may be prohibited from placing further orders unless investments are
accompanied by full payment by wire or cashier's check.
Payment must be made by check or money order drawn on a U.S. bank and payable in
U.S. dollars. Under certain circumstances the Fund, at its sole discretion, may
allow payment in kind for Fund shares purchased by accepting securities in lieu
of cash. Any securities so accepted would be valued on the date received and
included in the calculation of the net asset value of the Fund. See the
Statement of Additional Information for additional information on purchases in
kind.
The Fund is required by federal law to withhold and remit to the IRS 31% of the
dividends, capital gains distributions and, in certain cases, proceeds of
redemptions paid to any shareholder who fails to furnish the Fund with a correct
taxpayer identification number, who under-reports dividend or interest income or
who fails to provide certification of tax identification number. Instructions to
exchange or transfer shares held in established accounts will be refused until
the certification has been provided. In order to avoid this withholding
requirement, you must certify on your application, or on a separate W-9 Form
supplied by the Fund, that your taxpayer identification number is correct and
that you are not currently subject to backup withholding or you are exempt from
backup withholding.
Distributor. Capital Investment Group, Inc., Post Office Box 32249, Raleigh,
North Carolina 27622 (the "Distributor"), is the national distributor for the
Fund under a Distribution Agreement with the Trust. The Distributor may sell
Fund shares to or through qualified securities dealers or others.
The Distributor, at its expense, may provide compensation to dealers in
connection with sales of shares of the Fund. Compensation may include financial
assistance to dealers in connection with conferences, sales or training programs
for their employees, seminars for the public, advertising campaigns regarding
the Fund, and/or other dealer-sponsored special events. In some instances, this
compensation may be made available only to certain dealers whose representatives
have sold or are expected to sell a significant amount of such shares.
Compensation may include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Dealers may not use sales
of the Fund shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Fund or its shareholders.
Exchange Feature. Investors will have the privilege of exchanging shares of the
Fund for shares of any other series of the Trust established by Advisor. An
exchange involves the simultaneous redemption of shares of one series and
purchase of shares of another series at the respective closing net asset value
next determined after a request for redemption has been received plus applicable
sales charge, if any, and is a taxable transaction. Each series of the Trust
will have a different investment objective, which may be of interest to
investors in each series. Shares of the Fund may be exchanged for shares of any
other series of the Trust affiliated with the Advisor at the net asset value
plus the percentage difference between that series' sales charge and the sales
charge, if any, previously paid in connection with the shares being exchanged.
For example, if a 2% sales charge was paid on shares that are exchanged into a
series with a 3% sales charge, there would be an additional sales charge of 1%
on the exchange. Exchanges may only be made by investors in states where shares
of the other series are qualified for sale. An investor may direct the Fund to
exchange his shares by writing to the Fund at its principal office. The request
must be signed exactly as the investor's name appears on the account, and it
must also provide the account number, number of shares to be exchanged, the name
of the series to which the exchange will take place and a statement as to
whether the exchange is a full or partial redemption of existing shares.
Notwithstanding the foregoing, unless otherwise determined by the Fund, an
investor may not exchange shares of the Fund for shares of The Chesapeake
Aggressive Growth Fund, another series of the Trust affiliated with the Advisor,
unless such investor has an existing account with such Fund.
A pattern of frequent exchange transactions may be deemed by the Advisor to be
an abusive practice that is not in the best interests of the shareholders of the
Fund. Such a pattern may, at the discretion of the Advisor, be limited by the
Fund's refusal to accept further purchase and/or exchange orders from an
investor, after providing the investor with 60 days prior notice. The Advisor
will consider all factors it deems relevant in determining whether a pattern of
frequent purchases, redemptions and/or exchanges by a particular investor is
abusive and not in the best interests of the Fund or its other shareholders.
A shareholder should consider the investment objectives and policies of any
series into which the shareholder will be making an exchange, as described in
the prospectus for that other series. The Board of Trustees of the Trust
reserves the right to suspend or terminate, or amend the terms of, the exchange
privilege upon 60 days written notice to the shareholders.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Fund will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
net asset value on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
Stock Certificates. Stock certificates will not be issued for your shares.
Evidence of ownership will be given by issuance of periodic account statements
that will show the number of shares owned.
HOW SHARES MAY BE REDEEMED
Shares of the Fund may be redeemed (the Fund will repurchase them from
shareholders) by mail or telephone. Any redemption may be more or less than the
purchase price of your shares depending on the market value of the Fund's
portfolio securities. Redemption orders received in proper form, as indicated
herein, by the Fund, whether by mail or telephone, prior to the time trading
closes on the New York Stock Exchange (currently 4:00 p.m. New York time, Monday
through Friday), will redeem shares at the net asset value determined at that
time. Redemption orders received in proper form by the Fund after the close of
trading, or on a day when the New York Stock Exchange is not open for business,
will redeem shares at the net asset value next determined. There is no charge
for redemptions from the Fund other than possible charges for wiring redemption
proceeds. You may also redeem your shares through a broker-dealer or other
institution, who may charge you a fee for its services.
The Board of Trustees reserves the right to involuntarily redeem any account
having a net asset value of less than $25,000 (due to redemptions, exchanges or
transfers, and not due to market action) upon 30 days written notice. If the
shareholder brings his account net asset value up to $25,000 or more during the
notice period, the account will not be redeemed. Redemptions from retirement
plans may be subject to tax withholding.
If you are uncertain of the requirements for redemption, please contact the
Fund, at 1-800-430-3863, or write to the address shown below.
Regular Mail Redemptions. Your request should be addressed to The Chesapeake
Core Growth Fund, 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365. Your request for redemption must include:
1) Your letter of instruction specifying the account number, and the number
of shares or dollar amount to be redeemed. This request must be signed by
all registered shareholders in the exact names in which they are
registered;
2) Any required signature guarantees (see "Signature Guarantees" below); and
3) Other supporting legal documents, if required in the case of estates,
trusts, guardianships, custodianships, corporations, partnerships, pension
or profit sharing plans, and other organizations.
Your redemption proceeds will be sent to you within seven days after receipt of
your redemption request. However, the Fund may delay forwarding a redemption
check for recently purchased shares while it determines whether the purchase
payment will be honored. Such delay (which may take up to 10 days from the date
of purchase or, if sooner, when the purchase payment is honored) may be reduced
or avoided if the purchase is made by certified check or wire transfer. In all
cases the net asset value next determined after the receipt of the request for
redemption will be used in processing the redemption. The Fund may suspend
redemption privileges or postpone the date of payment (i) during any period that
the New York Stock Exchange is closed, or trading on the New York Stock Exchange
is restricted as determined by the Securities and Exchange Commission (the
"Commission"), (ii) during any period when an emergency exists as defined by the
rules of the Commission as a result of which it is not reasonably practicable
for the Fund to dispose of securities owned by it, or to fairly determine the
value of its assets, and (iii) for such other periods as the Commission may
permit.
Telephone and Bank Wire Redemptions. The Fund offers shareholders the option of
redeeming shares by telephone under certain limited conditions. The Fund will
redeem shares when requested by the shareholder if, and only if, the shareholder
confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (FAX#919-972-1908). The confirmation instructions must include:
1) Shareholder name and account number;
2) Number of shares or dollar amount to be redeemed;
3) Instructions for transmittal of redemption funds to the shareholder; and
4) Shareholder signature as it appears on the application then on file with
the Fund.
The net asset value used in processing the redemption will be the net asset
value next determined after the telephone request is received. Redemption
proceeds will not be distributed until written confirmation of the redemption
request is received, per the instructions above. Shareholders can choose to have
redemption proceeds mailed to them at their address of record, their bank, or to
any other authorized person, or they can have the proceeds sent by bank wire to
their bank ($5,000 minimum). Shares of the Fund may not be redeemed by wire on
days on which the bank is not open for business. Shareholders can change
redemption instructions anytime by filing a letter including new redemption
instructions with the Fund. (See "Signature Guarantees" below.) The Fund
reserves the right to restrict or cancel telephone and bank wire redemption
privileges for shareholders, without notice, if the Fund believes it to be in
the best interest of the shareholders to do so. During drastic economic and
market changes, telephone redemption privileges may be difficult to implement.
The Fund in its discretion may choose to pass through to redeeming shareholders
any charges by the Custodian for wire redemptions. The Custodian currently
charges $10.00 per transaction for wiring redemption proceeds. If this cost is
passed through to redeeming shareholders by the Fund, the charge will be
deducted automatically from the shareholder's account by redemption of shares in
the account. The shareholder's bank or brokerage firm may also impose a charge
for processing the wire. If wire transfer of funds is impossible or impractical,
the redemption proceeds will be sent by mail to the designated account.
Shareholders may redeem shares, subject to the procedures outlined above, by
calling the Fund at 1-800-430-3863. Redemption proceeds will only be sent to the
bank account or person named in the Fund Shares Application currently on file
with the Fund. Telephone redemption privileges authorize the Fund to act on
telephone instructions from any person representing himself or herself to be the
investor and reasonably believed by the Fund to be genuine. The Fund will employ
reasonable procedures, such as requiring a form of personal identification, to
confirm that instructions are genuine, and, if it does not follow such
procedures, the Fund will be liable for any losses due to fraudulent or
unauthorized instructions. The Fund will not be liable for following telephone
instructions reasonably believed to be genuine.
Systematic Withdrawal Plan. A shareholder who owns shares of the Fund valued at
$25,000 or more at current net asset value may establish a Systematic Withdrawal
Plan to receive a monthly or quarterly check in a stated amount not less than
$250. Each month or quarter as specified, the Fund will automatically redeem
sufficient shares from the account to meet the specified withdrawal amount. Call
or write the Fund for an application form. See the Statement of Additional
Information for further details.
Signature Guarantees. To protect an account and the Fund from fraud, signature
guarantees are required to authorize a change in registration, or standing
instructions, for your account. Signature guarantees are required for (1) change
of registration requests, (2) requests to establish or change exchange
privileges or telephone redemption service other than through the initial
account application, and (3) requests for redemptions in excess of $50,000.
Signature guarantees are acceptable from a member bank of the Federal Reserve
System, a savings and loan institution, credit union (if authorized under state
law), registered broker-dealer, securities exchange or association clearing
agency, and must appear on the written request for redemption, establishment or
change in exchange privileges, or change of registration.
MANAGEMENT OF THE FUND
Trustees and Officers. The Fund is a diversified series of the Gardner Lewis
Investment Trust (the "Trust"), a registered open-end management investment
company organized as a Massachusetts business trust. The Board of Trustees of
the Trust is responsible for the management of the business and affairs of the
Trust. The Trustees and executive officers of the Trust and their principal
occupations for the last five years are set forth in the Statement of Additional
Information under "Management of the Fund - Trustees and Officers." The Board of
Trustees of the Trust is primarily responsible for overseeing the conduct of the
Trust's business. The Board of Trustees elects the officers of the Trust who are
responsible for its and the Fund's day-to-day operations.
The Advisor. Subject to the authority of the Board of Trustees, Gardner Lewis
Asset Management (the "Advisor") provides the Fund with a continuous program of
supervision of the Fund's assets, including the composition of its portfolio,
and furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an Investment
Advisory Agreement (the "Advisory Agreement") with the Trust.
The Advisor is registered under the Investment Advisors Act of 1940, as amended.
Registration of the Advisor does not involve any supervision of management or
investment practices or policies by the Securities and Exchange Commission. The
Advisor, established as a Delaware corporation in 1990 and converted to a
Pennsylvania limited partnership in 1994, is controlled by W. Whitfield Gardner.
The Advisor currently serves as investment advisor to approximately $3.5 billion
in assets. The Advisor has been rendering investment counsel, utilizing
investment strategies substantially similar to that of the Fund, to two other
mutual funds, individuals, banks and thrift institutions, pension and profit
sharing plans, trusts, estates, charitable organizations and corporations since
its formation. The Advisor's address is 285 Wilmington-West Chester Pike, Chadds
Ford, Pennsylvania 19317.
Under the Advisory Agreement with the Fund, the Advisor receives a monthly
management fee equal to an annual rate of 1.00% of the average daily net asset
value of the Fund. For the fiscal period ended February 28, 1998, the Advisor
voluntarily waived its entire investment advisory fee in the amount of $19,606
and voluntarily reimbursed a portion of the Fund's operating expenses in the
amount of $8,432.
The Advisor supervises and implements the investment activities of the Fund,
including making specific decisions as to the purchase and sale of portfolio
investments. Among the responsibilities of the Advisor under the Advisory
Agreement is the selection of brokers and dealers through whom transactions in
the Fund's portfolio investments will be effected. The Advisor attempts to
obtain the best execution for all such transactions. If it is believed that more
than one broker is able to provide the best execution, the Advisor will consider
the receipt of quotations and other market services and of research, statistical
and other data and the sale of shares of the Fund in selecting a broker. The
Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. The Advisor may also utilize a brokerage firm
affiliated with the Trust or the Advisor if it believes it can obtain the best
execution of transactions from such broker. Research services obtained through
Fund brokerage transactions may be used by the Advisor for its other clients
and, conversely, the Fund may benefit from research services obtained through
the brokerage transactions of the Advisor's other clients. For further
information, see "Investment Objective and Policies - Investment Transactions"
in the Statement of Additional Information.
W. Whitfield Gardner and John L. Lewis, IV, principals of the Advisor and
executive officers of the Trust, have been responsible for day-to-day management
of the Fund's portfolio since its inception in 1997. They have been with the
Advisor since its inception. Additional information about these gentlemen is set
forth in the Statement of Additional Information under "Management of the Fund -
Trustees and Officers."
The Administrator. The Trust has entered into an Administration Agreement with
The Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069. Subject to the
authority of the Board of Trustees, the services the Administrator provides to
the Fund include coordinating and monitoring any third parties furnishing
services to the Fund; providing the necessary office space, equipment and
personnel to perform administrative and clerical functions for the Fund; and
preparing, filing and distributing proxy materials, periodic reports to
shareholders, registration statements and other documents. For its
administrative services, the Administrator is entitled to receive from the Fund
a fee based on the average daily net assets of the Fund, in addition to a base
monthly fee for accounting and recordkeeping services. The Administrator also
performs certain accounting and pricing services for the Fund as pricing agent,
including the daily calculation of the Fund's net asset value, for which it
receives certain charges and is reimbursed for out-of-pocket expenses.
The Administrator was incorporated as a North Carolina corporation in 1988. With
its predecessors and affiliates, the Administrator has been operating as a
financial services firm since 1985. Frank P. Meadows III is the firm's Managing
Director and controlling shareholder.
The Transfer Agent. NC Shareholder Services, LLC (the "Transfer Agent") serves
as the Fund's transfer, dividend paying, and shareholder servicing agent. The
Transfer Agent, subject to the authority of the Board of Trustees, provides
transfer agency services pursuant to an agreement with the Administrator, which
has been approved by the Trust. The Transfer Agent maintains the records of each
shareholder's account, answers shareholder inquiries concerning accounts,
processes purchases and redemptions of the Fund's shares, acts as dividend and
distribution disbursing agent, and performs other shareholder servicing
functions. The Fund is charged a recordkeeping fee based on the number of
shareholders in the Fund and an annual fee for shareholder administration
services.
The Transfer Agent, whose address is 107 North Washington Street, Post Office
Box 4365, Rocky Mount, North Carolina 27803-0365, was established as a North
Carolina limited liability company in 1997. John D. Marriott, Jr., is the firm's
controlling member.
The Custodian. First Union National Bank of North Carolina (the "Custodian"),
Two First Union Center, Charlotte, North Carolina 28288-1151, serves as
Custodian of the Fund's assets. The Custodian acts as the depository for the
Fund, safekeeps its portfolio securities, collects all income and other payments
with respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties.
Other Expenses. The Fund is responsible for the payment of its expenses. These
include, for example, the fees payable to the Advisor, or expenses otherwise
incurred in connection with the management of the investment of the Fund's
assets, the fees and expenses of the Custodian, Administrator, and Transfer
Agent, the fees and expenses of Trustees, outside auditing and legal expenses,
all taxes and corporate fees payable by the Fund, Securities and Exchange
Commission fees, state securities qualification fees, costs of preparing and
printing prospectuses for regulatory purposes and for distribution to
shareholders, costs of shareholder reports and shareholder meetings, and any
extraordinary expenses. The Fund also pays for brokerage commissions and
transfer taxes (if any) in connection with the purchase and sale of portfolio
securities. Expenses attributable to a particular series of the Trust, including
the Fund, will be charged to that series, and expenses not readily identifiable
as belonging to a particular series will be allocated by or under procedures
approved by the Board of Trustees among one or more series in such a manner as
it deems fair and equitable.
OTHER INFORMATION
Description of Shares. The Trust was organized as a Massachusetts business trust
on August 12, 1992, under a Declaration of Trust. The Declaration of Trust
permits the Board of Trustees to issue an unlimited number of full and
fractional shares and to create an unlimited number of series of shares. The
Board of Trustees may also classify and reclassify any unissued shares into one
or more classes of shares. The Trust currently has the number of authorized
series of shares, including the Fund, and classes of shares, described in the
Statement of Additional Information under "Description of the Trust."
When issued, the shares of each series of the Trust, including the Fund, and
each class of shares, will be fully paid, nonassessable and redeemable. The
Trust does not intend to hold annual shareholder meetings; it may, however, hold
special shareholder meetings for purposes such as changing fundamental policies
or electing Trustees. The Board of Trustees shall promptly call a meeting for
the purpose of electing or removing Trustees when requested in writing to do so
by the record holders of a least 10% of the outstanding shares of the Trust. The
term of office of each Trustee is of unlimited duration. The holders of at least
two-thirds of the outstanding shares of the Trust may remove a Trustee from that
position either by declaration in writing filed with the Custodian or by votes
cast in person or by proxy at a meeting called for that purpose.
The Trust's shareholders will vote in the aggregate and not by series (fund) or
class, except where otherwise required by law or when the Board of Trustees
determines that the matter to be voted on affects only the interests of the
shareholders of a particular series or class. Matters affecting an individual
series, such as the Fund, include, but are not limited to, the investment
objectives, policies and restrictions of that series. Shares have no
subscription, preemptive or conversion rights. Share certificates will not be
issued. Each share is entitled to one vote (and fractional shares are entitled
to proportionate fractional votes) on all matters submitted for a vote, and
shares have equal voting rights except that only shares of a particular series
or class are entitled to vote on matters affecting only that series or class.
Shares do not have cumulative voting rights. Therefore, the holders of more than
50% of the aggregate number of shares of all series of the Trust may elect all
the Trustees.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. The Declaration of Trust, therefore, contains provisions which are
intended to mitigate such liability. See "Description of the Trust" in the
Statement of Additional Information for further information about the Trust and
its shares.
Reporting to Shareholders. The Fund will send to its shareholders Annual and
Semi-Annual Reports; the financial statements appearing in Annual Reports for
the Fund will be audited by independent accountants. In addition, the Fund will
send to each shareholder having an account directly with the Fund a quarterly
statement showing transactions in the account, the total number of shares owned
and any dividends or distributions paid. Inquiries regarding the Fund may be
directed in writing to 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365 or by calling 1-800-430-3863.
Calculation of Performance Data. From time to time the Fund may advertise its
average annual total return. The "average annual total return" refers to the
average annual compounded rates of return over 1-, 5-, and 10-year periods that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment. The calculation assumes the
reinvestment of all dividends and distributions, includes all recurring fees
that are charged to all shareholder accounts and deducts all nonrecurring
charges at the end of each period. If the Fund has been operating less than 1, 5
or 10 years, the time period during which the Fund has been operating is
substituted.
In addition, the Fund may advertise other total return performance data other
than average annual total return. This data shows as a percentage rate of return
encompassing all elements of return (i.e. income and capital appreciation or
depreciation); it assumes reinvestment of all dividends and capital gain
distributions. Such other total return data may be quoted for the same or
different periods as those for which average annual total return is quoted. This
data may consist of a cumulative percentage rate of return, actual year-by-year
rates or any combination thereof. Cumulative total return represents the
cumulative change in value of an investment in the Fund for various periods.
The total return of the Fund could be increased to the extent the Advisor may
waive a portion of its fees or may reimburse a portion of the Fund's expenses.
Total return figures are based on the historical performance of the Fund, show
the performance of a hypothetical investment, and are not intended to indicate
future performance. The Fund's quotations may from time to time be used in
advertisements, sales literature, shareholder reports, or other communications.
For further information, see "Additional Information on Performance" in the
Statement of Additional Information.
<PAGE>
________________________________________________________________________________
THE CHESAPEAKE CORE GROWTH FUND
A No Load Fund
________________________________________________________________________________
PROSPECTUS
June 30, 1998
THE CHESAPEAKE CORE GROWTH FUND
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
CUSTODIAN
First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1151
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
THE CHESAPEAKE GROWTH FUND
June 30, 1998
A Series of
GARDNER LEWIS INVESTMENT TRUST
107 North Washington Street, Post Office
Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-430-3863
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Table of Contents
INVESTMENT OBJECTIVE AND POLICIES....................................................................................... 2
INVESTMENT LIMITATIONS.................................................................................................. 4
NET ASSET VALUE......................................................................................................... 5
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.......................................................................... 6
DESCRIPTION OF THE TRUST................................................................................................ 7
ADDITIONAL INFORMATION CONCERNING TAXES................................................................................. 8
MANAGEMENT OF THE FUND.................................................................................................. 9
SPECIAL SHAREHOLDER SERVICES............................................................................................ 13
ADDITIONAL INFORMATION ON PERFORMANCE................................................................................... 14
APPENDIX A - DESCRIPTION OF RATINGS..................................................................................... 17
ANNUAL REPORT OF THE FUND FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998..............................................ATTACHED
</TABLE>
This Statement of Additional Information (the "Additional Statement") is meant
to be read in conjunction with the Prospectus for the Institutional,
Super-Institutional, and Investor Shares of The Chesapeake Fund (the "Fund"),
each dated the same date as this Additional Statement, and is incorporated by
reference in its entirety into each Prospectus. Because this Additional
Statement is not itself a prospectus, no investment in shares of the Fund should
be made solely upon the information contained herein. Copies of the Fund's
Prospectuses may be obtained at no charge by writing or calling the Fund at the
address and phone number shown above. This Additional Statement is not a
prospectus but is incorporated by reference in each Prospectus in its entirety.
Capitalized terms used but not defined herein have the same meanings as in each
Prospectus.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's investment objective and policies
as set forth in the Prospectuses for each Class of Shares of the Fund. The Fund,
organized in 1994, has no prior operating history.
Additional Information on Fund Instruments. Attached to this Additional
Statement is Appendix A, which contains descriptions of the rating symbols used
by Rating Agencies for securities in which the Fund may invest.
Investment Transactions. Subject to the general supervision of the Trust's Board
of Trustees, the Advisor is responsible for, makes decisions with respect to,
and places orders for all purchases and sales of portfolio securities for the
Fund.
The annualized portfolio turnover rate for the Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of the Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and the Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The Fund's fixed income portfolio transactions will normally be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer markup. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Fund. In addition, the Advisor is authorized to cause the
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Fund. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Fund. The Trustees will periodically review any
commissions paid by the Fund to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by the Advisor. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of securities transactions
effected for such other account or investment company.
The Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. For the fiscal year ended February 28, 1998,
the Fund participated in a brokerage/service arrangement with Ernst and Company,
of New York, New York. During such year such firm received $71,370 in brokerage
commissions from the Fund and paid $26,313 of the Fund's operating expenses.
There can be no assurance that such arrangement will continue in the future.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Fund will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Fund will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations in
comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Fund will be made independently from those for any
other series of the Trust, if any, and for any other investment companies and
accounts advised or managed by the Advisor. Such other investment companies and
accounts may also invest in the same securities as the Fund. To the extent
permitted by law, the Advisor may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another investment company or account, the transaction will be averaged as to
price and available investments allocated as to amount, in a manner which the
Advisor believes to be equitable to the Fund and such other investment company
or account. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold by the Fund.
For the fiscal year ended February 28, 1998, February 28, 1997, and February 29,
1996, the Fund paid brokerage commissions of $574,295, $686,397, and $226,947,
respectively.
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to seven days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Fund will consider the creditworthiness of the vendor. If the
vendor fails to pay the agreed upon resale price on the delivery date, the Fund
will retain or attempt to dispose of the collateral. The Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Fund will not enter into any repurchase agreement which will
cause more than 10% of its net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
Description of Money Market Instruments. Money market instruments may include
U.S. Government Securities or corporate debt securities (including those subject
to repurchase agreements), provided that they mature in thirteen months or less
from the date of acquisition and are otherwise eligible for purchase by the
Fund. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When the Fund acquires a Banker's
Acceptance the bank which "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest-bearing debt obligation of a bank. Commercial Paper is an unsecured,
short term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated one of the top two rating
categories by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps
("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Fund only through the Master Note program of
the Fund's custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Fund.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of the Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, the Fund were in a position where more than 10%
of its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose, means the lesser of
(i) 67% of the Fund's outstanding shares represented in person or by proxy at a
meeting at which more than 50% of its outstanding shares are represented, or
(ii) more than 50% of its outstanding shares. Unless otherwise indicated,
percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities are
not subject to these limitations);
(2) Invest 25% or more of the value of its total assets in any one industry or
group of industries (except that securities of the U.S. Government, its
agencies and instrumentalities are not subject to these limitations);
(3) Invest more than 10% of the value of its total assets in foreign securities
or sponsored American Depository Receipts ("ADRs");
(4) Invest in the securities of any issuer if any of the officers or Trustees
of the Trust or its Investment Advisor who own beneficially more than 1/2
of 1% of the outstanding securities of such issuer together own more than
5% of the outstanding securities of such issuer;
(5) Invest for the purpose of exercising control or management of another
issuer;
(6) Invest in interests in real estate, real estate mortgage loans, real estate
limited partnerships, oil, gas or other mineral exploration leases or
development programs, except that the Fund may invest in the securities of
companies (other than those which are not readily marketable) which own or
deal in such things;
(7) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter under the federal securities laws, in
connection with the disposition of portfolio securities;
(8) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions);
(9) Make short sales of securities or maintain a short position, except short
sales "against the box"; (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.);
(10) Participate on a joint or joint and several basis in any trading account in
securities;
(11) Make loans of money or securities, except that the Fund may invest in
repurchase agreements (but repurchase agreements having a maturity of
longer than seven days, together with other illiquid securities, are
limited to 10% of the Fund's net assets);
(12) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets will be invested in
such securities;
(13) Issue senior securities, borrow money or pledge its assets;
(14) Write, purchase, or sell puts, calls, warrants, or combinations thereof, or
purchase or sell commodities, commodities contracts, futures contracts, or
related options; or
(15) Invest in restricted securities.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation.
While the Fund has reserved the right to make short sales "against the box"
(limitation number 9, above), the Advisor has no present intention of engaging
in such transactions at this time or during the coming year.
NET ASSET VALUE
The net asset value per share of each Class of the Fund is calculated separately
by adding the value of the Fund's securities and other assets belonging to the
Fund and attributable to that Class, subtracting the liabilities charged to the
Fund and to that Class, and dividing the result by the number of outstanding
shares of such Class. "Assets belonging to" the Fund consist of the
consideration received upon the issuance of shares of the Fund together with all
net investment income, realized gains/losses and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a particular
investment Fund. Income, realized and unrealized capital gains and losses, and
any expenses of the Fund not allocated to a particular Class of the Fund will be
allocated to each Class of the Fund on the basis of the net asset value of that
Class in relation to the net asset value of the Fund. Assets belonging to the
Fund are charged with the direct liabilities of the Fund and with a share of the
general liabilities of the Trust, which are normally allocated in proportion to
the number of or the relative net asset values of all of the Trust's series at
the time of allocation or in accordance with other allocation methods approved
by the Board of Trustees. Certain expenses attributable to a particular Class of
shares (such as the distribution and service fees attributable to Investor
Shares) will be charged against that Class of shares. Certain other expenses
attributable to a particular Class of shares (such as registration fees,
professional fees, and certain printing and postage expenses) may be charged
against that Class of shares if such expenses are actually incurred in a
different amount by that Class or if the Class receives services of a different
kind or to a different degree than other Classes, and the Board of Trustees
approves such allocation. Subject to the provisions of the Declaration of Trust,
determinations by the Board of Trustees as to the direct and allocable
liabilities, and the allocable portion of any general assets, with respect to
the Fund and the Classes of the Fund are conclusive.
The net asset value per share of each Class of the Fund is determined at the
time trading closes on the New York Stock Exchange (currently 4:00 p.m., New
York time, Monday through Friday), except on business holidays when the New York
Stock Exchange is closed. The New York Stock Exchange generally recognizes the
following holidays: New Year's Day, President's Day, Martin Luther King, Jr.
Day, Good Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, and
Christmas Day. Any other holiday recognized by the New York Stock Exchange will
be considered a business holiday on which the Fund's net asset value will not be
determined.
For the fiscal year ended February 28, 1998, the total expenses of the Fund
(after expense reductions of $26,313 paid by a broker pursuant to a
brokerage/service arrangement with the Fund and the waiver of $25,000 of
shareholder administration fees) were $3,164,112 (1.04%, 1.16%, 1.52%, 3.05%,
and 2.18% of the average daily net assets of the Fund's Super-Institutional,
Institutional, Series A Shares, Series C Shares, and Series D Shares,
respectively). For the fiscal year ended February 28, 1997, the total expenses
of the Fund (after expense reductions of $21,927 paid by a broker pursuant to a
brokerage/services arrangement with the Fund) were $2,561,976 (1.04%, 1.22%,
1.53%, 2.33%, and 2.01% of the average daily net assets of the Fund's
Super-Institutional, Institutional, Series A Shares, Series C Shares, and Series
D Shares, respectively). For the fiscal year ended February 29, 1996, the total
expenses of the Fund after fee waivers were $993,279 (1.49%, 1.71%, 2.18%, and
1.73% of the average daily net assets of the Fund's Institutional Shares, Series
A Shares, Series C Shares, and Series D Shares, respectively).
Super-Institutional Shares of the Fund were not authorized for issuance during
the fiscal year ended February 29, 1996.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of the Fund are offered and sold on a continuous basis and may
be purchased through authorized investment dealers or directly by contacting the
Distributor or the Fund. Selling dealers have the responsibility of transmitting
orders promptly to the Fund. The public offering price of shares of the Fund
equals net asset value, plus a sales charge generally for the Investor Shares.
Capital Investment Group, Inc. (the "Distributor") receives this sales charge as
Distributor and may reallow it in the form of dealer discounts and brokerage
commissions. The current schedule of sales charges and related dealer discounts
and brokerage commissions is set forth in the Prospectus for the Investor
Shares, along with the information on current purchases, rights of accumulation,
and letters of intent. See "How Shares May Be Purchased" in the Prospectus.
Plan Under Rule 12b-1. The Trust has adopted a Plan of Distribution (the "Plan")
for each Series of the Investor Shares of the Fund pursuant to Rule 12b-1 under
the 1940 Act (see "How Shares May Be Purchased - Distribution Plan" in the
Prospectus). Under the Plan the Fund may expend a percentage of the Investor
Shares' average net assets annually to finance any activity which is primarily
intended to result in the sale of shares of the Investor Shares of the Fund and
the servicing of shareholder accounts, provided the Trust's Board of Trustees
has approved the category of expenses for which payment is being made. This
percentage is up to 0.25%, 0.50%, and 0.75% of the average net assets of the
Series A, Series D, and Series C Investor Shares, respectively. Such
expenditures paid as service fees to any person who sells shares of the Fund may
not exceed 0.25% of the average annual net asset value of such shares. Potential
benefits of the Plan to the Fund include improved shareholder servicing, savings
to the Fund in transfer agency costs, benefits to the investment process from
growth and stability of assets and maintenance of a financially healthy
management organization.
All of the distribution expenses incurred by the Distributor and others, such as
broker-dealers, in excess of the amount paid by the Fund will be borne by such
persons without any reimbursement from the Fund. Subject to seeking best
execution, the Fund may, from time to time, buy or sell portfolio securities
from or to firms which receive payments under the Plan.
From time to time the Distributor may pay additional amounts from its own
resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.
The Plan and the Distribution Agreement with the Distributor have been approved
by the Board of Trustees of the Trust, including a majority of the Trustees who
are not "interested persons" (as defined in the 1940 Act) of the Trust and who
have no direct or indirect financial interest in the Plan or any related
agreements, by vote cast in person or at a meeting duly called for the purpose
of voting on the Plan and such Agreement. Continuation of the Plan and the
Distribution Agreement must be approved annually by the Board of Trustees in the
same manner as specified above.
Each year the Trustees must determine whether continuation of the Plan is in the
best interest of shareholders of the Fund and that there is a reasonable
likelihood of its providing a benefit to the Fund, and the Board of Trustees has
made such a determination for the current year of operations under the Plan. The
Plan, the Distribution Agreement and the Dealer Agreement with any
broker/dealers may be terminated at any time without penalty by a majority of
those trustees who are not "interested persons" or, with respect to a particular
Series of the Investor Shares, by a majority vote of the Investor Shares'
outstanding voting stock relating to that particular Series. Any amendment
materially increasing the maximum percentage payable under the Plan, with
respect to a particular Series of the Investor Shares, must likewise be approved
by a majority vote of the Investor Shares' outstanding voting stock relating to
that particular Series, as well as by a majority vote of those trustees who are
not "interested persons." Also, any other material amendment to the Plan must be
approved by a majority vote of the trustees including a majority of the
noninterested Trustees of the Trust having no interest in the Plan. In addition,
in order for the Plan to remain effective, the selection and nomination of
Trustees who are not "interested persons" of the Trust must be effected by the
Trustees who themselves are not "interested persons" and who have no direct or
indirect financial interest in the Plan. Persons authorized to make payments
under the Plan must provide written reports at least quarterly to the Board of
Trustees for their review.
For the fiscal year ended February 28, 1998, the Fund incurred $101,946,
$41,669, and $62,905 for costs in connection with the Plan under Rule 12b-1,
with respect to the Series A, Series C, and Series D Investor Shares,
respectively. Such costs were spent primarily on compensation to sales personnel
for sale of Investor Shares and servicing of shareholder accounts for Investor
Shares, with a small portion spent on miscellaneous costs incurred in connection
with distribution of the Fund.
Redemptions. Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. The Fund may also suspend or postpone
the recordation of the transfer of shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectus under "How Shares may
be Redeemed," the Fund may redeem shares involuntarily to reimburse the Fund for
any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust is an unincorporated business trust organized under Massachusetts law
on August 12, 1992. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of three series, as follows: the Fund, The
Chesapeake Aggressive Growth Fund, and the Chesapeake Core Growth Fund, all
managed by the Advisor. The shares of The Chesapeake Aggressive Growth Fund and
the Chesapeake Core Growth Fund are all of one class; the shares of the Fund are
divided into five classes (Institutional Shares, Super-Institutional Shares, and
Series A, Series C, and Series D Investor Shares). The number of shares of each
series shall be unlimited. The Trust does not intend to issue share
certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as the Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Fund, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. Rule 18f-2 under the 1940 Act provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each series or class affected by the matter. A series
or class is affected by a matter unless it is clear that the interests of each
series or class in the matter are substantially identical or that the matter
does not affect any interest of the series or class. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a series only
if approved by a majority of the outstanding shares of such series. However, the
Rule also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of the Trust voting
together, without regard to a particular series or class.
When used in the Prospectus or this Additional Statement, a "majority" of
shareholders means the vote of the lesser of (1) 67% of the shares of the Trust
or the applicable series or class present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (2)
more than 50% of the outstanding shares of the Trust or the applicable series or
class.
When issued for payment as described in the Prospectus and this Additional
Statement, shares of the Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
Each series of the Trust, including the Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. The
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including the Fund, will designate any distribution of
long term capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including the Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including the Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure to properly
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Depending upon the extent of the Fund's activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities. In addition,
in those states and localities that have income tax laws, the treatment of the
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
MANAGEMENT OF THE FUND
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Name, Age*, Position(s) Principal Occupation(s)
and Address During Past 5 Years
Jack E. Brinson, 65 President, Brinson Investment Co. (personal investments)
Trustee President, Brinson Chevrolet, Inc. (auto dealership)
1105 Panola Street Tarboro, North Carolina
Tarboro, North Carolina 27886
W. Whitfield Gardner, 35 Chairman and Executive Officer
Trustee** Gardner Lewis Asset Management (Advisor to the Chesapeake Funds)
Chief Executive Officer Chadds Ford, Pennsylvania
The Chesapeake Funds
285 Wilmington - West Chester Pike
Chadds Ford, Pennsylvania 19317
Stephen J. Kneeley, 35 Chief Operating Officer
Trustee Turner Investment Partners (investment manager)
1235 Westlakes Drive Berwyn, Pennsylvania
Suite 350
Berwyn, Pennsylvania 19312
John L. Lewis, IV, 34 President
President Gardner Lewis Asset Management (Advisor to the Chesapeake Funds)
The Chesapeake Funds Chadds Ford, Pennsylvania
285 Wilmington - West Chester Pike
Chadds Ford, Pennsylvania 19317
Julian G. Winters, 29 Legal and Compliance Director
Treasurer and Assistant Secretary The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina (Administrator to the Chesapeake
Rocky Mount, North Carolina 27802 Funds), since 1996; previously Operations Manager, Tar Heel Med, Nashville,NC
C. Frank Watson III, 27 Vice President
Secretary and Assistant Treasurer The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina (Administrator to the Chesapeake
Rocky Mount, North Carolina 27802 Funds)
William D. Zantzinger, 36 Director of Trading
Vice President Gardner Lewis Asset Management (Advisor to the Chesapeake Funds)
The Chesapeake Funds Chadds Ford, Pennsylvania
285 Wilmington - West Chester Pike
Chadds Ford, Pennsylvania 19317
- -------------------------------
</TABLE>
* As of May 1, 1997
** Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act because of his position with the Advisor to the Trust.
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $7,500 each year plus $400
per series of the Trust per meeting attended in person and $150 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Compensation Table
Pension Total
Retirement Compensation
Aggregate Benefits Estimated from the
Compensation Accrued As Annual Trust
Name of Person, from the Part of Fund Benefits Upon Paid to
Position Trust Expenses Retirement Trustees
- -------------------- ------------- ------------ ---------------- -----------
Jack E. Brinson $9,400 None None $9,400
Trustee
W. Whitfield Gardner None None None None
Trustee
Stephen J. Kneeley $9,900 None None $9,900
Trustee
</TABLE>
Figures are for the calendar year ended December 31, 1996.
Principal Holders of Voting Securities. As of June 8, 1998, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 1% of the then outstanding shares of each Class of
the Fund. On the same date the following shareholders owned of record more than
5% of the outstanding shares of beneficial interest of a Class of the Fund.
Except as provided below, no person is known by the Trust to be the beneficial
owner of more than 5% of the outstanding shares of a Class of the Fund as of
June 8, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership* of Class
INSTITUTIONAL SHARES
Crestar Bank Custodian FBO 710,223.050 Shares 13.660%
Carpenter Co. Profit Sharing Plan
P.O. Box 26665
Richmond, Virginia 23267
Norwest Bank Minnesota, N.A., Trustee 488,595.580 Shares 9.398%
FBO COBANK ACB Retirement Plan
P. O. Box 1533
Minneapolis, Minnesota 55480
SERIES A INVESTOR SHARES
Charles Schwab & Company, Inc. 246,263.458 Shares 10.645%
Custody Account FBO Customers 116,574.985 Shares 5.039%
101 Montgomery Street
San Francisco, CA 94104
SUPER-INSTITUTIONAL SHARES
Ohio School 6,599,065.304 Shares 100.00%**
Employee Retirement System
45 North 4th Street
Columbus, OH 43214-3634
</TABLE>
* The shares indicated are believed by the Fund to be owned both of record and
beneficially, except as indicated above.
** Pursuant to applicable SEC regulations, this shareholder is deemed to control
the indicated Class of Shares of the Fund.
Investment Advisor. Information about Gardner Lewis Asset Management, Chadds
Ford, Pennsylvania (the "Advisor") and its duties and compensation as Advisor is
contained in the Prospectus. The Advisor supervises the Fund's investments
pursuant to an Investment Advisory Agreement (the "Advisory Agreement"). The
Advisory Agreement is currently effective for a one-year period and will be
renewed thereafter only so long as such renewal and continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the Fund's outstanding voting securities, provided the continuance is also
approved by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party. The Advisory Agreement is
terminable without penalty on 60-days' notice by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Fund.
The Advisory Agreement provides that it will terminate automatically in the
event of its assignment.
The Advisor will receive a monthly management fee equal to an annual rate of
1.00% of the average daily net asset value of the Fund. For the fiscal year
ended February 28, 1998, the Advisor received its fee in the amount of
$2,532,147. For the fiscal year ended February 28, 1997, the Advisor received
its fee in the amount of $1,940,587. The Advisor voluntarily waived a portion of
its fee for the fiscal year ended February 29, 1996. The total fees waived
amounted to $98,808 (the Advisor received $545,139 of its fee).
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator and Transfer Agent. The Trust has entered into a Fund Accounting,
Dividend Disbursing & Transfer Agent and Administration Agreement with The
Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069, pursuant to which the
Administrator receives a fee at the annual rate of 0.075% of the average daily
net assets of each Class of Investor and Institutional Shares of the Fund for
general administration services. In addition, the Administrator currently
receives a base monthly fee of $1,750 for each Class of Investor and
Institutional Shares for accounting and recordkeeping services for such Classes
of Shares of the Fund. The Administrator also receives a fee at the annual rate
of 0.015% of the average daily net assets of each Class of Shares of the Fund
for shareholder administration services. This fee is paid to the Transfer Agent.
The Administrator also charges the Fund for certain costs involved with the
daily valuation of investment securities and is reimbursed for out-of-pocket
expenses. The Administrator charges a minimum fee of $3,000 per month for all of
its fees for the Fund taken in the aggregate, analyzed monthly. For services to
the Fund for the fiscal year ended February 28, 1998, February 28, 1997, and
February 29, 1996, the Administrator received aggregate administration fees of
$183,081 (waiving $25,000 of shareholder administration fees), $146,824, and
$65,947, respectively. For such fiscal years, the Administrator received
$84,000, $84,000, and $78,750, respectively, for accounting and recordkeeping
services.
The Administrator will perform the following services for the Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the Securities and Exchange Commission and other federal and
state regulatory authorities as may be required by applicable law; (8) review
and submit to the officers of the Trust for their approval invoices or other
requests for payment of Fund expenses and instruct the Custodian to issue checks
in payment thereof; and (9) take such other action with respect to the Fund as
may be necessary in the opinion of the Administrator to perform its duties under
the agreement. The Administrator will also provide certain accounting and
pricing services for the Fund.
With the approval of the Trust, the Administrator has contracted with North
Carolina Shareholder Services, LLC (the "Transfer Agent"), a North Carolina
limited liability company, to serve as transfer, dividend paying, and
shareholder servicing agent for the Fund. The Transfer Agent is compensated for
its services by the Administrator and not directly by the Fund. The address of
the Transfer Agent is 107 North Washington Street, Post Office Box 4365, Rocky
Mount, North Carolina 27803-0365.
Distributor. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
the Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement (the "Distribution Agreement") approved by
the Board of Trustees of the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the Securities and Exchange
Commission and a member in good standing of the National Association of
Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60 days prior
written notice to the other party.
For the fiscal year ended February 28, 1998, the aggregate dollar amount of
sales charges paid on the sales of Fund shares was $52,735, from which the
Distributor retained sales charges of $5,616. For the fiscal year ended February
28, 1997, the aggregate dollar amount of sales charges paid on the sale of Fund
shares was $110,001, from which the Distributor retained sales charges of
$8,836. For the fiscal year ended February 29, 1996, the aggregate dollar amount
of sales charges paid on the sale of Fund shares was $709,015, from which the
Distributor retained sales charges of $55,149.
Custodian. First Union National Bank of North Carolina (the "Custodian"), Two
First Union Center, Charlotte, North Carolina 28288-1151, serves as custodian
for the Fund's assets. The Custodian acts as the depository for the Fund,
safekeeps its portfolio securities, collects all income and other payments with
respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties as Custodian. For its services
as Custodian, the Custodian is entitled to receive from the Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
Independent Auditors. The firm of Deloitte & Touche LLP, 2500 One PPG Place,
Pittsburgh, Pennsylvania 15222-5401, serves as independent auditors for the
Fund, and will audit the annual financial statements of the Fund, prepare the
Fund's federal and state tax returns, and consult with the Fund on matters of
accounting and federal and state income taxation. A copy of the most recent
annual report of the Fund will accompany this Additional Statement whenever it
is requested by a shareholder or prospective investor.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan (Investor and Institutional Shares Only). The
automatic investment plan enables shareholders to make regular monthly or
quarterly investment in shares through automatic charges to their checking
account. With shareholder authorization and bank approval, the Fund will
automatically charge the checking account for the amount specified ($100
minimum) which will be automatically invested in shares at the public offering
price on or about the 21st day of the month. The shareholder may change the
amount of the investment or discontinue the plan at any time by writing to the
Fund.
Systematic Withdrawal Plan (Investor and Institutional Shares Only).
Shareholders owning shares with a value of $10,000 or more ($1,000,000 or more
for holders of Institutional Shares) may establish a Systematic Withdrawal Plan.
A shareholder may receive monthly or quarterly payments, in amounts of not less
than $100 per payment, by authorizing the Fund to redeem the necessary number of
shares periodically (each month, or quarterly in the months of March, June,
September and December) in order to make the payments requested. The Fund has
the capacity of electronically depositing the proceeds of the systematic
withdrawal directly to the shareholder's personal bank account ($5,000 minimum
per bank wire). Instructions for establishing this service are included in the
Fund Shares Application, enclosed in the Prospectus, or available by calling the
Fund. If the shareholder prefers to receive his systematic withdrawal proceeds
in cash, or if such proceeds are less than the $5,000 minimum for a bank wire,
checks will be made payable to the designated recipient and mailed within 7 days
of the valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Fund. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the Fund
upon sixty days written notice or by a shareholder upon written notice to the
Fund.
Applications and further details may be obtained by calling the Fund at
1-800-430-3863, or by writing to:
The Chesapeake Growth Fund
[Investor Shares] or [Institutional Shares]
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. The Fund may accept securities in lieu of cash in payment for
the purchase of shares in the Fund. The acceptance of such securities is at the
sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the Fund at the address shown herein. Your request should include the
following: (1) the Fund name and existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the Fund.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of each Class of the Fund may be quoted in
advertisements, sales literature, shareholder reports or other communications to
shareholders. The Fund computes the "average annual total return" of each Class
of the Fund by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested to the ending
redeemable value of such investment. This is done by determining the ending
redeemable value of a hypothetical $1,000 initial payment. This calculation is
as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period.
P = hypothetical initial payment of $1,000 from
which the maximum sales load is deducted.
n = period covered by the computation, expressed in
terms of years.
The Fund may also compute the aggregate total return of each Class of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund may also quote other total
return information that does not reflect the effects of the sales load.
The average annual total return for the Institutional Shares of the Fund for the
year ended February 28, 1998, the three years ended February 28, 1998, and since
inception (April 6, 1994 to February 28, 1998) was 25.25%, 22.24%, and 20.39%,
respectively. The cumulative total return for the Institutional Shares of the
Fund since inception through February 28, 1998, was 106.24%.
The average annual total return for the Series A, Series C, and Series D
Investor Shares of the Fund for the year ended February 28, 1998, was 21.06%,
22.95%, and 22.20%, respectively. The average annual total return for the Series
A, Series C, and Series D Investor Shares of the Fund since inception (April 7,
1995 to February 28, 1998) was 19.66%, 19.73%, and 19.79%, respectively. Without
reflecting the effects of the maximum sales load, the average annual total
return for the Series A and Series D Investor Shares of the Fund for the year
ended February 28, 1998, was 24.80% and 24.06%, respectively. Without reflecting
the effects of the maximum sales load, the average annual total return for the
Series A and Series D Investor Shares of the Fund since inception (April 7, 1995
to February 28, 1998) was 20.92% and 20.42%, respectively. The cumulative total
return for the Series A, Series C, and Series D Investor Shares of the Fund
since inception through February 28, 1998, was 68.24%, 68.55%, and 68.78%,
respectively. Without reflecting the effects of the maximum sales load, the
cumulative total return for the Series A and Series D Investor Shares of the
Fund since inception through February 28, 1998, was 73.45% and 71.35%,
respectively.
The Fund may also quote the performance of the Series A Investor Shares of the
Fund from the original inception of the Fund on April 6, 1994, as opposed to the
inception of the class of Series A Investor Shares on April 7, 1995. Under such
circumstances, historical performance of the Series A Shares will be calculated
by using the performance of the original class of the Fund (now called the
Institutional Shares) from inception on April 6, 1994, until the date of
issuance of the class of Series A Shares on April 7, 1995, and combining such
performance with the performance of the Series A Shares since April 7, 1995.
Calculated in this manner, the average annual return of the Series A Shares of
the Fund since inception through February 28, 1998, with and without reflecting
the effects of the maximum sales load, was 19.19% and 20.13%, respectively, and
the cumulative total return of the Series A Shares of the Fund since inception
through February 28, 1998, with and without reflecting the effects of the
maximum sales load, was 98.36% and 104.50%, respectively.
The average annual total return for the Super-Institutional Shares of the Fund
for the year ended February 28, 1998 and since inception (June 12, 1996 to
February 28, 1998) was 25.40% and 17.36%, respectively. The cumulative total
return for the Super-Institutional Shares of the Fund through February 28, 1998
was 31.53%.
These performance quotations should not be considered representative of the
Fund's performance for any specified period in the future.
The Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Total Return Index and the NASDAQ Industrials Index, which are
generally considered to be representative of the performance of unmanaged common
stocks that are publicly traded in the United States securities markets. The
Fund may also compare its performance to the Russell 2000 Index, which is
generally considered to be representative of the performance of unmanaged common
stocks of small captialization companies that are publicly traded in the United
States securities markets. Comparative performance may also be expressed by
reference to a ranking prepared by a mutual fund monitoring service or by one or
more newspapers, newsletters or financial periodicals. The Fund may also
occasionally cite statistics to reflect its volatility and risk. The Fund may
also compare its performance to other published reports of the performance of
unmanaged portfolios of companies. The performance of such unmanaged portfolios
generally does not reflect the effects of dividends or dividend reinvestment. Of
course, there can be no assurance that the Fund will experience the same
results. Performance comparisons may be useful to investors who wish to compare
the Fund's past performance to that of other mutual funds and investment
products. Of course, past performance is not a guarantee of future results.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, the Fund may advertise its performance compared
to similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). The Fund may also depict the historical performance of
the securities in which the Fund may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund will normally be at least 90% invested in equities. As a temporary
defensive position, however, the Fund may invest up to 100% of its assets in
investment grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments ("Investment-Grade Debt Securities"). When the Fund
invests in Investment Grade-Debt Securities as a temporary defensive measure, it
is not pursuing its investment objective. Under normal circumstances, however,
the fund may invest in money market or repurchase agreement instruments as
described in the Prospectus. The various ratings used by the nationally
recognized securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity of the obligor to meet its financial
commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation is
very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
"Investment-Grade Debt Securities" and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment attributes
and is to be considered as an upper medium grade obligation. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Debt which is rated Baa is considered as a medium grade obligation,
i.e., it is neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such debt lacks outstanding investment
characteristics and in fact has speculative characteristics as well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered "Investment-Grade Debt Securities" by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because
of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below-average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
"Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA - Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher
ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative". The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the three highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+
F-2 - Instruments assigned this rating have satisfactory degree of
assurance for timely payment, but the margin of safety is not as great as
for issues assigned F-1+ and F-1 ratings.
<PAGE>
------------------------------------------------------------------------------
THE CHESAPEAKE GROWTH FUND
------------------------------------------------------------------------------
a series of the Gardner Lewis Investment Trust
Annual Report 1998
FOR THE YEAR ENDED FEBRUARY 28
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>
April 1, 1998
Dear Shareholder:
The Chesapeake Growth Fund Institutional Class closed the first quarter
with a gain of 13.3%. This gain compares to gains of 13.9%, 11.5%, and 10.1% for
the S&P 500, Nasdaq Industrials, and Russell 2000, respectively. This certainly
is a great way to start the year, but as the quarter began, the story was
different. Asia continued to dominate Wall Street headlines, broadcasts, and
trading rooms. This in turn created massive pessimism among market participants
and from our perspective provided a form of cover, ideal for ferreting out the
market's inefficiencies. As it relates to investing, whenever so much thought is
directed toward one conclusion there is usually opportunity in another.
There is no doubt that Asia is a significant problem, but there is
doubt that its impact will be so great as to result in U.S. companies doing no
business there. However, if you were to have looked at many Wall Street
analysts' earnings estimates for companies with exposure to Asia, you would have
discovered that in a large number of cases, assumptions for the region were cut
to zero. This, in our minds, certainly constituted a maximum point of pessimism,
a point reflected in stock prices as they bottomed in the middle of January.
Thus, it became our view that this pessimism had created opportunity. Many
lesser known but fundamentally sound companies, despite little or no exposure to
the region, had suffered stock price compression as money fled to the largest
most recognizable names.
In the last several months, it has been phenomenal to watch this flow
of funds which until recently had been almost solely directed at large
companies. This has occurred despite the fact that those smaller typically have
far less macroeconomic sensitivity, are growing faster, and are selling at more
reasonable valuations. The return data related to the market's capitalization
skew still amazes us. Its significance is best demonstrated by looking at the
Nasdaq which has the broadest range of company sizes. Its largest capitalization
quintile, dominated by the likes of Microsoft and Intel is the only one to have
had a positive return since the index's peak in October of 1997. The smallest
quintile was still behind by almost 13%. It is no wonder that through February
two-thirds of Nasdaq companies were trading below their October levels.
The effect of these large cap fund flows has been to force managers to
put money to work in a segment of the market selling at historic levels of
valuation. These flows are fueled both by the continued movement toward
indexation and the stronger relative performance of these larger companies.
Thus, in a sense, gains in this segment have been self-fulfilling, and to the
extent money continues to flow in, they can continue. However, this, stand
alone, is not enough for us. Instead, we as fundamentalists rely on the quality
and value of each individual investment that we make. We would not want money
flows to be the prop for our stock prices. And, our strong gains so far this
year demonstrate that individual companies can and will appreciate despite
significant money flow to other areas.
<PAGE>
This having been said, preliminary data suggests March to be an
entirely different picture. It appears as though flows to funds investing in
large companies have been sluggish while flows to those investing down cap have
risen dramatically. In addition, many active large cap managers have grown
increasingly uncomfortable with the prices of companies in their universe and
those with enough latitude to do so have begun to look down cap as well. These
facts coupled with the recognition of their superior valuation characteristics,
to be evidenced by coming quarterly earnings announcements, could be all that
the smaller and mid capitalization names need to once again lead in performance.
As the data above demonstrates, the market's advance has yet to truly
broaden. This to us means opportunity. Therefore, in conjunction with having
maintained ownership in the vast majority of our portfolio, knowing that as the
fundamentals become more clearly understood their stock prices will reflect
them, we have intensified our efforts to add to our portfolio more of what we
believe will be the market's next movers. This has led us to increase our
exposure to a variety of industry groups after having raised needed cash by
taking profits in some of our technology holdings whose multiples, despite Asia,
had expanded to the point that we thought them fully valued. For, we think with
interest rates no longer a catalyst for higher price-earnings ratios, and the
crisis in Asia along with other macroeconomic concerns making it dicey to be
blindly invested, earnings should finally drive this market. To that end, our
companies continue to grow in excess of 35% and sell at about 17 times earnings.
This compares to the S&P 500 which is growing at 8% and selling at more than 22
times earnings. Simply put, our companies are selling at less than half their
growth rates while the S&P is selling at more than twice its growth rate.
Already we have seen a seeming desire on the part of investors to refocus on
fundamentals. The forthcoming quarters should only further this movement.
Many exciting advancements and changes are taking place. As just one
example, a typical doctor's office doesn't look any different today than it did
perhaps twenty-five years ago, excepting its current absence of shag carpet.
But, a look into the guts of forward thinking medical practices reveals an
industry undergoing tremendous change. Thus the opportunity is ripe for the
fundamental investor. In order to compete in an environment of cost containment,
doctors are faced with the dilemma of delivering quality medical care at lower
cost. Public companies have been born of physicians' practices consolidating
into organizations yielding overhead synergies, multi-specialty synergies, and
higher patient throughputs. Public companies have sprung up to provide industry
specific software aimed at facilitating the overwhelming paper pushing burden.
And, management of resources from nursing staffs to medical supplies is being
outsourced to public companies eager to administer a doctor's entire practice.
The point is that many practices are now being run as efficient businesses built
on the best possible service at the most reasonable price, a model that will
allow both the forward looking physician and the patient community to win.
In coming quarters, we will continue our discovery and culling process,
always attempting to own the best companies at the most reasonable prices. This
should both protect our fundamental downside and maximize our upside potential.
Have a pleasant Spring!
Sincerely,
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
April 1, 1998
Dear Shareholder:
The Chesapeake Growth Fund Series A closed the first quarter with a
gain of 13.2%. This gain compares to gains of 13.9%, 11.5%, and 10.1% for the
S&P 500, Nasdaq Industrials, and Russell 2000, respectively. This certainly is a
great way to start the year, but as the quarter began, the story was different.
Asia continued to dominate Wall Street headlines, broadcasts, and trading rooms.
This in turn created massive pessimism among market participants and from our
perspective provided a form of cover, ideal for ferreting out the market's
inefficiencies. As it relates to investing, whenever so much thought is directed
toward one conclusion there is usually opportunity in another.
There is no doubt that Asia is a significant problem, but there is
doubt that its impact will be so great as to result in U.S. companies doing no
business there. However, if you were to have looked at many Wall Street
analysts' earnings estimates for companies with exposure to Asia, you would have
discovered that in a large number of cases, assumptions for the region were cut
to zero. This, in our minds, certainly constituted a maximum point of pessimism,
a point reflected in stock prices as they bottomed in the middle of January.
Thus, it became our view that this pessimism had created opportunity. Many
lesser known but fundamentally sound companies, despite little or no exposure to
the region, had suffered stock price compression as money fled to the largest
most recognizable names.
In the last several months, it has been phenomenal to watch this flow
of funds which until recently had been almost solely directed at large
companies. This has occurred despite the fact that those smaller typically have
far less macroeconomic sensitivity, are growing faster, and are selling at more
reasonable valuations. The return data related to the market's capitalization
skew still amazes us. Its significance is best demonstrated by looking at the
Nasdaq which has the broadest range of company sizes. Its largest capitalization
quintile, dominated by the likes of Microsoft and Intel is the only one to have
had a positive return since the index's peak in October of 1997. The smallest
quintile was still behind by almost 13%. It is no wonder that through February
two-thirds of Nasdaq companies were trading below their October levels.
The effect of these large cap fund flows has been to force managers to
put money to work in a segment of the market selling at historic levels of
valuation. These flows are fueled both by the continued movement toward
indexation and the stronger relative performance of these larger companies.
Thus, in a sense, gains in this segment have been self-fulfilling, and to the
extent money continues to flow in, they can continue. However, this, stand
alone, is not enough for us. Instead, we as fundamentalists rely on the quality
and value of each individual investment that we make. We would not want money
flows to be the prop for our stock prices. And, our strong gains so far this
year demonstrate that individual companies can and will appreciate despite
significant money flow to other areas.
<PAGE>
This having been said, preliminary data suggests March to be an
entirely different picture. It appears as though flows to funds investing in
large companies have been sluggish while flows to those investing down cap have
risen dramatically. In addition, many active large cap managers have grown
increasingly uncomfortable with the prices of companies in their universe and
those with enough latitude to do so have begun to look down cap as well. These
facts coupled with the recognition of their superior valuation characteristics,
to be evidenced by coming quarterly earnings announcements, could be all that
the smaller and mid capitalization names need to once again lead in performance.
As the data above demonstrates, the market's advance has yet to truly
broaden. This to us means opportunity. Therefore, in conjunction with having
maintained ownership in the vast majority of our portfolio, knowing that as the
fundamentals become more clearly understood their stock prices will reflect
them, we have intensified our efforts to add to our portfolio more of what we
believe will be the market's next movers. This has led us to increase our
exposure to a variety of industry groups after having raised needed cash by
taking profits in some of our technology holdings whose multiples, despite Asia,
had expanded to the point that we thought them fully valued. For, we think with
interest rates no longer a catalyst for higher price-earnings ratios, and the
crisis in Asia along with other macroeconomic concerns making it dicey to be
blindly invested, earnings should finally drive this market. To that end, our
companies continue to grow in excess of 35% and sell at about 17 times earnings.
This compares to the S&P 500 which is growing at 8% and selling at more than 22
times earnings. Simply put, our companies are selling at less than half their
growth rates while the S&P is selling at more than twice its growth rate.
Already we have seen a seeming desire on the part of investors to refocus on
fundamentals. The forthcoming quarters should only further this movement.
Many exciting advancements and changes are taking place. As just one
example, a typical doctor's office doesn't look any different today than it did
perhaps twenty-five years ago, excepting its current absence of shag carpet.
But, a look into the guts of forward thinking medical practices reveals an
industry undergoing tremendous change. Thus the opportunity is ripe for the
fundamental investor. In order to compete in an environment of cost containment,
doctors are faced with the dilemma of delivering quality medical care at lower
cost. Public companies have been born of physicians' practices consolidating
into organizations yielding overhead synergies, multi-specialty synergies, and
higher patient throughputs. Public companies have sprung up to provide industry
specific software aimed at facilitating the overwhelming paper pushing burden.
And, management of resources from nursing staffs to medical supplies is being
outsourced to public companies eager to administer a doctor's entire practice.
The point is that many practices are now being run as efficient businesses built
on the best possible service at the most reasonable price, a model that will
allow both the forward looking physician and the patient community to win.
In coming quarters, we will continue our discovery and culling process,
always attempting to own the best companies at the most reasonable prices. This
should both protect our fundamental downside and maximize our upside potential.
Have a pleasant Spring!
Sincerely,
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
April 1, 1998
Dear Shareholder:
The Chesapeake Growth Fund Series C closed the first quarter with a
gain of 12.7%. This gain compares to gains of 13.9%, 11.5%, and 10.1% for the
S&P 500, Nasdaq Industrials, and Russell 2000, respectively. This certainly is a
great way to start the year, but as the quarter began, the story was different.
Asia continued to dominate Wall Street headlines, broadcasts, and trading rooms.
This in turn created massive pessimism among market participants and from our
perspective provided a form of cover, ideal for ferreting out the market's
inefficiencies. As it relates to investing, whenever so much thought is directed
toward one conclusion there is usually opportunity in another.
There is no doubt that Asia is a significant problem, but there is
doubt that its impact will be so great as to result in U.S. companies doing no
business there. However, if you were to have looked at many Wall Street
analysts' earnings estimates for companies with exposure to Asia, you would have
discovered that in a large number of cases, assumptions for the region were cut
to zero. This, in our minds, certainly constituted a maximum point of pessimism,
a point reflected in stock prices as they bottomed in the middle of January.
Thus, it became our view that this pessimism had created opportunity. Many
lesser known but fundamentally sound companies, despite little or no exposure to
the region, had suffered stock price compression as money fled to the largest
most recognizable names.
In the last several months, it has been phenomenal to watch this flow
of funds which until recently had been almost solely directed at large
companies. This has occurred despite the fact that those smaller typically have
far less macroeconomic sensitivity, are growing faster, and are selling at more
reasonable valuations. The return data related to the market's capitalization
skew still amazes us. Its significance is best demonstrated by looking at the
Nasdaq which has the broadest range of company sizes. Its largest capitalization
quintile, dominated by the likes of Microsoft and Intel is the only one to have
had a positive return since the index's peak in October of 1997. The smallest
quintile was still behind by almost 13%. It is no wonder that through February
two-thirds of Nasdaq companies were trading below their October levels.
The effect of these large cap fund flows has been to force managers to
put money to work in a segment of the market selling at historic levels of
valuation. These flows are fueled both by the continued movement toward
indexation and the stronger relative performance of these larger companies.
Thus, in a sense, gains in this segment have been self-fulfilling, and to the
extent money continues to flow in, they can continue. However, this, stand
alone, is not enough for us. Instead, we as fundamentalists rely on the quality
and value of each individual investment that we make. We would not want money
flows to be the prop for our stock prices. And, our strong gains so far this
year demonstrate that individual companies can and will appreciate despite
significant money flow to other areas.
<PAGE>
This having been said, preliminary data suggests March to be an
entirely different picture. It appears as though flows to funds investing in
large companies have been sluggish while flows to those investing down cap have
risen dramatically. In addition, many active large cap managers have grown
increasingly uncomfortable with the prices of companies in their universe and
those with enough latitude to do so have begun to look down cap as well. These
facts coupled with the recognition of their superior valuation characteristics,
to be evidenced by coming quarterly earnings announcements, could be all that
the smaller and mid capitalization names need to once again lead in performance.
As the data above demonstrates, the market's advance has yet to truly
broaden. This to us means opportunity. Therefore, in conjunction with having
maintained ownership in the vast majority of our portfolio, knowing that as the
fundamentals become more clearly understood their stock prices will reflect
them, we have intensified our efforts to add to our portfolio more of what we
believe will be the market's next movers. This has led us to increase our
exposure to a variety of industry groups after having raised needed cash by
taking profits in some of our technology holdings whose multiples, despite Asia,
had expanded to the point that we thought them fully valued. For, we think with
interest rates no longer a catalyst for higher price-earnings ratios, and the
crisis in Asia along with other macroeconomic concerns making it dicey to be
blindly invested, earnings should finally drive this market. To that end, our
companies continue to grow in excess of 35% and sell at about 17 times earnings.
This compares to the S&P 500 which is growing at 8% and selling at more than 22
times earnings. Simply put, our companies are selling at less than half their
growth rates while the S&P is selling at more than twice its growth rate.
Already we have seen a seeming desire on the part of investors to refocus on
fundamentals. The forthcoming quarters should only further this movement.
Many exciting advancements and changes are taking place. As just one
example, a typical doctor's office doesn't look any different today than it did
perhaps twenty-five years ago, excepting its current absence of shag carpet.
But, a look into the guts of forward thinking medical practices reveals an
industry undergoing tremendous change. Thus the opportunity is ripe for the
fundamental investor. In order to compete in an environment of cost containment,
doctors are faced with the dilemma of delivering quality medical care at lower
cost. Public companies have been born of physicians' practices consolidating
into organizations yielding overhead synergies, multi-specialty synergies, and
higher patient throughputs. Public companies have sprung up to provide industry
specific software aimed at facilitating the overwhelming paper pushing burden.
And, management of resources from nursing staffs to medical supplies is being
outsourced to public companies eager to administer a doctor's entire practice.
The point is that many practices are now being run as efficient businesses built
on the best possible service at the most reasonable price, a model that will
allow both the forward looking physician and the patient community to win.
In coming quarters, we will continue our discovery and culling process,
always attempting to own the best companies at the most reasonable prices. This
should both protect our fundamental downside and maximize our upside potential.
Have a pleasant Spring!
Sincerely,
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
April 1, 1998
Dear Shareholder:
The Chesapeake Growth Fund Series D closed the first quarter with a
gain of 13.0%. This gain compares to gains of 13.9%, 11.5%, and 10.1% for the
S&P 500, Nasdaq Industrials, and Russell 2000, respectively. This certainly is a
great way to start the year, but as the quarter began, the story was different.
Asia continued to dominate Wall Street headlines, broadcasts, and trading rooms.
This in turn created massive pessimism among market participants and from our
perspective provided a form of cover, ideal for ferreting out the market's
inefficiencies. As it relates to investing, whenever so much thought is directed
toward one conclusion there is usually opportunity in another.
There is no doubt that Asia is a significant problem, but there is
doubt that its impact will be so great as to result in U.S. companies doing no
business there. However, if you were to have looked at many Wall Street
analysts' earnings estimates for companies with exposure to Asia, you would have
discovered that in a large number of cases, assumptions for the region were cut
to zero. This, in our minds, certainly constituted a maximum point of pessimism,
a point reflected in stock prices as they bottomed in the middle of January.
Thus, it became our view that this pessimism had created opportunity. Many
lesser known but fundamentally sound companies, despite little or no exposure to
the region, had suffered stock price compression as money fled to the largest
most recognizable names.
In the last several months, it has been phenomenal to watch this flow
of funds which until recently had been almost solely directed at large
companies. This has occurred despite the fact that those smaller typically have
far less macroeconomic sensitivity, are growing faster, and are selling at more
reasonable valuations. The return data related to the market's capitalization
skew still amazes us. Its significance is best demonstrated by looking at the
Nasdaq which has the broadest range of company sizes. Its largest capitalization
quintile, dominated by the likes of Microsoft and Intel is the only one to have
had a positive return since the index's peak in October of 1997. The smallest
quintile was still behind by almost 13%. It is no wonder that through February
two-thirds of Nasdaq companies were trading below their October levels.
The effect of these large cap fund flows has been to force managers to
put money to work in a segment of the market selling at historic levels of
valuation. These flows are fueled both by the continued movement toward
indexation and the stronger relative performance of these larger companies.
Thus, in a sense, gains in this segment have been self-fulfilling, and to the
extent money continues to flow in, they can continue. However, this, stand
alone, is not enough for us. Instead, we as fundamentalists rely on the quality
and value of each individual investment that we make. We would not want money
flows to be the prop for our stock prices. And, our strong gains so far this
year demonstrate that individual companies can and will appreciate despite
significant money flow to other areas.
<PAGE>
This having been said, preliminary data suggests March to be an
entirely different picture. It appears as though flows to funds investing in
large companies have been sluggish while flows to those investing down cap have
risen dramatically. In addition, many active large cap managers have grown
increasingly uncomfortable with the prices of companies in their universe and
those with enough latitude to do so have begun to look down cap as well. These
facts coupled with the recognition of their superior valuation characteristics,
to be evidenced by coming quarterly earnings announcements, could be all that
the smaller and mid capitalization names need to once again lead in performance.
As the data above demonstrates, the market's advance has yet to truly
broaden. This to us means opportunity. Therefore, in conjunction with having
maintained ownership in the vast majority of our portfolio, knowing that as the
fundamentals become more clearly understood their stock prices will reflect
them, we have intensified our efforts to add to our portfolio more of what we
believe will be the market's next movers. This has led us to increase our
exposure to a variety of industry groups after having raised needed cash by
taking profits in some of our technology holdings whose multiples, despite Asia,
had expanded to the point that we thought them fully valued. For, we think with
interest rates no longer a catalyst for higher price-earnings ratios, and the
crisis in Asia along with other macroeconomic concerns making it dicey to be
blindly invested, earnings should finally drive this market. To that end, our
companies continue to grow in excess of 35% and sell at about 17 times earnings.
This compares to the S&P 500 which is growing at 8% and selling at more than 22
times earnings. Simply put, our companies are selling at less than half their
growth rates while the S&P is selling at more than twice its growth rate.
Already we have seen a seeming desire on the part of investors to refocus on
fundamentals. The forthcoming quarters should only further this movement.
Many exciting advancements and changes are taking place. As just one
example, a typical doctor's office doesn't look any different today than it did
perhaps twenty-five years ago, excepting its current absence of shag carpet.
But, a look into the guts of forward thinking medical practices reveals an
industry undergoing tremendous change. Thus the opportunity is ripe for the
fundamental investor. In order to compete in an environment of cost containment,
doctors are faced with the dilemma of delivering quality medical care at lower
cost. Public companies have been born of physicians' practices consolidating
into organizations yielding overhead synergies, multi-specialty synergies, and
higher patient throughputs. Public companies have sprung up to provide industry
specific software aimed at facilitating the overwhelming paper pushing burden.
And, management of resources from nursing staffs to medical supplies is being
outsourced to public companies eager to administer a doctor's entire practice.
The point is that many practices are now being run as efficient businesses built
on the best possible service at the most reasonable price, a model that will
allow both the forward looking physician and the patient community to win.
In coming quarters, we will continue our discovery and culling process,
always attempting to own the best companies at the most reasonable prices. This
should both protect our fundamental downside and maximize our upside potential.
Have a pleasant Spring!
Sincerely,
W. Whitfield Gardner John L. Lewis, IV
<PAGE>
THE CHESAPEAKE GROWTH FUND
Super-Institutional Shares
Performance Update - $50,000,000 Investment
For the period from June 12, 1996 (commencement of operations) to February 28,
1998
Chesapeake Fund
Super Inst S&P 500 NASDAQ
Shares Total Return Ind Index
6/12/96 50,000,000.00 50,000,000.00 50,000,000.00
6/30/96 46,361,880.00 50,145,489.00 47,710,503.00
7/31/96 42,144,237.00 47,929,797.00 42,422,054.00
8/31/96 44,816,484.00 48,940,746.00 45,188,818.00
9/30/96 48,744,366.00 51,695,941.00 47,647,561.00
10/31/96 48,776,561.00 53,121,406.00 46,327,320.00
11/30/96 51,513,200.00 56,981,759.00 48,033,613.00
12/31/96 51,191,243.00 56,004,738.00 47,786,797.00
1/31/97 53,509,337.00 59,503,381.00 49,921,942.00
2/28/97 52,446,877.00 59,969,752.00 47,256,720.00
3/31/97 50,096,587.00 57,506,785.66 43,899,542.55
4/30/97 50,096,587.00 60,938,721.99 43,006,837.88
5/31/97 55,730,844.00 64,648,985.60 48,958,650.86
6/30/97 58,338,699.00 67,545,544.46 51,065,308.56
7/31/97 64,037,347.00 72,920,021.16 54,440,546.36
8/31/97 64,713,458.00 68,834,820.81 55,463,314.83
9/30/97 68,963,297.00 72,604,315.22 59,414,809.79
10/31/97 63,650,998.00 70,179,877.63 54,825,038.09
11/30/97 62,649,033.00 73,428,370.98 54,059,331.06
12/31/97 59,164,455.00 74,689,469.57 52,813,061.74
1/31/98 59,861,371.00 75,916,639.83 52,468,682.33
2/28/98 65,766,812.00 80,962,184.29 56,725,008.09
This graph depicts the performance of The Chesapeake Growth Fund
Super-Institutional Shares versus the NASDAQ Industrials Index and the S&P 500
Total Return Index. It is important to note that The Chesapeake Growth 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
- ---------------------------------------------------
17.36% 25.40%
- ---------------------------------------------------
The graph assumes an initial $50,000,000 investment at June 12, 1996. All
dividends and distributions are reinvested.
At February 28, 1998, the Super-Institutional Shares of the Fund would have
grown to $65,766,812 - total investment return of 31.53% since June 12, 1996.
At February 28, 1998, a similar investment in the NASDAQ Industrials Index would
have been worth $56,725,008 - total investment return of 13.45%; while a similar
investment in the S&P 500 Total Return Index would have grown to $80,962,184
total investment return of 61.92% 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 GROWTH FUND
Institutional Shares
Performance Update - $1,000,000 Investment
For the period from April 6,1994 (commencement of operations) to February 28,
1998
Chesapeake S&P 500 NASDAQ
Institutional Total Return Industrial
Shares Index Index
4/6/94 1,000,000.00 1,000,000.00 1,000,000.00
5/31/94 1,013,000.00 1,023,703.00 947,950.00
8/31/94 1,058,200.00 1,073,692.00 979,838.00
11/31/94 1,081,100.00 1,031,962.00 961,061.00
2/28/95 1,128,600.00 1,116,296.00 988,000.00
5/31/95 1,247,000.00 1,230,372.00 1,053,310.00
8/31/95 1,535,000.00 1,303,973.00 1,226,306.00
11/30/95 1,467,366.00 1,413,574.18 1,240,874.00
2/29/96 1,463,316.00 1,503,656.41 1,287,605.00
5/31/96 1,571,672.00 1,580,240.85 1,516,725.00
8/31/96 1,408,631.00 1,548,169.98 1,347,959.00
11/30/96 1,618,255.00 1,802,535.84 1,432,818.00
2/28/97 1,646,610.00 1,897,056.68 1,409,644.00
5/31/97 1,748,889.93 2,045,077.49 1,460,157.90
8/31/97 2,030,413.61 2,177,490.36 1,654,155.00
11/30/97 1,965,453.51 2,322,800.70 1,612,282.16
2/28/98 2,062,398.96 2,561,122.03 1,691,784.13
This graph depicts the performance of The Chesapeake Growth Fund Institutional
Shares versus the NASDAQ Industrials Index and the S&P 500 Total Return Index.
It is important to note that The Chesapeake Growth 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 Three Years
- ------------------------------------------------------
20.39% 25.25% 22.24%
- ------------------------------------------------------
The graph assumes an initial $1,000,000 investment at April 6, 1994. All
dividends and distributions are reinvested.
At February 28, 1998, the Institutional Shares of the Fund would have grown to
$2,062,399 - total investment return of 106.24% since April 6, 1994.
At February 28, 1998, a similar investment in the NASDAQ Industrials Index would
have grown to $1,691,784 - total investment return of 69.18%; while a similar
investment in the S&P 500 Total Return Index would have grown to $2,561,122 -
total investment return of 156.11% 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 GROWTH FUND
Series A Investor Shares
Performance Update - $25,000 Investment
For the period from April 7,1995 (commencement of operations) to February 28,
1998
Chesapeake Fund NASDAQ S&P 500
Series A Ind Index Total Return Index
4/7/95 24,250.00 25,000.00 25,000.00
5/31/95 25,628.00 25,834.00 26,443.00
8/31/95 31,572.00 30,077.00 28,025.00
11/30/95 30,140.00 30,434.00 32,020.00
2/29/96 30,036.00 31,580.00 33,109.00
5/31/96 32,244.00 37,200.00 33,963.00
8/31/96 28,890.00 33,061.00 33,274.00
11/31/96 33,139.00 35,142.00 38,741.00
2/28/97 33,702.00 34,574.00 40,772.00
5/31/97 35,784.79 35,812.53 43,983.30
8/31/97 41,492.03 40,570.59 46,799.15
11/31/97 40,136.35 39,543.60 49,922.20
2/28/98 42,061.19 41,493.50 55,044.26
This graph depicts the performance of The Chesapeake Growth 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 Growth 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
- --------------------------------------------------------------
No Sales Load 20.92% 24.80%
- --------------------------------------------------------------
With 3.0% Sales Load 19.66% 21.06%
- --------------------------------------------------------------
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, 1998, the Series A Investor Shares of the Fund would have grown
to $42,061 - total investment return of 68.24% 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 $43,362 - total investment return of 73.45% since April 7,
1995. The sales load may be reduced or eliminated for larger purchases.
At February 28, 1998, a similar investment in the NASDAQ Industrials Index would
have grown to $41,494 - total investment return of 65.97%; while a similar
investment in the S&P 500 Total Return Index would have grown to $55,044 - total
investment return of 120.18% 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 GROWTH FUND
Series C Investor Shares
Performance Update - $25,000 Investment
For the period from April 7,1995 (commencement of operations) to February 28,
1998
Chesapeake Fund NASDAQ S&P 500
Serties C Ind Index Total Return Index
4/7/95 25,000.00 25,000.00 25,000.00
5/31/95 26,421.00 25,834.00 26,443.00
8/31/95 32,528.00 30,077.00 28,025.00
11/30/95 30,966.00 30,434.00 32,020.00
2/29/96 30,794.00 31,580.00 33,109.00
5/31/96 33,028.00 37,200.00 33,963.00
8/31/96 29,506.00 33,061.00 33,274.00
11/30/96 33,779.00 35,142.00 38,741.00
2/28/97 34,273.00 34,574.00 40,772.00
5/31/97 36,291.80 35,812.53 43,983.30
8/31/97 41,982.53 40,570.59 46,799.15
11/31/97 40,367.70 39,543.60 49,922.20
2/28/98 42,137.78 41,493.50 55,044.26
This graph depicts the performance of The Chesapeake Growth 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 Growth 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
- --------------------------------------------------
NO SALES LOAD 19.73% 22.95%
- --------------------------------------------------
The graph assumes an initial $25,000 investment at April 7, 1995. All dividends
and distributions are reinvested.
At February 28, 1998, the Series C Investor Shares of the Fund would have grown
to $42,138 - total investment return of 68.55% since April 7, 1995.
At February 28, 1998, a similar investment in the NASDAQ Industrials Index would
have grown to $41,494 - total investment return of 65.79%; while a similar
investment in the S&P 500 Total Return Index would have grown to $55,044 - total
investment return of 120.18% 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 GROWTH FUND
Series D Investor Shares
Performance Update - $25,000 Investment
For the period from April 7,1995 (commencement of operations) to February 28,
1998
Chesapeake Fund NASDAQ S&P 500
Series A Ind Index Total Return Index
4/7/95 24,625.00 25,000.00 25,000.00
5/31/95 26,045.00 25,834.00 26,443.00
8/31/95 32,040.00 30,077.00 28,025.00
11/30/95 30,606.00 30,434.00 32,020.00
2/29/96 30,479.00 31,580.00 33,109.00
5/31/96 32,700.00 37,200.00 33,963.00
8/31/96 29,231.00 33,061.00 33,274.00
11/30/96 33,504.00 35,142.00 38,741.00
2/28/97 34,012.00 34,574.00 40,772.00
5/31/97 36,084.35 35,812.53 43,983.30
8/31/97 41,795.24 40,570.59 46,799.15
11/31/97 40,310.49 39,543.60 49,922.20
2/28/98 42,195.51 41,493.50 55,044.26
This graph depicts the performance of The Chesapeake Growth 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 Growth 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
- --------------------------------------------------------------
No Sales Load 20.42% 24.06%
- --------------------------------------------------------------
With 1.5% Sales Load 19.79% 22.20%
- ---------------------------------------------------------------
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, 1998, the Series D Investor Shares of the Fund would have grown
to $42,195.51 - total investment return of 68.78% 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 $42,838.08 - total investment return of 71.35%
since April 7, 1995. The sales load may be reduced or eliminated for larger
purchases.
At February 28, 1998, a similar investment in the NASDAQ Industrials Index would
have grown to $41,493.50 - total investment return of 65.79%; while a similar
investment in the S&P 500 Total Return Index would have grown to $55,044.26 -
total investment return of 120.18% 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 GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 98.02%
Aerospace & Defense - 1.85%
(a) BE Aerospace, Inc. ................................................... 77,400 $ 2,278,462
(a) Gulfstream Aerospace Corporation ..................................... 65,900 2,668,950
-----------
4,947,412
-----------
Apparel Manufacturing - 8.29%
(a) Jones Apparel Group, Inc. ............................................ 191,100 10,486,613
Liz Claiborne, Inc. .................................................. 79,200 3,960,000
(a) Nautica Enterprises, Inc. ............................................ 154,700 4,457,294
The Warnaco Group, Inc. .............................................. 89,300 3,315,263
-----------
22,219,170
-----------
Auto Parts - Replacement Equipment - 2.02%
Federal-Mogul Corporation ............................................ 110,500 5,421,406
-----------
Commercial Services - 1.08%
(a) CORESTAFF, Inc. ...................................................... 93,000 2,900,438
-----------
Computers - 9.51%
(a) Adaptec, Inc. ........................................................ 175,300 4,634,493
Compaq Computer Corporation .......................................... 97,240 3,129,913
(a) EMC Corporation ...................................................... 294,700 11,106,506
(a) Quantum Corporation .................................................. 76,900 1,932,113
(a) Sun Microsystems, Inc. ............................................... 98,100 4,672,013
-----------
25,475,038
-----------
Computer Software & Services - 6.52%
(a) BMC Software, Inc. ................................................... 41,400 3,167,100
(a) Cadence Design Systems, Inc. ......................................... 78,400 2,739,100
(a) Ceridian Corporation ................................................. 75,500 3,515,468
(a) Structural Dynamics Research Corporation ............................. 116,500 3,349,375
(a) Symantec Corporation ................................................. 103,200 2,599,350
System Software Associates, Inc. ..................................... 283,900 2,111,506
-----------
17,481,899
-----------
Electronics - 1.96%
(a) SCI Systems, Inc. .................................................... 58,200 2,619,000
(a) The DII Group, Inc. .................................................. 99,500 2,636,750
-----------
5,255,750
-----------
Electronics - Semiconductor - 4.04%
(a) Kulicke and Soffa Industries, Inc. ................................... 62,100 1,723,275
(a) LSI Logic Corporation ................................................ 47,800 1,132,262
(a) National Semiconductor Corporation ................................... 60,900 1,453,987
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Electronics - Semiconductor - (Continued)
(a) Novellus Systems, Inc. ................................................. 29,800 $ 1,428,537
(a) Teradyne, Inc. ......................................................... 108,000 5,096,250
-----------
10,834,311
-----------
Entertainment - 1.10%
(a) Signature Resorts, Inc. ................................................ 142,250 2,951,688
-----------
Environmental Control - 1.44%
(a) USA Waste Services, Inc. ............................................... 93,000 3,871,125
-----------
Food - Wholesale - 0.87%
(a) Keebler Foods Company .................................................. 74,200 2,328,025
-----------
Foreign Securities - 2.73%
ECI Telecommunications Limited ......................................... 118,900 3,455,531
(a) Petroleum Geo-Services - ADR ........................................... 67,700 3,841,975
-----------
7,297,506
-----------
Insurance - Multiline - 1.54%
Allmerica Financial Corporation ........................................ 67,200 4,132,800
-----------
Machine - Diversified - 1.00%
(a) Coltec Industries, Inc. ................................................ 103,100 2,687,043
-----------
Marketing Information Services - 1.21%
Cognizant Corporation .................................................. 64,900 3,240,944
-----------
Medical - Hospital Management & Services - 8.19%
(a) Genesis Health Ventures, Inc. .......................................... 94,100 2,728,900
(a) HEALTHSOUTH Corporation ................................................ 94,800 2,565,525
Integrated Health Services, Inc. ....................................... 112,300 3,811,181
(a) PhyCor, Inc. ........................................................... 110,400 2,839,344
Tenet Healthcare Corporation ........................................... 127,100 4,742,419
United Healthcare Corporation .......................................... 86,600 5,255,538
-----------
21,942,907
-----------
Medical Supplies - 1.77%
Biomet, Inc. ........................................................... 159,300 4,749,131
-----------
Office & Business Equipment - 1.45%
(a) U.S. Office Products Company ........................................... 209,900 3,883,150
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Oil & Gas - Equipment & Services - 6.30%
(a) BJ Services Company ................................................ 80,600 $ 2,770,625
(a) Global Industries Ltd. ............................................. 237,600 4,098,600
(a) Pride International, Inc. .......................................... 94,800 2,162,625
(a) Rowan Companies, Inc. .............................................. 99,100 2,793,381
Transocean Offshore Inc. ........................................... 32,100 1,392,337
(a) Varco International, Inc. .......................................... 147,100 3,659,113
-----------
16,876,681
-----------
Oil & Gas - Exploration - 0.96%
(a) J. Ray McDermott, S.A .............................................. 60,500 2,571,250
-----------
Pharmaceuticals - 5.31%
(a) Forest Laboratories, Inc. .......................................... 65,400 4,091,588
Jones Medical Industries, Inc. ..................................... 96,600 3,586,275
Mylan Laboratories Inc. ............................................ 200,900 4,093,338
(a) Watson Pharmeuticals, Inc. ......................................... 68,600 2,461,025
-----------
14,232,226
-----------
Restaurants & Food Service - 1.28%
CKE Restaurants, Inc. .............................................. 81,070 3,440,408
-----------
Retail - Automotive Parts - 1.46%
(a) AutoZone, Inc. ..................................................... 129,100 3,905,275
-----------
Retail - Department Stores - 4.96%
(a) Consolidated Stores Corporation .................................... 67,156 2,761,791
(a) Fred Meyer, Inc. ................................................... 149,200 6,630,075
(a) Proffitt's, Inc. ................................................... 114,800 3,888,850
-----------
13,280,716
-----------
Retail - Grocery - 0.98%
American Stores Company ............................................ 104,400 2,629,575
-----------
Retail - Specialty Line - 2.93%
(a) Borders Group, Inc. ................................................ 80,300 2,674,993
(a) Cole National Corporation .......................................... 82,000 2,752,125
Heilig-Meyers Company .............................................. 156,300 2,422,650
-----------
7,849,768
-----------
Shoes - Leather - 2.67%
(a) Nine West Group Inc. ............................................... 92,100 2,532,750
Wolverine World Wide, Inc. ......................................... 164,400 4,623,750
-----------
7,156,500
-----------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Telecommunications - 2.49%
(a) DSP Communications, Inc. .............................................. 127,400 $ 2,253,387
(a) Premiere Technologies, Inc. ........................................... 87,400 2,742,175
(a) Tel-Save Holdings, Inc. ............................................... 60,500 1,675,094
-------------
6,670,656
-------------
Telecommunications Equipment - 3.29%
(a) Cable Design Technologies ............................................. 92,550 2,689,734
(a) DSC Communications Corporation ........................................ 96,500 1,893,813
(a) General Cable Corporation ............................................. 102,200 4,234,913
-------------
8,818,460
-------------
Textiles - 0.99%
(a) Mohawk Industries, Inc. ............................................... 101,500 2,664,375
-------------
Transportation - Air - 1.74%
Airborne Freight Corporation .......................................... 66,800 2,417,325
Comair Holdings, Inc. ................................................. 84,800 2,257,800
-------------
4,675,125
-------------
Utilities - Electric - 2.31%
(a) CalEnergy Company, Inc. ............................................... 231,000 6,193,687
-------------
Utilities - Telecommunications - 2.41%
(a) WorldCom, Inc. ........................................................ 169,400 6,468,963
-------------
Utilities - Water - 1.37%
(a) US Filter Corporation ................................................. 108,100 3,668,644
-------------
Total Common Stocks (Cost $210,637,903) ............................... 262,722,052
-------------
INVESTMENT COMPANY - 2.89%
Evergreen Money Market Treasury Institutional Money ........................ 7,727,137 7,727,137
-------------
Market Fund Institutional Service Shares
(Cost $7,727,137)
Total Value of Investments (Cost $218,365,040 (b)) ................................ 100.91% $ 270,449,189
Liabilities In Excess of Other Assets ............................................. (0.91)% (2,432,264)
------------- -------------
Net Assets ................................................................. 100.00% $ 268,016,925
============= =============
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
(a) Non-income producing investment.
(b) Aggregate cost for federal income tax purposes is $218,737,760. Unrealized appreciation (depreciation) of investments
for federal income tax purposes is as follows:
Unrealized appreciation $63,211,317
Unrealized depreciation (11,499,888)
----------------
Net unrealized appreciation $51,711,429
================
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998
ASSETS
Investments, at value (cost $218,365,040) ....................................................... $270,449,189
Income receivable ............................................................................... 82,503
Receivable for investments sold ................................................................. 5,166,778
Receivable for fund shares sold ................................................................. 1,970
Deferred organization expenses, net (note 3) .................................................... 8,636
Due from administrator (note 2) ................................................................. 30,887
Other assets .................................................................................... 14,422
------------
Total assets ............................................................................... 275,754,385
------------
LIABILITIES
Accrued expenses ................................................................................ 85,224
Payable for investment purchases ................................................................ 7,551,666
Payable for fund shares redeemed ................................................................ 100,000
Disbursements in excess of cash on demand deposit ............................................... 570
------------
Total liabilities .......................................................................... 7,737,460
------------
NET ASSETS ............................................................................................. $268,016,925
============
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $210,487,681
Undistributed net realized gain on investments .................................................. 5,445,095
Net unrealized appreciation on investments ...................................................... 52,084,149
------------
$268,016,925
============
INSTITUTIONAL SHARES
Net asset value, redemption and offering price per share
($92,857,905 / 5,199,166 shares outstanding) ............................................... $ 17.86
============
SERIES A INVESTOR SHARES
Net asset value, redemption and offering price per share
($40,923,832 / 2,313,441 shares outstanding) ............................................... $ 17.69
============
Maximum offering price per share (100 / 97 of $17.69) ........................................... $ 18.24
============
SERIES C INVESTOR SHARES
Net asset value, redemption and offering price per share
($4,541,223 / 265,318 shares outstanding) .................................................. $ 17.12
============
SERIES D INVESTOR SHARES
Net asset value, redemption and offering price per share
($11,447,923 / 656,142 shares outstanding) ................................................. $ 17.45
============
Maximum offering price per share (100 / 98.5 of $17.45) ......................................... $ 17.71
============
SUPER-INSTITUTIONAL SHARES
Net asset value, redemption and offering price per share
($118,246,042 / 6,599,065 shares outstanding) .............................................. $ 17.92
============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
STATEMENT OF OPERATIONS
Year ended February 28, 1998
INVESTMENT LOSS
Income
Interest ....................................................................................... $ 404,134
Dividends ...................................................................................... 322,749
------------
Total income .............................................................................. 726,883
------------
Expenses
Investment advisory fees (note 2) .............................................................. 2,532,147
Fund administration fees (note 2) .............................................................. 125,209
Distribution fees - Series A (note 4) .......................................................... 101,946
Distribution fees - Series C (note 4) .......................................................... 41,669
Distribution fees - Series D (note 4) .......................................................... 62,905
Custody fees ................................................................................... 19,604
Registration and filing administration fees (note 2) ........................................... 23,581
Fund accounting fees (note 2) .................................................................. 84,000
Audit fees ..................................................................................... 14,300
Legal fees ..................................................................................... 16,143
Securities pricing fees ........................................................................ 5,529
Shareholder administration fees ................................................................ 59,291
Shareholder recordkeeping fees ................................................................. 22,464
Shareholder servicing expenses ................................................................. 14,909
Registration and filing expenses ............................................................... 28,540
Printing expenses .............................................................................. 24,423
Amortization of deferred organization expenses (note 3) ........................................ 13,181
Trustee fees and meeting expenses .............................................................. 9,957
Other operating expenses ....................................................................... 30,412
------------
Total expenses ............................................................................ 3,230,210
------------
Less:
Expense reimbursements - Super-Institutional Class (note 2) ......................... (14,785)
Expense reductions (note 6) ......................................................... (26,313)
Shareholder administration fees waived (note 2) ..................................... (25,000)
------------
Net expenses .............................................................................. 3,164,112
------------
Net investment loss ................................................................. (2,437,229)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions ...................................................... 34,915,833
Increase in unrealized appreciation on investments .................................................. 22,557,525
------------
Net realized and unrealized gain on investments ................................................ 57,473,358
------------
Net increase in net assets resulting from operations ...................................... $ 55,036,129
============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended Year ended
February 28, February 28,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss ..................................................... $(2,437,229) $(1,866,690)
Net realized gain from investment transactions .......................... 34,915,833 4,887,131
Increase in unrealized appreciation on investments ...................... 22,557,525 17,077,631
------------- -------------
Net increase in net assets resulting from operations ............... 55,036,129 20,098,072
------------- -------------
Distributions to shareholders from
Tax return of capital ................................................... (7,366,935) 0
Net realized gain from investment transactions .......................... (26,747,385) 0
------------- -------------
Decrease in net assets resulting from distributions ................ (34,114,320) 0
------------- -------------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) .... 15,554,185 78,804,804
------------- -------------
Total increase in net assets .................................. 36,475,994 98,902,876
NET ASSETS
Beginning of year ........................................................... 231,540,931 132,638,055
------------- -------------
End of year ................................................................. $ 268,016,925 $ 231,540,931
============= =============
(a) A summary of capital share activity follows:
-----------------------------------------------------------------------
Year ended Year ended
February 28, 1998 February 28, 1997
Shares Value Shares Value
-----------------------------------------------------------------------
- --------------------------------------------------------
Institutional Shares
- --------------------------------------------------------
Shares sold ............................................ 1,051,514 $ 19,879,652 1,194,039 $ 17,551,689
Shares issued for reinvestment of distributions ........ 700,580 12,393,286 0 0
Shares redeemed ........................................ (1,340,894) (23,569,381) (1,960,761) (29,179,867)
------------- ------------- ------------- -------------
Net increase (decrease) ........................... 411,200 $ 8,703,557 (766,722)$ $ (11,628,178)
============= ============= ============= =============
- --------------------------------------------------------
Series A Shares
- --------------------------------------------------------
Shares sold ............................................ 530,549 $ 9,940,125 886,587 $ 13,180,184
Shares issued for reinvestment of distributions ........ 285,571 5,008,907 0 0
Shares redeemed ........................................ (936,063) (17,142,515) (711,164) (10,814,500)
------------- ------------- ------------- -------------
Net increase (decrease) ........................... (119,943) $ (2,193,483) 175,423 $ 2,365,684
============= ============= ============= =============
- --------------------------------------------------------
Series C Shares
- --------------------------------------------------------
Shares sold ............................................ 51,400 $ 892,071 51,704 $ 764,137
Shares issued for reinvestment of distributions ........ 30,187 514,986 0 0
Shares redeemed ........................................ (391,932) (6,437,614) (27,426) (414,118)
------------- ------------- ------------- -------------
Net increase (decrease) ........................... (310,345) $ (5,030,557) 24,278 $ 350,019
============= ============= ============= =============
- --------------------------------------------------------
Series D Shares
- --------------------------------------------------------
Shares sold ............................................ 21,553 $ 358,036 80,650 $ 1,210,179
Shares issued for reinvestment of distributions ........ 81,859 1,418,612 0 0
Shares redeemed ........................................ (116,844) (2,013,186) (239,185) (3,492,900)
------------- ------------- ------------- -------------
Net decrease ..................................... (13,432) $ (236,538) (158,535) $ (2,282,721)
============= ============= ============= =============
- --------------------------------------------------------
Super-Institutional Shares
- --------------------------------------------------------
Shares sold ............................................ 0 $ 0 5,792,346 $ 90,000,000
Shares issued for reinvestment of distributions ........ 806,720 14,311,206 0 0
Shares redeemed ........................................ 0 0 0 0
------------- ------------- ------------- -------------
Net increase ...................................... 806,720 $ 14,311,206 5,792,346 $ 90,000,000
============= ============= ============= =============
- --------------------------------------------------------
Fund Summary
- --------------------------------------------------------
Shares sold ............................................ 1,655,016 $ 31,069,884 8,005,326 $ 122,706,189
Shares issued for reinvestment of distributions ........ 1,904,917 33,646,997 0 0
Shares redeemed ........................................ (2,785,733) (49,162,696) (2,938,536) (43,901,385)
------------- ------------- ------------- -------------
Net increase ...................................... 774,200 $ 15,554,185 5,066,790 $ 78,804,804
============= ============= ============= =============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
------------------------------------------------ ------------------------
Institutional Super-Institutional
------------------------------------------------ ------------------------
For the For the
period from period from
Apr 6, 1994 Jul 12, 1996
Year ended Year ended Year ended (comm of op) Year ended (comm of op)
Feb 28, Feb 28, Feb 28, to Feb 28, Feb 28, to Feb 28,
1998 1997 1996 1995 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .................. $16.26 14.45 $11.31 $10.00 $16.29 $15.53
Income from investment operations
Net investment loss ........................... (0.15) (0.13) (0.05) (0.04) (0.12) (0.07)
Net realized and unrealized gain on investments 4.22 1.94 3.38 1.35 4.22 0.83
---------- ---------- ---------- ---------- ----------- ----------
Total from investment operations ......... 4.07 1.81 3.33 1.31 4.10 0.76
---------- ---------- ---------- ---------- ----------- ----------
Distributions to shareholders from
Net investment income ......................... (0.00) 0.00 (0.11) 0.00 (0.00) 0.00
Tax return of capital ......................... (0.53) 0.00 0.00 0.00 (0.53) 0.00
Net realized gain from investment transactions (1.94) 0.00 (0.08) 0.00 (1.94) 0.00
---------- ---------- ---------- ---------- ----------- ----------
Total distributions ...................... (2.47) 0.00 (0.19) 0.00 (2.47) 0.00
---------- ---------- ---------- ---------- ----------- ----------
Net asset value, end of period ........................ $17.86 $16.26 $14.45 $11.31 $17.92 $16.29
========== ========== ========== ========== =========== ==========
Total return (a) ...................................... 25.25% 12.53% 29.66% 13.12%(d) 25.40% 4.89%(d)
========== ========== ========== ========== =========== ==========
Ratios/supplemental data
Net assets, end of period (000's) ................ $92,858 $77,858 $80,252 $15,088 $118,246 $94,340
========== ========== ========== ========== =========== ==========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees 1.19% 1.23% 1.65% 2.75%(b) 1.06% 1.08% (b)
After expense reimbursements and waived fees 1.16% 1.22% 1.49% 1.73%(b) 1.04% 1.04% (b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees (0.90)% (0.85)% (0.98)% (1.80)%(b) (0.77)% (0.75)%(b)
After expense reimbursements and waived fees (0.88)% (0.84)% (0.82)% (0.78)%(b) (0.75)% (0.72)%(b)
Portfolio turnover rate 105.60% 126.44% 99.33% 64.92% 105.60% 126.44%
Average broker commission per share (c) $0.0576 $0.0600 - - $0.0576 $0.0600
(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 share purchased or sold on which
commissions were charged.
(d) Aggregate return. Not annualized.
See accompanying notes to financial statements (Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Continued)
----------------------------------- ----------------------------------
Series A Series C
----------------------------------- ----------------------------------
For the For the
period from period from
Apr 7, 1995 Apr 7, 1995
Year ended Year ended (comm of op) Year ended Yearended (comm of op)
Feb 28, Feb 28, to Feb 29, Feb 28, Feb 28, to Feb 29,
1998 1997 1996 1998 1997 1996
-------- -------- --------- --------- -------- --------
Net asset value, beginning of period..................... $16.18 $14.42 $11.79 $15.97 $14.34 $11.79
Income from investment operations
Net investment income loss......................... (0.21) (0.18) (0.06) (0.52) (0.29) (0.12)
Net realized and unrealized gain on investments.... 4.19 1.94 2.88 4.14 1.92 2.86
-------- -------- --------- --------- -------- --------
Total from investment operations................ 3.98 1.76 2.82 3.62 1.63 2.74
-------- -------- --------- --------- -------- --------
Distributions to shareholders from
Net investment income.............................. (0.00) 0.00 (0.11) (0.00) 0.00 (0.11)
Tax return of capital.............................. (0.53) 0.00 0.00 (0.53) 0.00 0.00
Net realized gain from investment transactions..... (1.94) 0.00 (0.08) (1.94) 0.00 (0.08)
-------- -------- --------- --------- -------- --------
Total distributions............................. (2.47) 0.00 (0.19) (2.47) 0.00 (0.19)
-------- -------- --------- --------- -------- --------
Net asset value, end of period........................... $17.69 $16.18 $14.42 $17.12 $15.97 $14.34
======== ======== ========= ========= ======== ========
Total return (a)......................................... 4.80% 12.21% 23.86%(d) 22.95% 11.30% 23.18%(d)
======== ======== ========= ========= ======== ========
Ratios/supplemental data
Net assets, end of period (000's)..................... $40,924 $39,376 $32,549 $4,541 $9,192 $7,908
======== ======== ========= ========= ======== ========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees...... 1.55% 1.54% 1.88%(b) 3.11% 2.34% 2.38%(b)
After expense reimbursements and waived fees....... 1.52% 1.53% 1.71%(b) 3.05% 2.33% 2.18%(b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees...... (1.27)% (1.16)% (1.20)%(b) (2.84)% (1.97)% (1.77)%(b)
After expense reimbursements and waived fees....... (1.24)% (1.15)% (1.04)%(b) (2.78)% (1.96)% (1.57)%(b)
Portfolio turnover rate............................... 105.60% 126.44% 99.33% 105.60% 126.64% 99.33%
Average broker commission per share (c)............... $0.0576 $0.0600 - $0.0576 $0.0600 -
(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 share purchased or sold on which
commissions were charged.
(d) Aggregate return. Not annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
(Continued)
---------------------------------
Series D
---------------------------------
For the
period from
Apr 7, 1995
Year ended Year ended (comm of op)
Feb 28, Feb 28, Feb 29,
1998 1997 1996
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period..................... $16.09 $14.41 $11.79
Income from investment operations
Net investment income loss......................... (0.32) (0.29) (0.11)
Net realized and unrealized gain on investments.... 4.15 1.97 2.92
----------- -------- --------
Total from investment operations................ 3.83 1.68 2.81
----------- -------- --------
Distributions to shareholders from
Net investment income.............................. (0.00) 0.00 (0.11)
Tax return of capital.............................. (0.53) 0.00 0.00
Net realized gain from investment transactions..... (1.94) 0.00 (0.08)
----------- -------- --------
Total distributions............................. (2.47) 0.00 (0.19)
----------- -------- --------
Net asset value, end of period........................... $17.45 $16.09 $14.41
=========== ======== ========
Total return (a)......................................... 24.06% 11.59% 23.77%(d)
=========== ======== ========
Ratios/supplemental data
Net assets, end of period (000's)..................... $11,448 $10,774 $11,929
=========== ======== ========
Ratio of expenses to average net assets
Before expense reimbursements and waived fees...... 2.22% 2.02% 2.13% (b)
After expense reimbursements and waived fees....... 2.18% 2.01% 1.73% (b)
Ratio of net investment income (loss) to average net assets
Before expense reimbursements and waived fees...... (1.94)% (1.64)% (1.54)% (b)
After expense reimbursements and waived fees....... (1.89)% (1.63)% (1.14)% (b)
Portfolio turnover rate............................... 105.60% 126.44 % 99.33%
Average broker commission per share (c)............... $0.0576 $0.0600 -
(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 share purchased or sold on which
commissions were charged.
(d) Aggregate return. Not annualized.
See accompanying notes to financial statements
</TABLE>
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Chesapeake Growth Fund (the "Fund"), formerly known as The Chesapeake
Fund prior to November 1, 1997, is a diversified series of shares of
beneficial interest of the Gardner Lewis Investment Trust (the "Trust").
The Trust, an open-end investment company, was organized on August 12, 1992
as a Massachusetts Business Trust and is registered under the Investment
Company Act of 1940, (the "Act") 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.
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
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
annually, generally payable 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.
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.
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.
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 1.045% of the average daily net assets of that class.
There can be no assurance that the foregoing voluntary expense
reimbursements will continue.
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, 1998, the Distributor retained sales charges in the
amount of $5,616.
<PAGE>
THE CHESAPEAKE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
NC Shareholder Services, LLC (the "Transfer Agent") has been retained by
the Administrator to serve as the Fund's transfer, dividend paying, and
shareholder servicing agent. The Transfer Agent maintains the records of
each shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of Fund shares, acts as
dividend and distribution disbursing agent, and performs other shareholder
servicing functions. The Transfer Agent is compensated for its services by
the Administrator and not directly by the Fund.
Certain Trustees and officers of the Trust are also officers or directors
of the Advisor or the Administrator.
NOTE 3 - DEFERRED ORGANIZATION EXPENSES
Expenses totaling $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 Act, adopted a
distribution plan with respect to all 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.
The Fund incurred $101,946, $41,669 and $62,905 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, 1998.
NOTE 5 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments other than short-term investments
aggregated $258,848,602 and $280,264,773 respectively, for the fiscal year
ended February 28, 1998.
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,
1998, the Fund's expenses were reduced by $26,313 under this arrangement.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees of Gardner Lewis Investment Trust and Shareholdersof
The Chesapeake Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Chesapeake Growth Fund (formerly, The
Chesapeake Fund) as of February 28, 1998 and the related statement of operations
for the year then ended, the statement of changes in net assets for the years
ended February 28, 1998 and February 28, 1997, and financial highlights for the
periods presented. 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.
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
February 28, 1998 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Chesapeake
Growth Fund as of February 28, 1998, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 20, 1998
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
THE CHESAPEAKE CORE GROWTH FUND
June 30, 1998
A Series of
GARDNER LEWIS INVESTMENT TRUST
107 North Washington Street, Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Telephone 1-800-430-3863
Table of Contents
INVESTMENT OBJECTIVE AND POLICIES........................................... 2
INVESTMENT LIMITATIONS...................................................... 4
NET ASSET VALUE............................................................. 5
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 6
DESCRIPTION OF THE TRUST.................................................... 6
ADDITIONAL INFORMATION CONCERNING TAXES..................................... 7
MANAGEMENT OF THE FUND...................................................... 8
SPECIAL SHAREHOLDER SERVICES................................................ 11
ADDITIONAL INFORMATION ON PERFORMANCE....................................... 12
APPENDIX A - DESCRIPTION OF RATINGS......................................... 14
ANNUAL REPORT OF THE FUND FOR THE FISCAL PERIOD
ENDED FEBRUARY 28, 1998............................................Attached
This Statement of Additional Information (the "Additional Statement") is meant
to be read in conjunction with the Prospectus for The Chesapeake Core Growth
Fund (the "Fund"), dated the same date as this Additional Statement, and is
incorporated by reference in its entirety into the Prospectus. Because this
Additional Statement is not itself a prospectus, no investment in shares of the
Fund should be made solely upon the information contained herein. Copies of the
Fund's Prospectus may be obtained at no charge by writing or calling the Fund at
the address and phone number shown above. This Additional Statement is not a
prospectus but is incorporated by reference in each Prospectus in its entirety.
Capitalized terms used but not defined herein have the same meanings as in each
Prospectus.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the Fund's investment objective and policies
as set forth in the Prospectus for the Fund. The Fund, organized in 1997, has no
prior operating history.
Additional Information on Fund Instruments. Attached to this Additional
Statement is Appendix A, which contains descriptions of the rating symbols used
by Rating Agencies for securities in which the Fund may invest.
Investment Transactions. Subject to the general supervision of the Trust's Board
of Trustees, the Advisor is responsible for, makes decisions with respect to,
and places orders for all purchases and sales of portfolio securities for the
Fund.
The annualized portfolio turnover rate for the Fund is calculated by dividing
the lesser of purchases or sales of portfolio securities for the reporting
period by the monthly average value of the portfolio securities owned during the
reporting period. The calculation excludes all securities whose maturities or
expiration dates at the time of acquisition are one year or less. Portfolio
turnover of the Fund may vary greatly from year to year as well as within a
particular year, and may be affected by cash requirements for redemption of
shares and by requirements that enable the Fund to receive favorable tax
treatment. Portfolio turnover will not be a limiting factor in making Fund
decisions, and the Fund may engage in short-term trading to achieve its
investment objectives.
Purchases of money market instruments by the Fund are made from dealers,
underwriters and issuers. The Fund currently does not expect to incur any
brokerage commission expense on such transactions because money market
instruments are generally traded on a "net" basis by a dealer acting as
principal for its own account without a stated commission. The price of the
security, however, usually includes a profit to the dealer. Securities purchased
in underwritten offerings include a fixed amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
When securities are purchased directly from or sold directly to an issuer, no
commissions or discounts are paid.
Transactions on U.S. stock exchanges involve the payment of negotiated brokerage
commissions. On exchanges on which commissions are negotiated, the cost of
transactions may vary among different brokers. Transactions in the
over-the-counter market are generally on a net basis (i.e., without commission)
through dealers, or otherwise involve transactions directly with the issuer of
an instrument. The Fund's fixed income portfolio transactions will normally be
principal transactions executed in over-the-counter markets and will be executed
on a "net" basis, which may include a dealer markup. With respect to securities
traded only in the over-the-counter market, orders will be executed on a
principal basis with primary market makers in such securities except where
better prices or executions may be obtained on an agency basis or by dealing
with other than a primary market maker.
The Fund may participate, if and when practicable, in bidding for the purchase
of Fund securities directly from an issuer in order to take advantage of the
lower purchase price available to members of a bidding group. The Fund will
engage in this practice, however, only when the Advisor, in its sole discretion,
believes such practice to be otherwise in the Fund's interest.
In executing Fund transactions and selecting brokers or dealers, the Advisor
will seek to obtain the best overall terms available for the Fund. In assessing
the best overall terms available for any transaction, the Advisor shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. The sale of Fund shares may
be considered when determining the firms that are to execute brokerage
transactions for the Fund. In addition, the Advisor is authorized to cause the
Fund to pay a broker-dealer which furnishes brokerage and research services a
higher commission than that which might be charged by another broker-dealer for
effecting the same transaction, provided that the Advisor determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either the particular transaction or the overall responsibilities of the
Advisor to the Fund. Such brokerage and research services might consist of
reports and statistics relating to specific companies or industries, general
summaries of groups of stocks or bonds and their comparative earnings and
yields, or broad overviews of the stock, bond and government securities markets
and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Advisor and does not reduce
the advisory fees payable by the Fund. The Trustees will periodically review any
commissions paid by the Fund to consider whether the commissions paid over
representative periods of time appear to be reasonable in relation to the
benefits inuring to the Fund. It is possible that certain of the supplementary
research or other services received will primarily benefit one or more other
investment companies or other accounts for which investment discretion is
exercised by the Advisor. Conversely, the Fund may be the primary beneficiary of
the research or services received as a result of securities transactions
effected for such other account or investment company.
The Fund may also enter into brokerage/service arrangements pursuant to which
selected brokers executing portfolio transactions for the Fund may pay a portion
of the Fund's operating expenses. There can be no assurance that such
arrangement will occur now or in the future.
The Advisor may also utilize a brokerage firm affiliated with the Trust or the
Advisor if it believes it can obtain the best execution of transactions from
such broker. The Fund will not execute portfolio transactions through, acquire
securities issued by, make savings deposits in or enter into repurchase
agreements with the Advisor or an affiliated person of the Advisor (as such term
is defined in the 1940 Act) acting as principal, except to the extent permitted
by the Securities and Exchange Commission ("SEC"). In addition, the Fund will
not purchase securities during the existence of any underwriting or selling
group relating thereto of which the Advisor, or an affiliated person of the
Advisor, is a member, except to the extent permitted by the SEC. Under certain
circumstances, the Fund may be at a disadvantage because of these limitations in
comparison with other investment companies that have similar investment
objectives but are not subject to such limitations.
Investment decisions for the Fund will be made independently from those for any
other series of the Trust, if any, and for any other investment companies and
accounts advised or managed by the Advisor. Such other investment companies and
accounts may also invest in the same securities as the Fund. To the extent
permitted by law, the Advisor may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in executing transactions. When a purchase or sale of the
same security is made at substantially the same time on behalf of the Fund and
another investment company or account, the transaction will be averaged as to
price and available investments allocated as to amount, in a manner which the
Advisor believes to be equitable to the Fund and such other investment company
or account. In some instances, this investment procedure may adversely affect
the price paid or received by the Fund or the size of the position obtained or
sold by the Fund.
For the fiscal period ended February 28, 1998, the Fund paid brokerage
commissions of $7,659, none of which was paid to the Distributor.
Repurchase Agreements. The Fund may acquire U.S. Government Securities or
corporate debt securities subject to repurchase agreements. A repurchase
transaction occurs when, at the time the Fund purchases a security (normally a
U.S. Treasury obligation), it also resells it to the vendor (normally a member
bank of the Federal Reserve or a registered Government Securities dealer) and
must deliver the security (and/or securities substituted for them under the
repurchase agreement) to the vendor on an agreed upon date in the future. The
repurchase price exceeds the purchase price by an amount which reflects an
agreed upon market interest rate effective for the period of time during which
the repurchase agreement is in effect. Delivery pursuant to the resale will
occur within one to seven days of the purchase.
Repurchase agreements are considered "loans" under the Investment Company Act of
1940, as amended (the "1940 Act"), collateralized by the underlying security.
The Trust will implement procedures to monitor on a continuous basis the value
of the collateral serving as security for repurchase obligations. Additionally,
the Advisor to the Fund will consider the creditworthiness of the vendor. If the
vendor fails to pay the agreed upon resale price on the delivery date, the Fund
will retain or attempt to dispose of the collateral. The Fund's risk is that
such default may include any decline in value of the collateral to an amount
which is less than 100% of the repurchase price, any costs of disposing of such
collateral, and any loss resulting from any delay in foreclosing on the
collateral. The Fund will not enter into any repurchase agreement which will
cause more than 10% of its net assets to be invested in repurchase agreements
which extend beyond seven days and other illiquid securities.
Description of Money Market Instruments. Money market instruments may include
U.S. Government Securities or corporate debt securities (including those subject
to repurchase agreements), provided that they mature in thirteen months or less
from the date of acquisition and are otherwise eligible for purchase by the
Fund. Money market instruments also may include Banker's Acceptances and
Certificates of Deposit of domestic branches of U.S. banks, Commercial Paper and
Variable Amount Demand Master Notes ("Master Notes"). Banker's Acceptances are
time drafts drawn on and "accepted" by a bank. When a bank "accepts" such a time
draft, it assumes liability for its payment. When the Fund acquires a Banker's
Acceptance the bank which "accepted" the time draft is liable for payment of
interest and principal when due. The Banker's Acceptance carries the full faith
and credit of such bank. A Certificate of Deposit ("CD") is an unsecured
interest-bearing debt obligation of a bank. Commercial Paper is an unsecured,
short term debt obligation of a bank, corporation or other borrower. Commercial
Paper maturity generally ranges from two to 270 days and is usually sold on a
discounted basis rather than as an interest-bearing instrument. The Fund will
invest in Commercial Paper only if it is rated one of the top two rating
categories by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group ("S&P"), Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps
("D&P") or, if not rated, of equivalent quality in the Advisor's opinion.
Commercial Paper may include Master Notes of the same quality. Master Notes are
unsecured obligations which are redeemable upon demand of the holder and which
permit the investment of fluctuating amounts at varying rates of interest.
Master Notes are acquired by the Fund only through the Master Note program of
the Fund's custodian bank, acting as administrator thereof. The Advisor will
monitor, on a continuous basis, the earnings power, cash flow and other
liquidity ratios of the issuer of a Master Note held by the Fund.
Illiquid Investments. The Fund may invest up to 10% of its net assets in
illiquid securities, which are investments that cannot be sold or disposed of in
the ordinary course of business within seven days at approximately the prices at
which they are valued. Under the supervision of the Board of Trustees, the
Advisor determines the liquidity of the Fund's investments and, through reports
from the Advisor, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Fund's investments, the Advisor may consider
various factors including (1) the frequency of trades and quotations, (2) the
number of dealers and prospective purchasers in the marketplace, (3) dealer
undertakings to make a market, (4) the nature of the security (including any
demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and obligations
relating to the investment). Investments currently considered by the Fund to be
illiquid include repurchase agreements not entitling the holder to payment of
principal and interest within seven days. If through a change in values, net
assets or other circumstances, the Fund were in a position where more than 10%
of its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.
INVESTMENT LIMITATIONS
The Fund has adopted the following fundamental investment limitations, which
cannot be changed without approval by holders of a majority of the outstanding
voting shares of the Fund. A "majority" for this purpose means the lesser of (i)
67% of the Fund's outstanding shares represented in person or by proxy at a
meeting at which more than 50% of its outstanding shares are represented, or
(ii) more than 50% of its outstanding shares. Unless otherwise indicated,
percentage limitations apply at the time of purchase.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities, borrow money, or pledge its assets, except
that it may borrow from banks as a temporary measure (a) for
extraordinary or emergency purposes, in amounts not exceeding 5% of its
total assets or (b) to meet redemption requests in amounts not
exceeding 15% of its total assets. The Fund will not make any
investments if borrowing exceeds 5% of its total assets until such time
as total borrowing represents less than 5% of Fund assets;
2. With respect to 75% of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer or
purchase more than 10% of the outstanding voting securities of any
class of securities of any one issuer (except that securities of the
U.S. government, its agencies, and instrumentalities are not subject to
this limitation);
3. Invest 25% or more of the value of its total assets in any one industry
(except that securities of the U.S. Government, its agencies, and
instrumentalities are not subject to this limitation);
4. Invest for the purpose of exercising control or management of another
issuer;
5. Purchase or sell commodities or commodities contracts; real estate
(including limited partnership interests, but excluding readily
marketable interests in real estate investment trusts or other
securities secured by real estate or interests therein or readily
marketable securities issued by companies that invest in real estate or
interests therein); or interests in oil, gas, or other mineral
exploration or development programs or leases (although it may invest
in readily marketable securities of issuers that invest in or sponsor
such programs or leases);
6. Underwrite securities issued by others except to the extent that the
disposition of portfolio securities, either directly from an issuer or
from an underwriter for an issuer, may be deemed to be an underwriting
under the federal securities laws;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Invest its assets in the securities of one or more investment companies
except to the extent permitted by the 1940 Act;
9. Write, purchase, or sell puts, calls, straddles, spreads, or
combinations thereof or futures contracts or related options; or
10. Make loans of money or securities, except that the Fund may invest in
repurchase agreements, money market instruments, and other debt
securities.
The following investment limitations are not fundamental and may be changed
without shareholder approval. As a matter of non-fundamental policy, the Fund
may not:
1. Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors) if more than 5% of its total assets would be
invested in such securities;
2. Invest more than 10% of its net assets in illiquid securities. For this
purpose, illiquid securities include, among others, (a) securities for
which no readily available market exists or which have legal or
contractual restrictions on resale, (b) fixed-time deposits that are
subject to withdrawal penalties and have maturities of more than seven
days, and (c) repurchase agreements not terminable within seven days;
3. Invest in the securities of any issuer if those officers or Trustees of
the Trust and those officers and directors of the Advisor who
individually own more than 1/2 of 1% of the outstanding securities of
such issuer together own more than 5% of such issuer's securities;
4. Make short sales of securities or maintain a short position, except
short sales "against the box." (A short sale is made by selling a
security the Fund does not own. A short sale is "against the box" to
the extent that the Fund contemporaneously owns or has the right to
obtain at no additional cost securities identical to those sold short.)
While the Fund has reserved the right to make short sales "against the
box," the Advisor has no present intention of engaging in such
transactions at this time or during the coming year; or
5. Purchase foreign securities other than those traded on domestic U.S.
exchanges.
Percentage restrictions stated as an investment policy or investment limitation
apply at the time of investment; if a later increase or decrease in percentage
beyond the specified limits results from a change in securities values or total
assets, it will not be considered a violation.
NET ASSET VALUE
The net asset value per share of the Fund is calculated separately by adding the
value of the Fund's securities and other assets belonging to the Fund,
subtracting the liabilities charged to the Fund, and dividing the result by the
number of outstanding shares. "Assets belonging to" the Fund consist of the
consideration received upon the issuance of shares of the Fund together with all
net investment income, realized gains/losses and proceeds derived from the
investment thereof, including any proceeds from the sale of such investments,
any funds or payments derived from any reinvestment of such proceeds, and a
portion of any general assets of the Trust not belonging to a particular
investment Fund. Assets belonging to the Fund are charged with the direct
liabilities of the Fund and with a share of the general liabilities of the
Trust, which are normally allocated in proportion to the number of or the
relative net asset values of all of the Trust's series at the time of allocation
or in accordance with other allocation methods approved by the Board of
Trustees. Subject to the provisions of the Declaration of Trust, determinations
by the Board of Trustees as to the direct and allocable liabilities, and the
allocable portion of any general assets, with respect to the Fund are
conclusive.
The net asset value per share of the Fund is determined at the time trading
closes on the New York Stock Exchange (currently 4:00 p.m., New York time,
Monday through Friday), except on business holidays when the New York Stock
Exchange is closed. The New York Stock Exchange generally recognizes the
following holidays: New Year's Day, Martin Luther King, Jr.'s Birthday,
President's Day, Good Friday, Memorial Day, Fourth of July, Labor Day,
Thanksgiving Day, and Christmas Day. Any other holiday recognized by the New
York Stock Exchange will be considered a business holiday on which the Fund's
net asset value will not be determined.
For the fiscal period ended February 28, 1998, the net expenses of the Fund
after fee waivers and expense reimbursements were $24,311.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Purchases. Shares of the Fund are offered and sold on a continuous basis and may
be purchased through authorized investment dealers or directly by contacting the
Distributor or the Fund. Selling dealers have the responsibility of transmitting
orders promptly to the Fund. The public offering price of shares of the Fund
equals net asset value. See "How Shares May Be Purchased" in the Prospectus.
Redemptions. Under the 1940 Act, the Fund may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange is restricted by applicable rules and regulations of
the SEC; (b) the Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC. The Fund may also suspend or postpone
the recordation of the transfer of shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectus under "How Shares may
be Redeemed," the Fund may redeem shares involuntarily to reimburse the Fund for
any loss sustained by reason of the failure of a shareholder to make full
payment for shares purchased by the shareholder or to collect any charge
relating to a transaction effected for the benefit of a shareholder which is
applicable to Fund shares as provided in the Prospectus from time to time.
DESCRIPTION OF THE TRUST
The Trust is an unincorporated business trust organized under Massachusetts law
on August 12, 1992. The Trust's Declaration of Trust authorizes the Board of
Trustees to divide shares into series, each series relating to a separate
portfolio of investments, and to classify and reclassify any unissued shares
into one or more classes of shares of each such series. The Declaration of Trust
currently provides for the shares of three series, as follows: the Fund, The
Chesapeake Growth Fund, and The Chesapeake Aggressive Growth Fund, all managed
by the Advisor. The shares of the Fund and The Chesapeake Aggressive Growth Fund
are all of one class; the shares of The Chesapeake Growth Fund are divided into
five classes (Institutional Shares, Super-Institutional Shares, and Series A,
Series C, and Series D Investor Shares). The number of shares of each series
shall be unlimited. The Trust does not intend to issue share certificates.
In the event of a liquidation or dissolution of the Trust or an individual
series, such as the Fund, shareholders of a particular series would be entitled
to receive the assets available for distribution belonging to such series.
Shareholders of a series are entitled to participate equally in the net
distributable assets of the particular series involved on liquidation, based on
the number of shares of the series that are held by each shareholder. If there
are any assets, income, earnings, proceeds, funds or payments, that are not
readily identifiable as belonging to any particular series, the Trustees shall
allocate them among any one or more of the series as they, in their sole
discretion, deem fair and equitable.
Shareholders of all of the series of the Trust, including the Fund, will vote
together and not separately on a series-by-series or class-by-class basis,
except as otherwise required by law or when the Board of Trustees determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular series or class. Rule 18f-2 under the 1940 Act provides that any
matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each series or class affected by the matter. A series
or class is affected by a matter unless it is clear that the interests of each
series or class in the matter are substantially identical or that the matter
does not affect any interest of the series or class. Under Rule 18f-2, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a series only
if approved by a majority of the outstanding shares of such series. However, the
Rule also provides that the ratification of the appointment of independent
accountants, the approval of principal underwriting contracts and the election
of Trustees may be effectively acted upon by shareholders of the Trust voting
together, without regard to a particular series or class.
When used in the Prospectus or this Additional Statement, a "majority" of
shareholders means the vote of the lesser of (1) 67% of the shares of the Trust
or the applicable series or class present at a meeting if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (2)
more than 50% of the outstanding shares of the Trust or the applicable series or
class.
When issued for payment as described in the Prospectus and this Additional
Statement, shares of the Fund will be fully paid and non-assessable.
The Declaration of Trust provides that the Trustees of the Trust will not be
liable in any event in connection with the affairs of the Trust, except as such
liability may arise from his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of duties. It also provides that all third
parties shall look solely to the Trust property for satisfaction of claims
arising in connection with the affairs of the Trust. With the exceptions stated,
the Declaration of Trust provides that a Trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the Trust.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning and is based
on tax laws and regulations that are in effect on the date hereof; such laws and
regulations may be changed by legislative, judicial, or administrative action.
Investors are advised to consult their tax advisors with specific reference to
their own tax situations.
Each series of the Trust, including the Fund, will be treated as a separate
corporate entity under the Code and intends to qualify or remain qualified as a
regulated investment company. In order to so qualify, each series must elect to
be a regulated investment company or have made such an election for a previous
year and must satisfy, in addition to the distribution requirement described in
the Prospectus, certain requirements with respect to the source of its income
for a taxable year. At least 90% of the gross income of each series must be
derived from dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stocks, securities or foreign
currencies, and other income derived with respect to the series' business of
investing in such stock, securities or currencies. Any income derived by a
series from a partnership or trust is treated as derived with respect to the
series' business of investing in stock, securities or currencies only to the
extent that such income is attributable to items of income that would have been
qualifying income if realized by the series in the same manner as by the
partnership or trust.
An investment company may not qualify as a regulated investment company for any
taxable year unless it satisfies certain requirements with respect to the
diversification of its investments at the close of each quarter of the taxable
year. In general, at least 50% of the value of its total assets must be
represented by cash, cash items, government securities, securities of other
regulated investment companies and other securities which, with respect to any
one issuer, do not represent more than 5% of the total assets of the investment
company nor more than 10% of the outstanding voting securities of such issuer.
In addition, not more than 25% of the value of the investment company's total
assets may be invested in the securities (other than government securities or
the securities of other regulated investment companies) of any one issuer. The
Fund intends to satisfy all requirements on an ongoing basis for continued
qualification as a regulated investment company.
Each series of the Trust, including the Fund, will designate any distribution of
long term capital gains as a capital gain dividend in a written notice mailed to
shareholders within 60 days after the close of the series' taxable year.
Shareholders should note that, upon the sale or exchange of series shares, if
the shareholder has not held such shares for at least six months, any loss on
the sale or exchange of those shares will be treated as long term capital loss
to the extent of the capital gain dividends received with respect to the shares.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). Each series of the Trust, including the Fund, intends to
make sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income prior to the end of each calendar year to
avoid liability for this excise tax.
If for any taxable year a series does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions (whether or not derived from interest on tax-exempt securities)
would be taxable as ordinary income to shareholders to the extent of the series'
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
Each series of the Trust, including the Fund, will be required in certain cases
to withhold and remit to the U.S. Treasury 31% of taxable dividends or 31% of
gross proceeds realized upon sale paid to shareholders who have failed to
provide a correct tax identification number in the manner required, or who are
subject to withholding by the Internal Revenue Service for failure to properly
include on their return payments of taxable interest or dividends, or who have
failed to certify to the Fund that they are not subject to backup withholding
when required to do so or that they are "exempt recipients."
Depending upon the extent of the Fund's activities in states and localities in
which its offices are maintained, in which its agents or independent contractors
are located or in which it is otherwise deemed to be conducting business, the
Fund may be subject to the tax laws of such states or localities. In addition,
in those states and localities that have income tax laws, the treatment of the
Fund and its shareholders under such laws may differ from their treatment under
federal income tax laws.
MANAGEMENT OF THE FUND
Trustees and Officers. The Trustees and executive officers of the Trust, their
addresses and ages, and their principal occupations for the last five years are
as follows:
Name, Age, Position(s) Principal Occupation(s)
and Address During Past 5 Years
Jack E. Brinson, 65 President, Brinson Investment Co.
Trustee (personal investments)
1105 Panola Street President, Brinson Chevrolet, Inc.
Tarboro, North Carolina 27886 (auto dealership)
Tarboro, North Carolina
W. Whitfield Gardner, 35 Chairman and Executive Officer
Trustee* Gardner Lewis Asset Management
Chief Executive Officer (Advisor to the Chesapeake Funds)
The Chesapeake Funds Chadds Ford, Pennsylvania
285 Wilmington - West Chester Pike
Chadds Ford, Pennsylvania 19317
Stephen J. Kneeley, 35 Chief Operating Officer
Trustee Turner Investment Partners
1235 Westlakes Drive (investment manager)
Suite 350 Berwyn, Pennsylvania
Berwyn, Pennsylvania 19312
John L. Lewis, IV, 34 President
President Gardner Lewis Asset Management
The Chesapeake Funds (Advisor to the Chesapeake Funds)
285 Wilmington - West Chester Pike Chadds Ford, Pennsylvania
Chadds Ford, Pennsylvania 19317
C. Frank Watson III, 27 Vice President
Secretary and Assistant Treasurer The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802 (Administrator to the Chesapeake
Funds)
Julian G. Winters, 29 Legal and Compliance Director
Treasurer and Assistant Secretary The Nottingham Company
105 North Washington Street Rocky Mount, North Carolina
Rocky Mount, North Carolina 27802 (Administrator to the Chesapeake
Funds), since 1996; previously
Operations Manager, Tar Heel Medical,
Nashville, North Carolina
William D. Zantzinger, 36 Director of Trading
Vice President Gardner Lewis Asset Management
The Chesapeake Funds (Advisor to the Chesapeake Funds)
285 Wilmington - West Chester Pike Chadds Ford, Pennsylvania
Chadds Ford, Pennsylvania 19317
- -------------------------------
* Indicates that Trustee is an "interested person" of the Trust for purposes of
the 1940 Act because of his position with the Advisor to the Trust.
Compensation. The officers of the Trust will not receive compensation from the
Trust for performing the duties of their offices. Each Trustee who is not an
"interested person" of the Trust receives a fee of $7,500 each year plus $400
per series of the Trust per meeting attended in person and $150 per series of
the Trust per meeting attended by telephone. All Trustees are reimbursed for any
out-of-pocket expenses incurred in connection with attendance at meetings.
Compensation Table
Pension Total
Retirement Compensation
Aggregate Benefits Estimated from the
Compensation Accrued As Annual Trust
Name of Person, from the Part of Fund Benefits Upon Paid to
Position Trust Expenses Retirement Trustees
Jack E. Brinson $9,400 None None $9,400
Trustee
W. Whitfield Gardner None None None None
Trustee
Stephen J. Kneeley $9,900 None None $9,900
Trustee
Figures are for the calendar year ended December 31, 1997.
Principal Holders of Voting Securities. As of June 29, 1998, the Trustees and
Officers of the Trust as a group owned beneficially (i.e., had voting and/or
investment power) less than 6% of the then outstanding shares of the Fund. On
the same date the following shareholders owned of record more than 5% of the
outstanding shares of beneficial interest of the Fund. Except as provided below,
no person is known by the Trust to be the beneficial owner of more than 5% of
the outstanding shares of the Fund as of June 29, 1998.
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership* of Class
Arrowhead Properties 49,592.302 8.915%
c/o Hap Hederman
PO Box 6100
Ridgeland MS 39158
Robert Goodfriend 190,268.664 34.203%
330 Commerce St.
Nashville, TN 37200-1899
Carl Herrin 100,477.886 18.062%
P.O. Box 329
Jackson, MS 39205
John L. Lewis 31,095.842 5.59%
285 Wilmington-West
Chester Pike
River Ridge 62,191.684 11.180%
Raymond Building
Suite 204
3411 Silverside Rd.
Wilmington, DE 19810
* The Fund believes the shares indicated are owned both of record and
beneficially, except as indicated above.
** Pursuant to applicable SEC regulations, this shareholder is deemed to control
the Fund.
Investment Advisor. Information about Gardner Lewis Asset Management, Chadds
Ford, Pennsylvania (the "Advisor") and its duties and compensation as Advisor is
contained in the Prospectus. The Advisor supervises the Fund's investments
pursuant to an Investment Advisory Agreement (the "Advisory Agreement"). The
Advisory Agreement is currently effective for a one-year period and will be
renewed thereafter only so long as such renewal and continuance is specifically
approved at least annually by the Board of Trustees or by vote of a majority of
the Fund's outstanding voting securities, provided the continuance is also
approved by a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party. The Advisory Agreement is
terminable without penalty on 60-days' notice by the Board of Trustees of the
Trust or by vote of a majority of the outstanding voting securities of the Fund.
The Advisory Agreement provides that it will terminate automatically in the
event of its assignment.
The Advisor will receive a monthly management fee equal to an annual rate of
1.00% of the average daily net asset value of the Fund. For the fiscal period
ended February 28, 1998, the Advisor voluntarily waived its fee in the amount of
$19,606 and voluntarily reimbursed a portion of the Fund's operating expenses in
the amount of $8,432.
Under the Advisory Agreement, the Advisor is not liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in connection
with the performance of such Agreement, except a loss resulting from a breach of
fiduciary duty with respect to the receipt of compensation for services or a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Advisor in the performance of its duties or from its reckless
disregard of its duties and obligations under the Agreement.
Administrator and Transfer Agent. The Trust has entered into a Fund Accounting,
Dividend Disbursing & Transfer Agent and Administration Agreement with The
Nottingham Company (the "Administrator"), 105 North Washington Street, Post
Office Drawer 69, Rocky Mount, North Carolina 27802-0069, pursuant to which the
Administrator receives a fee at the annual rate of 0.075% of the average daily
net assets of the Fund for general administration services. In addition, the
Administrator currently receives a base monthly fee of $1,750 for accounting and
recordkeeping services for the Fund. The Administrator also charges the Fund for
certain costs involved with the daily valuation of investment securities and is
reimbursed for out-of-pocket expenses. For the fiscal period ended February 28,
1998, the Administrator received Fund accounting fees of $8,750 and waived Fund
administrative fees of $1,470.
The Administrator will perform the following services for the Fund: (1)
coordinate with the Custodian and monitor the services it provides to the Fund;
(2) coordinate with and monitor any other third parties furnishing services to
the Fund; (3) provide the Fund with necessary office space, telephones and other
communications facilities and personnel competent to perform administrative and
clerical functions for the Fund; (4) supervise the maintenance by third parties
of such books and records of the Fund as may be required by applicable federal
or state law; (5) prepare or supervise the preparation by third parties of all
federal, state and local tax returns and reports of the Fund required by
applicable law; (6) prepare and, after approval by the Trust, file and arrange
for the distribution of proxy materials and periodic reports to shareholders of
the Fund as required by applicable law; (7) prepare and, after approval by the
Trust, arrange for the filing of such registration statements and other
documents with the Securities and Exchange Commission and other federal and
state regulatory authorities as may be required by applicable law; (8) review
and submit to the officers of the Trust for their approval invoices or other
requests for payment of Fund expenses and instruct the Custodian to issue checks
in payment thereof; and (9) take such other action with respect to the Fund as
may be necessary in the opinion of the Administrator to perform its duties under
the agreement. The Administrator will also provide certain accounting and
pricing services for the Fund.
With the approval of the Trust, the Administrator has contracted with NC
Shareholder Services, LLC (the "Transfer Agent"), a North Carolina limited
liability company, to serve as transfer, dividend paying, and shareholder
servicing agent for the Fund. The address of the Transfer Agent is 107 North
Washington Street, Post Office Box 4365, Rocky Mount, North Carolina 27803-0365.
The Transfer Agent is compensated for its services by the Administrator and not
directly by the Fund. The Fund is charged a recordkeeping fee based on the
number of shareholders in the Fund and a fee of $12,500 per year for shareholder
administration services. For the fiscal period ended February 28, 1998, the
Transfer Agent waived shareholder recordkeeping and administration fees of
$3,644 and $5,206, respectively.
Distributor. Capital Investment Group, Inc. (the "Distributor"), Post Office Box
32249, Raleigh, North Carolina 27622, acts as an underwriter and distributor of
the Fund's shares for the purpose of facilitating the registration of shares of
the Fund under state securities laws and to assist in sales of Fund shares
pursuant to a Distribution Agreement (the "Distribution Agreement") approved by
the Board of Trustees of the Trust.
In this regard, the Distributor has agreed at its own expense to qualify as a
broker-dealer under all applicable federal or state laws in those states which
the Fund shall from time to time identify to the Distributor as states in which
it wishes to offer its shares for sale, in order that state registrations may be
maintained for the Fund.
The Distributor is a broker-dealer registered with the Securities and Exchange
Commission and a member in good standing of the National Association of
Securities Dealers, Inc.
The Distribution Agreement may be terminated by either party upon 60 days prior
written notice to the other party.
Custodian. First Union National Bank of North Carolina (the "Custodian"), Two
First Union Center, Charlotte, North Carolina 28288-1151, serves as custodian
for the Fund's assets. The Custodian acts as the depository for the Fund,
safekeeps its portfolio securities, collects all income and other payments with
respect to portfolio securities, disburses monies at the Fund's request and
maintains records in connection with its duties as Custodian. For its services
as Custodian, the Custodian is entitled to receive from the Fund an annual fee
based on the average net assets of the Fund held by the Custodian.
Independent Auditors. The firm of Deloitte & Touche LLP, 2500 One PPG Place,
Pittsburgh, Pennsylvania 15222-5401, serves as independent auditors for the
Fund, and will audit the annual financial statements of the Fund, prepare the
Fund's federal and state tax returns, and consult with the Fund on matters of
accounting and federal and state income taxation. A copy of the most recent
annual report of the Fund will accompany this Additional Statement whenever it
is requested by a shareholder or prospective investor.
SPECIAL SHAREHOLDER SERVICES
The Fund offers the following shareholder services:
Regular Account. The regular account allows for voluntary investments to be made
at any time. Available to individuals, custodians, corporations, trusts,
estates, corporate retirement plans and others, investors are free to make
additions and withdrawals to or from their account as often as they wish. When
an investor makes an initial investment in the Fund, a shareholder account is
opened in accordance with the investor's registration instructions. Each time
there is a transaction in a shareholder account, such as an additional
investment or the reinvestment of a dividend or distribution, the shareholder
will receive a confirmation statement showing the current transaction and all
prior transactions in the shareholder account during the calendar year to date,
along with a summary of the status of the account as of the transaction date. As
stated in the Prospectus, share certificates are not issued.
Automatic Investment Plan. The automatic investment plan enables shareholders to
make regular monthly or quarterly investment in shares through automatic charges
to their checking account. With shareholder authorization and bank approval, the
Fund will automatically charge the checking account for the amount specified
($100 minimum) which will be automatically invested in shares at the public
offering price on or about the 21st day of the month. The shareholder may change
the amount of the investment or discontinue the plan at any time by writing to
the Fund.
Systematic Withdrawal Plan. Shareholders owning shares with a value of $25,000
or more may establish a Systematic Withdrawal Plan. A shareholder may receive
monthly or quarterly payments, in amounts of not less than $250 per payment, by
authorizing the Fund to redeem the necessary number of shares periodically (each
month, or quarterly in the months of March, June, September and December) in
order to make the payments requested. The Fund has the capacity of
electronically depositing the proceeds of the systematic withdrawal directly to
the shareholder's personal bank account ($5,000 minimum per bank wire).
Instructions for establishing this service are included in the Fund Shares
Application, enclosed in the Prospectus, or available by calling the Fund. If
the shareholder prefers to receive his systematic withdrawal proceeds in cash,
or if such proceeds are less than the $5,000 minimum for a bank wire, checks
will be made payable to the designated recipient and mailed within 7 days of the
valuation date. If the designated recipient is other than the registered
shareholder, the signature of each shareholder must be guaranteed on the
application (see "Signature Guarantees" in the Prospectus). A corporation (or
partnership) must also submit a "Corporate Resolution" (or "Certification of
Partnership") indicating the names, titles and required number of signatures
authorized to act on its behalf. The application must be signed by a duly
authorized officer(s) and the corporate seal affixed. No redemption fees are
charged to shareholders under this plan. Costs in conjunction with the
administration of the plan are borne by the Fund. Shareholders should be aware
that such systematic withdrawals may deplete or use up entirely their initial
investment and may result in realized long-term or short-term capital gains or
losses. The Systematic Withdrawal Plan may be terminated at any time by the Fund
upon sixty days written notice or by a shareholder upon written notice to the
Fund. Applications and further details may be obtained by calling the Fund at
1-800-430-3863, or by writing to:
The Chesapeake Core Growth Fund
107 North Washington Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Purchases in Kind. The Fund may accept securities in lieu of cash in payment for
the purchase of shares in the Fund. The acceptance of such securities is at the
sole discretion of the Advisor based upon the suitability of the securities
accepted for inclusion as a long term investment of the Fund, the marketability
of such securities, and other factors which the Advisor may deem appropriate. If
accepted, the securities will be valued using the same criteria and methods as
described in "How Shares are Valued" in the Prospectus.
Redemptions in Kind. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Board of Trustees may authorize payment to be made in readily
marketable portfolio securities of the Fund. Securities delivered in payment of
redemptions would be valued at the same value assigned to them in computing the
net asset value per share. Shareholders receiving them would incur brokerage
costs when these securities are sold. An irrevocable election has been filed
under Rule 18f-1 of the 1940 Act, wherein the Fund committed itself to pay
redemptions in cash, rather than in kind, to any shareholder of record of the
Fund who redeems during any ninety-day period, the lesser of (a) $250,000 or (b)
one percent (1%) of the Fund's net asset value at the beginning of such period.
Transfer of Registration. To transfer shares to another owner, send a written
request to the Fund at the address shown herein. Your request should include the
following: (1) the Fund name and existing account registration; (2) signature(s)
of the registered owner(s) exactly as the signature(s) appear(s) on the account
registration; (3) the new account registration, address, social security or
taxpayer identification number and how dividends and capital gains are to be
distributed; (4) signature guarantees (See the Prospectus under the heading
"Signature Guarantees"); and (5) any additional documents which are required for
transfer by corporations, administrators, executors, trustees, guardians, etc.
If you have any questions about transferring shares, call or write the Fund.
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the total return of the Fund may be quoted in advertisements,
sales literature, shareholder reports or other communications to shareholders.
The Fund computes the "average annual total return" of the Fund by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested to the ending redeemable value of such
investment. This is done by determining the ending redeemable value of a
hypothetical $1,000 initial payment. This calculation is as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted.
n = period covered by the computation, expressed in terms of
years.
The Fund may also compute the aggregate total return of the Fund, which is
calculated in a similar manner, except that the results are not annualized.
The calculation of average annual total return and aggregate total return assume
an initial $1,000 investment and that there is a reinvestment of all dividends
and capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. These performance quotations should
not be considered representative of the Fund's performance for any specified
period in the future.
The aggregate total return of the Fund for the period from September 29, 1997
(commencement of operations) to February 28, 1998 was 7.49%. Past performance is
not a guarantee of future results. Aggregate total return is calculated in a
similar manner to annual total return, except that the return is aggregated,
rather than annualized.
The Fund's performance may be compared in advertisements, sales literature,
shareholder reports, and other communications to the performance of other mutual
funds having similar objectives or to standardized indices or other measures of
investment performance. In particular, the Fund may compare its performance to
the S&P 500 Total Return Index and the NASDAQ Industrials Index, which are
generally considered to be representative of the performance of unmanaged common
stocks that are publicly traded in the United States securities markets.
Comparative performance may also be expressed by reference to a ranking prepared
by a mutual fund monitoring service or by one or more newspapers, newsletters or
financial periodicals. The Fund may also occasionally cite statistics to reflect
its volatility and risk. The Fund may also compare its performance to other
published reports of the performance of unmanaged portfolios of companies. The
performance of such unmanaged portfolios generally does not reflect the effects
of dividends or dividend reinvestment. Of course, there can be no assurance that
the Fund will experience the same results. Performance comparisons may be useful
to investors who wish to compare the Fund's past performance to that of other
mutual funds and investment products. Of course, past performance is not a
guarantee of future results.
The Fund's performance fluctuates on a daily basis largely because net earnings
and net asset value per share fluctuate daily. Both net earnings and net asset
value per share are factors in the computation of total return as described
above.
As indicated, from time to time, the Fund may advertise its performance compared
to similar funds or portfolios using certain indices, reporting services, and
financial publications. These may include the following:
o Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time.
o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Investors may use such indices in addition to the Fund's Prospectus to obtain a
more complete view of the Fund's performance before investing. Of course, when
comparing the Fund's performance to any index, factors such as composition of
the index and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price. Advertisements and
other sales literature for the Fund may quote total returns that are calculated
on non-standardized base periods. The total returns represent the historic
change in the value of an investment in the Fund based on monthly reinvestment
of dividends over a specified period of time.
From time to time the Fund may include in advertisements and other
communications information, charts, and illustrations relating to inflation and
the effects of inflation on the dollar, including the purchasing power of the
dollar at various rates of inflation. The Fund may also disclose from time to
time information about its portfolio allocation and holdings at a particular
date (including ratings of securities assigned by independent rating services
such as S&P and Moody's). The Fund may also depict the historical performance of
the securities in which the Fund may invest over periods reflecting a variety of
market or economic conditions either alone or in comparison with alternative
investments, performance indices of those investments, or economic indicators.
The Fund may also include in advertisements and in materials furnished to
present and prospective shareholders statements or illustrations relating to the
appropriateness of types of securities and/or mutual funds that may be employed
to meet specific financial goals, such as saving for retirement, children's
education, or other future needs.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
The Fund will normally be at least 90% invested in equities. As a temporary
defensive position, however, the Fund may invest up to 100% of its assets in
investment grade bonds, U.S. Government Securities, repurchase agreements, or
money market instruments ("Investment-Grade Debt Securities"). When the Fund
invests in Investment Grade-Debt Securities as a temporary defensive measure, it
is not pursuing its investment objective. Under normal circumstances, however,
the fund may invest in money market or repurchase agreement instruments as
described in the Prospectus. The various ratings used by the nationally
recognized securities rating services are described below.
A rating by a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Advisor believes that the quality of fixed income
securities in which the Fund may invest should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating is evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
Standard & Poor's Ratings Services. The following summarizes the highest four
ratings used by Standard & Poor's Ratings Services ("S&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity of the obligor to meet its
financial commitment on the obligation.
AA - Debt rated AA differs from AAA issues only in a small degree. The
obligor's capacity to meet its financial commitment on the obligation is
very strong.
A - Debt rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in
higher-rated categories. However, the obligor's capacity to meet its
financial commitment on the obligation is still strong.
BBB - Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
Bonds rated BB, B, CCC, CC and C are not considered by the Advisor to be
"Investment-Grade Debt Securities" and are regarded, on balance, as having
significant speculative characteristics with respect to the obligor's capacity
to meet its financial commitment on the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation. While such bonds
may have some quality and protective characteristics, these may be outweighed by
large uncertainties or major risk exposures to adverse conditions.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating SP-1 is the highest rating assigned by S&P to short term notes and
indicates strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation. The rating SP-2 indicates a satisfactory capacity to pay principal
and interest, with some vulnerability to adverse financial and economic changes
over the term of the notes.
Moody's Investors Service, Inc. The following summarizes the highest four
ratings used by Moody's Investors Service, Inc. ("Moody's") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Debt which is rated A possesses many favorable investment attributes
and is to be considered as an upper medium grade obligation. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Debt which is rated Baa is considered as a medium grade obligation,
i.e., it is neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such debt lacks outstanding
investment characteristics and in fact has speculative characteristics as
well.
Moody's applies numerical modifiers (l, 2 and 3) with respect to bonds rated Aa,
A and Baa. The modifier 1 indicates that the bond being rated ranks in the
higher end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the bond ranks in the lower end of
its generic rating category. Bonds which are rated Ba, B, Caa, Ca or C by
Moody's are not considered "Investment-Grade Debt Securities" by the Advisor.
Bonds rated Ba are judged to have speculative elements because their future
cannot be considered as well assured. Uncertainty of position characterizes
bonds in this class, because the protection of interest and principal payments
often may be very moderate and not well safeguarded.
Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the security over any long period for time may be small. Bonds
which are rated Caa are of poor standing. Such securities may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or supporting institutions) are considered to have a
superior ability for repayment of short-term promissory obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structures with
moderate reliance on debt and ample asset protection; broad margins in earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternative liquidity. Issuers rated Prime-2 (or supporting institutions) are
considered to have a strong ability for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics of
issuers rated Prime-1 but to a lesser degree. Earnings' trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriated may be more affected by external
conditions. Ample alternate liquidity is maintained.
The following summarizes the two highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
MIG-l; VMIG-l - Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2; VMIG-2 - Obligations bearing these designations are of a high
quality with ample margins of protection.
Duff & Phelps Credit Rating Co. The following summarizes the highest four
ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds which are
deemed to be "Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds that are rated AAA are of the highest credit quality. The
risk factors are considered to be negligible, being only slightly more
than for risk-free U.S. Treasury debt.
AA - Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
A - Bonds rated A have average but adequate protection factors. The risk
factors are more variable and greater in periods of economic stress.
BBB - Bonds rated BBB have below-average protection factors but are still
considered sufficient for prudent investment. There is considerable
variability in risk during economic cycles.
Bonds rated BB, B and CCC by D&P are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The rating Duff l is the highest rating assigned by D&P for short-term debt,
including commercial paper. D&P employs three designations, Duff l+, Duff 1 and
Duff 1- within the highest rating category. Duff l+ indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of funds, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." Duff 1
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. Duff 1- indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
Fitch Investors Service, Inc. The following summarizes the highest four ratings
used by Fitch Investors Service, Inc. ("Fitch") for bonds which are deemed to be
"Investment-Grade Debt Securities" by the Advisor:
AAA - Bonds are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
AA - Bonds are considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because
bonds rated in the AAA and AA categories are not significantly vulnerable
to foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A - Bonds that are rated A are considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with
higher ratings.
BBB - Bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse
impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment
grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within a rating category. A "ratings outlook" is used to describe the
most likely direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative". The absence of a designation indicates a
stable outlook.
Bonds rated BB, B and CCC by Fitch are not considered "Investment-Grade Debt
Securities" and are regarded, on balance, as predominantly speculative with
respect to the issuer's ability to pay interest and make principal payments in
accordance with the terms of the obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation.
The following summarizes the two highest ratings used by Fitch for short-term
notes, municipal notes, variable rate demand instruments and commercial paper:
F-1+ - Instruments assigned this rating are regarded as having the
strongest degree of assurance for timely payment.
F-1 - Instruments assigned this rating reflect an assurance of timely
payment only slightly less in degree than issues rated F-1+.
The term symbol "LOC" indicates that the rating is based on a letter of credit
issued by a commercial bank.
<PAGE>
- --------------------------------------------------------------------------------
THE CHESAPEAKE CORE GROWTH FUND
- --------------------------------------------------------------------------------
a series of the Gardner Lewis Investment Trust
Annual Report 1998
FOR THE YEAR ENDED FEBRUARY 28
INVESTMENT ADVISOR
Gardner Lewis Asset Management
285 Wilmington-West Chester Pike
Chadds Ford, Pennsylvania 19317
THE CHESAPEAKE CORE GROWTH FUND
107 North Washington Street
Post Office Drawer 4365
Rocky Mount, North Carolina 27803-0365
1-800-430-3863
<PAGE>
April 1, 1998
Dear Shareholder:
The Chesapeake Core Growth Fund closed the first quarter with a gain of
12.1% which compares to 13.9% for the S&P 500. This certainly is a solid start
to the year, but as the quarter began, the story was different. Asia continued
to dominate Wall Street headlines, broadcasts, and trading rooms. This in turn
created massive pessimism among market participants and from our perspective
provided a form of cover, ideal for ferreting out future opportunities. For, as
it relates to investing, whenever so much thought is directed toward one
conclusion there is usually opportunity in another.
There is no doubt that Asia is a significant problem, but there is
doubt that its impact will be so great as to result in U.S. companies doing no
business there. However, if you were to have looked at many Wall Street
analysts' earnings estimates for companies with exposure to Asia, you would have
discovered that in a large number of cases, assumptions for the region were cut
to zero. This, in our minds, certainly constituted a maximum point of pessimism,
a point reflected in stock prices as they bottomed in the middle of January.
Thus, it became our view that this pessimism had created opportunity. Many
fundamentally sound companies, despite little or no exposure to the region, had
suffered undue stock price compression which was exacerbated as money flows
narrowed into the largest most recognizable names.
In the last several months, it has been phenomenal to watch this flow
of funds which until recently had been almost solely directed at the largest of
large companies. This has occurred despite the fact that those smaller currently
have less macroeconomic sensitivity, are growing faster, and are selling at more
reasonable valuations. The return data related to the market's capitalization
skew still amazes us. The largest 5 companies in the S&P 500 had an average
return of 23% for the quarter, the largest 10 averaged 21%, and the largest 50
(which make up about half of the index's capitalization) averaged 18%.
The effect of these ultra-cap fund flows has been to force managers to
put money to work in a segment of the market selling at historic levels of
valuation. Capitalization weightings further concentrate investment into the
largest names, and valuations reflect this phenomenon. The S&P's largest 5 names
are now trading at over 36 times their forward earnings estimate, the largest 10
at 34 times. Fueled by the stronger relative performance of these larger
companies, gains in this segment have been somewhat self-fulfilling, and to the
extent money continues to flow in, they can continue. However, this, stand
alone, is not enough for us. For despite the inherent quality of many of these
names, their stock prices preclude our current ownership. Instead, we as
fundamentalists rely on both the quality and the value of each individual
investment that we make. We would not want money flows to be the prop for our
stock prices.
<PAGE>
As the data above demonstrates, the market's advance has yet to truly
broaden. This to us means opportunity. Therefore, in conjunction with having
maintained ownership in the vast majority of our portfolio, knowing that as the
fundamentals become more clearly understood their stock prices will further
reflect them, we have intensified our efforts to add to our portfolio more of
what we believe will be the market's next movers. This has led us to increase
our exposure to a variety of industry groups after having raised needed cash by
taking profits in some of our technology holdings whose multiples, despite Asia,
had expanded to the point that we thought them fully valued. For, we think with
interest rates no longer a catalyst for higher price-earnings ratios, and the
crisis in Asia along with other macroeconomic concerns making it dicey to be
blindly invested, earnings should finally drive this market. To that end, our
companies are growing in excess of 22% and selling at about 19 times earnings.
This compares to the S&P 500 which is growing at 8% and selling at more than 22
times earnings. Simply put, our companies are selling at well below their growth
rates while the S&P is selling at more than twice its growth rate. Already we
have seen a seeming desire on the part of investors to refocus on fundamentals.
The forthcoming quarters should only further this movement.
As always, we will continue our discovery and culling process, in an
attempt to own the best companies at the most reasonable prices. This should
both protect our fundamental downside and maximize our upside potential.
Have a pleasant Spring!
Sincerely,
W. Whitfield Gardner
<PAGE>
THE CHESAPEAKE CORE GROWTH FUND
Performance Update - $25,000 Investment
For the period from September 29,1997 (commencement of operations) to February
28, 1998
Chesapeake
Core Growth S&P 500
Fund Total Return Index
9/29/97 25,000.00 25,000.00
10/31/97 24,450.00 24,011.52
11/30/97 24,825.00 25,122.97
12/31/97 24,843.76 25,554.45
1/31/98 24,793.97 25,974.31
2/28/98 26,872.33 27,700.61
This graph depicts the performance of The Chesapeake Core Growth Fund versus the
S&P 500 Total Return Index. It is important to note that The Chesapeake Core
Growth Fund is a professionally managed mutual fund while the index is not
available for investment and is unmanaged. The comparison is shown for
illustrative purposes only.
Cumulative Total Return
- ------------------
Since Inception
- ------------------
7.49%
- ------------------
The graph assumes an initial $25,000 investment at September 29, 1997. All
dividends and distributions are reinvested.
At February 28, 1998, the Chesapeake Core Growth Fund would have grown to
$26,872 - total investment return of 7.49% since September 29, 1997.
At February 28, 1998, a similar investment in the S&P 500 Total Return Index
would have grown to $27,701 - total investment return of 10.80% since September
29, 1997.
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 CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 96.76%
Aerospace & Defense - 1.97%
AlliedSignal, Inc. ................................................... 2,800 $119,175
--------
Apparel Manufacturing - 1.54%
Liz Claiborne, Inc. .................................................. 1,860 93,000
--------
Building Materials - 2.58%
Masco Corporation .................................................... 2,870 156,056
--------
Commercial Services - 7.04%
(a) Cendant Corporation .................................................. 3,510 131,625
Cognizant Corporation ................................................ 3,440 171,785
H&R Block, Inc. ...................................................... 2,600 122,362
--------
425,772
--------
Computers - 8.66%
(a) Adaptec, Inc. ........................................................ 1,950 51,553
Compaq Computer Corporation .......................................... 3,140 101,069
(a) EMC Corporation ...................................................... 2,920 110,048
International Business Machines ...................................... 970 101,365
(a) Sun Microsystems, Inc. ............................................... 3,370 160,496
--------
524,531
--------
Computer Software & Services - 4.26%
(a) BMC Software, Inc. ................................................... 960 73,440
(a) Cadence Design Systems, Inc. ......................................... 3,520 122,980
First Data Corporation ............................................... 1,800 61,200
--------
257,620
--------
Electronics - 2.75%
(a) Teradyne, Inc. ....................................................... 3,530 166,572
--------
Electronics - Semiconductor - 3.13%
Intel Corporation .................................................... 1,760 157,850
(a) National Semiconductor Corporation ................................... 1,330 31,754
--------
189,604
--------
Environmental Control - 1.96%
(a) USA Waste Services, Inc. ............................................. 2,850 118,631
--------
Financial - Banks, Commercial - 7.14%
Household International, Inc. ........................................ 1,000 129,875
NationsBank Corporation .............................................. 2,690 184,265
State Street Corporation ............................................. 1,900 117,444
--------
431,584
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Financial - Banks, Money Center - 1.97%
Citicorp ................................................................. 900 $119,081
--------
Financial Services - 1.80%
(a) The CIT Group, Inc. ...................................................... 3,300 108,900
--------
Foreign Securities - 1.59%
Siemens AG - ADR ......................................................... 1,550 95,906
--------
Household Products & Housewares - 2.01%
Maytag Corporation ....................................................... 2,700 121,500
--------
Insurance - Multiline - 2.03%
Allmerica Financial Corporation .......................................... 2,000 123,000
--------
Medical - Hospital Management & Services - 8.53%
Columbia/HCA Healthcare Corporation ...................................... 4,550 123,419
(a) HEALTHSOUTH Corporation .................................................. 5,160 139,642
(a) Tenet Healthcare Corporation ............................................. 3,200 119,400
United Healthcare Corporation ............................................ 2,200 133,512
--------
515,973
--------
Miscellaneous - Manufacturing - 5.43%
Corning Inc. ............................................................. 2,220 90,188
Parker-Hannifin Corporation .............................................. 2,390 111,434
Tyco International Ltd. .................................................. 2,500 126,562
--------
328,184
--------
Office & Business Equipment - 2.20%
Xerox Corporation ........................................................ 1,500 133,031
--------
Oil & Gas - Exploration - 2.01%
Transocean Offshore, Inc. ................................................ 2,800 121,450
--------
Pharmaceuticals - 4.32%
Merck & Co., Inc. ........................................................ 900 114,806
Warner-Lambert Company ................................................... 1,000 146,375
--------
261,181
--------
Retail - Department Stores - 4.19%
(a) Fred Meyer, Inc. ......................................................... 3,000 133,313
J. C. Penney Company, Inc. ............................................... 1,700 120,169
--------
253,482
--------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Value
Shares (note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - (Continued)
Retail - Drug Stores - 2.82%
CVS Corporation ......................................................... 2,300 $ 170,344
-----------
Retail - Grocery - 2.17%
American Stores Company ................................................. 5,200 130,975
-----------
Retail - Specialty Line - 2.42%
Intimate Brands, Inc. ................................................... 5,400 146,475
-----------
Telecommunications - 3.24%
MCI Communications Corporation .......................................... 4,100 196,031
-----------
Toys - 1.07%
(a) Toys "R" Us, Inc. ....................................................... 2,460 64,729
-----------
Transportation - Air - 5.17%
Southwest Airlines Company .............................................. 4,500 129,094
(a) US Airways Group, Inc. .................................................. 2,900 183,606
-----------
312,700
-----------
Utilities - Electric - 1.97%
(a) CalEnergy, Inc. ......................................................... 4,440 119,048
-----------
Utilities - Telecommunications - 0.79%
(a) WorldCom, Inc. .......................................................... 1,250 47,734
-----------
Total Common Stocks (Cost $5,416,956) ................................... 5,852,269
-----------
INVESTMENT COMPANIES - 7.12%
Evergreen Money Market Treasury Institutional Money
Market Fund Institutional Service Shares ................................ 306,187 306,187
Evergreen Money Market Treasury Institutional Treasury
Money Market Fund Institutional Service Shares .......................... 124,292 124,292
-----------
Total Investment Companies (Cost $430,479) .............................. 430,479
-----------
Total Value of Investments (Cost $5,847,435 (b)) .................................... 103.88% $ 6,282,748
Liabilities In Excess of Other Assets ............................................... (3.88)% (234,480)
----------- -----------
Net Assets ................................................................... 100.00% $ 6,048,268
=========== ===========
(Continued)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE CORE GROWTH FUND
PORTFOLIO OF INVESTMENTS
February 28, 1998
(a) Non-income producing investment.
(b) Aggregate cost for financial reporting and federal income tax purposes is the same. Unrealized appreciation
(depreciation) of investments for financial reporting and federal income tax purposes is as follows:
Unrealized appreciation $587,659
Unrealized depreciation (152,346)
--------------
Net unrealized appreciation $435,313
==============
The following acronym is used in this portfolio:
ADR - American Depository Receipt
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE CORE GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1998
ASSETS
Investments, at value (cost $5,847,435) ......................................................... $ 6,282,748
Cash ............................................................................................ 222
Income receivable ............................................................................... 5,703
Receivable for fund shares sold ................................................................. 1,000
Due from advisor (note 2) ....................................................................... 8,432
-----------
Total assets ............................................................................... 6,298,105
-----------
LIABILITIES
Accrued expenses ................................................................................ 7,655
Payable for investment purchases ................................................................ 242,182
-----------
Total liabilities .......................................................................... 249,837
-----------
NET ASSETS
(applicable to 564,298 shares outstanding; unlimited
shares of no par value beneficial interest authorized) ......................................... $ 6,048,268
===========
NET ASSET VALUE, REDEMPTION AND MAXIMUM OFFERING PRICE
PER SHARE
($6,048,268 / 564,298 shares) ................................................................... $ 10.72
===========
NET ASSETS CONSIST OF
Paid-in capital ................................................................................. $ 5,831,369
Undistributed net realized loss on investments .................................................. (218,414)
Net unrealized oappreciation on investments ..................................................... 435,313
-----------
$ 6,048,268
===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE CORE GROWTH FUND
STATEMENT OF OPERATIONS
For the period from September 29, 1997
(commencement of operations)
to February 28, 1998
INVESTMENT LOSS
Income
Interest ...................................................................................... $ 10,566
Dividends ..................................................................................... 9,145
---------
Total income ............................................................................. 19,711
---------
Expenses
Investment advisory fees (note 2) ............................................................. 19,606
Fund administration fees (note 2) ............................................................. 1,470
Custody fees .................................................................................. 2,448
Registration and filing administration fees (note 2) .......................................... 541
Fund accounting fees (note 2) ................................................................. 8,750
Audit fees .................................................................................... 3,082
Legal fees .................................................................................... 4,568
Securities pricing fees ....................................................................... 1,168
Shareholder administration fees ............................................................... 5,206
Shareholder recordkeeping fees ................................................................ 3,726
Shareholder servicing expenses ................................................................ 1,334
Registration and filing expenses .............................................................. 4,719
Printing expenses ............................................................................. 1,825
Trustee fees and meeting expenses ............................................................. 3,442
Other operating expenses ...................................................................... 784
---------
Total expenses ........................................................................... 62,669
---------
Less:
Expense reimbursements (note 2) .................................................... (8,432)
Investment advisory fees waived (note 2) ........................................... (19,606)
Fund administration fees waived (note 2) ........................................... (1,470)
Shareholder recordkeeping fees waived (note 2) ..................................... (3,644)
Shareholder administration fees waived (note 2) .................................... (5,206)
---------
Net expenses ............................................................................. 24,311
---------
Net investment loss ................................................................ (4,600)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investment transactions ..................................................... (218,414)
Increase in unrealized appreciation on investments ................................................. 435,313
---------
Net realized and unrealized gain on investments ............................................... 216,899
---------
Net increase in net assets resulting from operations ..................................... $ 212,299
=========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE CORE GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
For the period from September 29, 1997
(commencement of operations)
to February 28, 1998
INCREASE IN NET ASSETS
Operations
Net investment loss .............................................................................. $ (4,600)
Net realized loss from investment transactions ................................................... (218,414)
Increase in unrealized appreciation on investments ............................................... 435,313
-----------
Net increase in net assets resulting from operations ........................................ 212,299
-----------
Distribution to shareholders
Distribution in excess of net investment income .................................................. (9,859)
-----------
Capital share transactions
Increase in net assets resulting from capital share transactions (a) ............................. 5,845,828
-----------
Total increase in net assets ........................................................... 6,048,268
NET ASSETS
Beginning of period .................................................................................. 0
-----------
End of period ........................................................................................ $ 6,048,268
===========
(a) A summary of capital share activity follows:
----------------------------------------------------
Shares Value
----------------------------------------------------
Shares sold .......................................................... 563,478 $ 5,837,694
Shares issued for reinvestment
of distributions ................................................ 830 8,231
----------- -----------
564,308 5,845,925
Shares redeemed ...................................................... (10) (97)
----------- -----------
Net increase .................................................... 564,298 $ 5,845,828
=========== ===========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
THE CHESAPEAKE CORE GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
For the period from September 29, 1997
(commencement of operations)
to February 28, 1998
Net asset value, beginning of period .............................................................. $10.00
Income from investment operations
Net investment loss .................................................................... (0.01)
Net realized and unrealized gain on investments ........................................ 0.75
---------------
Total from investment operations ................................................... 0.74
---------------
Distribution to shareholders
Distribution in excess of net investment income ........................................ (0.02)
---------------
Net asset value, end of period .................................................................... $10.72
===============
Total return ...................................................................................... 7.49%
===============
Ratios/supplemental data
Net assets, end of period ................................................................... $6,048,268
===============
Ratio of expenses to average net assets
Before expense reimbursements and waived fees .......................................... 3.19%(a)
After expense reimbursements and waived fees ........................................... 1.24%(a)
Ratio of net investment loss to average net assets
Before expense reimbursements and waived fees .......................................... (2.19)%(a)
After expense reimbursements and waived fees ........................................... (0.24)%(a)
Portfolio turnover rate ..................................................................... 29.83%
Average broker commissions per share (b) .................................................... $0.0486
(a) Annualized.
(b) Represents total commissions 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 CORE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
The Chesapeake Core 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 September 29, 1997. 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 - The Fund is considered a personal holding
company as defined under Section 542 of the Internal Revenue Code
since 50% of the value of the Fund's shares were owned directly or
indirectly by five or fewer individuals at certain times during the
last half of the year. As a personal holding company, the Fund is
subject to federal income taxes on undistributed personal holding
company income at the maximum individual income tax rate. No provision
has been made for federal income taxes since substantially all taxable
income has been distributed to shareholders. 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
annually 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 February 28.
(Continued)
<PAGE>
THE CHESAPEAKE CORE GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1998
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.
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. The Advisor intends
to voluntarily waive all or a portion of its fee and reimburse expenses of
the Fund to limit total Fund operating expenses to 1.24% of the average
daily net assets of the Fund. There can be no assurance that the foregoing
voluntary fee waivers or reimbursements will continue. The Advisor has
voluntarily waived its fee amounting to $19,606 ($0.04 per share) and has
voluntarily agreed to reimburse $8,432 of the Fund's operating expenses for
the fiscal year ended February 28, 1998.
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 Fund's average daily net assets. 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. The Administrator has voluntarily waived
a portion of its total fees amounting to $10,320 ($0.02 per share) for the
fiscal year ended February 28, 1998.
NC Shareholder Services, LLC (the "Transfer Agent") has been retained by
the Administrator to serve as the Fund's transfer, dividend paying, and
shareholder servicing agent. The Transfer Agent maintains the records of
each shareholder's account, answers shareholder inquiries concerning
accounts, processes purchases and redemptions of Fund shares, acts as
dividend and distribution disbursing agent, and performs other shareholder
servicing functions. The Transfer Agent is compensated for its services by
the Administrator and not directly by the Fund.
Certain Trustees and officers of the Trust are also officers of the Advisor
or the Administrator.
NOTE 3 - PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments other than short-term investments
aggregated $6,706,534 and $1,071,164 respectively, for the fiscal year
ended February 28, 1998.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Tothe Board of Trustees of Gardner Lewis Investment Trust and Shareholders of
The Chesapeake Core Growth Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The Chesapeake Core Growth Fund as of February
28, 1998, and the related statements of operations and changes in net assets,
and financial highlights for the period from September 30, 1997 (commencement of
operations) to February 28, 1998. 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.
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, 1998
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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The Chesapeake Core
Growth Fund as of February 28, 1998, the results of its operations, the changes
in its net assets and its financial highlights for the period from September 30,
1997 to February 28, 1998 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 20, 1998
<PAGE>
PART C
GARDNER LEWIS INVESTMENT TRUST
FORM N-1A
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
a) Financial Statements:
Annual Reports for the fiscal year ended February 28, 1998 for
the Chesapeake Growth Fund are included under Part B. The
financial statements for the Chesapeake Core Growth Fund are
also included under Part B. The financial statements for The
Chesapeake Aggressive Growth Fund is incorporated by reference
to Post-Effective Amendment 16 filed December 31, 1997.
b) Exhibits:
(1) Amended and Restated Declaration of Trust - Incorporated by reference;
filed 2/3/95
(2) Amended and Restated By-Laws - Incorporated by reference; filed 2/3/95
(3) Not applicable
(4) Not applicable - the series of the Registrant do not issue certificates
(see Exhibit 1 and 2 for the relevant portions of the Declaration of
Trust and By-Laws)
(5) (a) Investment Advisory Agreement for The Chesapeake Aggressive Growth
Fund - Incorporated by reference; filed 10/27/92
(b) Investment Advisory Agreement for The Chesapeake Growth Fund -
Incorporated by reference; filed 1/27/94
(c) Investment Advisory Agreement for The Chesapeake Core Growth Fund -
Incorporated by reference; filed 9/03/97
(6) (a) Distribution Agreement for The Chesapeake Aggressive Growth Fund -
Incorporated by reference; filed 11/16/94
(b) Distribution Agreement for The Chesapeake Growth Fund -Incorporated
by reference; filed 1/27/94
(c) Distribution Agreement for The Chesapeake Core Growth Fund -
Incorporated by reference; filed 9/03/97
(7) Not applicable
(8) Custodian Agreement - Incorporated by reference; filed 6/30/97
(9) (a) Fund Accounting, Dividend Disbursing and Transfer Agent and
Administration Agreement -Incorporated by reference; filed 12/21/93
(b) Amendment to the Fund Accounting, Dividend Disbursing and Transfer
Agent and Administration Agreement - Incorporated by reference;
filed 10/26/95
(c) Amendment to the Fund Accounting, Dividend Disbursing and Transfer
Agent and Administration Agreement - Incorporated by reference;
filed 7/08/96
(d) Amendment to the Fund Accounting, Dividend Disbursing and Transfer
Agent and Administration Agreement - Incorporated by reference;
filed 9/03/97
(e) Amendment to the Fund Accounting, Dividend Disbursing and Transfer
Agent and Administration Agreement - Incorporated by reference;
filed 10/09/97
(10) Opinion of Counsel - Incorporated by reference; filed 10/30/96, 4/29/97
and 10/09/97
(11) Consent of Auditors - Incorporated by reference; filed 12/31/97 and
enclosed under Exhibit 11 for The Chesapeake Growth Fund and The
Chesapeake Core Growth Fund
(12) Not Applicable
(13) Not Applicable
(14) Not applicable
(15) (a) Distribution Plan for The Chesapeake Growth Fund Series A Investor
Shares - Incorporated by reference; filed 2/7/95
(b) Distribution Plan for The Chesapeake Growth Fund Series C Investor
Shares - Incorporated by reference; filed 2/7/95
(c) Distribution Plan for The Chesapeake Growth Fund Series D Investor
Shares - Incorporated by reference; filed 2/7/95
(16) Computation of Performance - Enclosed under Exhibit 16 for The Chesapeake
Growth Fund and The Chesapeake Core Growth Fund
(17) Copies of Powers of Attorney - Incorporated by reference; filed 12/11/96
(18) Copies of Amended and Restated Rule 18f-3 Multi-Class Plan - Incorporated
by reference; filed 12/11/96
ITEM 25. Persons Controlled by or Under Common Control with Registrant
No person is controlled by or under common control with the Registrant.
ITEM 26. Number of Holders of Securities
As of June 29, 1998, the number of record holders of each class of
securities of Registrant was as follows:
Number of
Title of Class Record Holders
The Chesapeake Aggressive Growth Fund.................................1,525
The Chesapeake Growth Fund - Institutional Shares.......................173
The Chesapeake Growth Fund - Series A Investor Shares...................551
The Chesapeake Growth Fund - Series C Investor Shares....................38
The Chesapeake Growth Fund - Series D Investor Shares...................159
The Chesapeake Growth Fund - Super-Institutional Shares...................1
The Chesapeake Core Growth Fund .........................................36
ITEM 27. Indemnification
The Declaration of Trust and Bylaws of the Registrant contain
provisions covering indemnification of the officers and trustees.
The following are summaries of the applicable provisions.
The Registrant's Declaration of Trust provides that every person
who is or has been a trustee, officer, employee or agent of the
Registrant and every person who serves at the trustees' request as
director, officer, employee or agent of another enterprise will be
indemnified by the Registrant to the fullest extent permitted by
law against all liabilities and against all expenses reasonably
incurred or paid by him in connection with any debt, claim, action,
demand, suit, proceeding, judgment, decree, liability or obligation
of any kind in which he becomes involved as a party or otherwise or
is threatened by virtue of his being or having been a trustee,
officer, employee or agent of the Registrant or of another
enterprise at the request of the Registrant and against amounts
paid or incurred by him in the compromise or settlement thereof.
No indemnification will be provided to a trustee or officer: (i)
against any liability to the Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his
office ("disabling conduct"); (ii) with respect to any matter as to
which he shall, by the court or other body by or before which the
proceeding was brought or engaged, have been finally adjudicated to
be liable by reason of disabling conduct; (iii) in the absence of a
final adjudication on the merits that such trustee or officer did
not engage in disabling conduct, unless a reasonable determination,
based upon a review of the facts that the person to be indemnified
is not liable by reason of such conduct, is made by vote of a
majority of a quorum of the trustees who are neither interested
persons nor parties to the proceedings, or by independent legal
counsel, in a written opinion.
The rights of indemnification may be insured against by policies
maintained by the Registrant, will be severable, will not affect
any other rights to which any trustee, officer, employee or agent
may now or hereafter be entitled, will continue as to a person who
has ceased to be such trustee, officer, employee, or agent and will
inure to the benefit of the heirs, executors and administrators of
such a person; provided, however, that no person may satisfy any
right of indemnity or reimbursement except out of the property of
the Registrant, and no other person will be personally liable to
provide indemnity or reimbursement (except an insurer or surety or
person otherwise bound by contract).
Article XIV of the Registrant's Bylaws provides that the Registrant
will indemnify each trustee and officer to the full extent
permitted by applicable federal, state and local statutes, rules
and regulations and the Declaration of Trust, as amended from time
to time. With respect to a proceeding against a trustee or officer
brought by or on behalf of the Registrant to obtain a judgment or
decree in its favor, the Registrant will provide the officer or
trustee with the same indemnification, after the same
determination, as it is required to provide with respect to a
proceeding not brought by or on behalf of the Registrant.
This indemnification will be provided with respect to an
action, suit proceeding arising from an act or omission or alleged
act or omission, whether occurring before or after the adoption of
Article XIV of the Registrant's Bylaws.
ITEM 28. Business and other Connections of Investment Advisor
See the Statement of Additional Information section entitled
"Management of the Fund" and the Investment Advisor's Form ADV
filed with the Commission for the activities and affiliations of
the officers and directors of the Investment Advisor of the
Registrant. Except as so provided, to the knowledge of Registrant,
none of the directors or executive officers of the Investment
Advisor is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment
of a substantial nature. The Investment Advisor currently serves as
investment advisor to numerous institutional and individual
clients.
ITEM 29. Principal Underwriter
(a) Capital Investment Group, Inc. is underwriter and distributor for
The Chesapeake Aggressive Growth Fund, The Chesapeake Growth Fund,
The Chesapeake Core Growth Fund, Capital Value Fund, ZSA Asset
Allocation Fund, The Brown Capital Management Equity Fund, The Brown
Capital Management Balanced Fund, The Brown Capital Management Small
Company Fund, WST Growth & Income Fund, GrandView S&P(R) REIT Index
Fund, GrandView Realty Growth Fund, Blue Ridge Total Return Fund, SCM
Strategic Growth Fund, and the CarolinasFund.
(b)
Name and Principal Position(s) and Offices Position(s) and Offices
Business Address Underwriter with Registrant
Richard K. Bryant President No position with the Trust
17 Glenwood Avenue
Raleigh, North Carolina
Elmer O. Edgerton, Jr. Vice President No position with the Trust
17 Glenwood Avenue
Raleigh, North Carolina
(c) Not applicable
ITEM 30. Location of Accounts and Records
All account books and records not normally held by First Union
National Bank of North Carolina, the Custodian to the Registrant,
are held by the Registrant, in the offices of The Nottingham
Company, Fund Accountant and Administrator, NC Shareholder
Services, Transfer Agent to the Registrant, or by Gardner Lewis
Asset Management, the Advisor to the Registrant.
The address of The Nottingham Company is 105 North Washington
Street, Post Office Drawer 69, Rocky Mount, North Carolina
27802-0069. The address of NC Shareholder Services is 107 North
Washington Street, Post Office Box 4365, Rocky Mount, North
Carolina 27803-0365. The address of Gardner Lewis Asset Management
is 285 Wilmington-West Chester Pike, Chadds Ford, Pennsylvania
19317. The address of First Union National Bank of North Carolina
is Two First Union Center, Charlotte, North Carolina 28288-1151.
ITEM 31. Management Services
The substantive provisions of the Fund Accounting, Dividend
Disbursing & Transfer Agent and Administration Agreement between
the Registrant and The Nottingham Company are discussed in Part B
hereof.
ITEM 32. Undertakings
The Registrant hereby undertakes to comply with Section 16(c) of
the Investment Company Act of 1940.
Registrant undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the latest annual report to
shareholders of each series of Registrant upon request and without
charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Rocky Mount, State of North Carolina on
the 30th day of June, 1998.
GARDNER LEWIS INVESTMENT TRUST
By: /s/ C. Frank Watson, III
---------------------------------
C. Frank Watson, III
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
*
- ------------------------------------
Jack E. Brinson, Trustee
*
- ------------------------------------
W. Whitfield Gardner, Trustee and Chairman (Principal Executive Officer)
*
- ------------------------------------
Steve J. Kneeley, Trustee
*
- ------------------------------------
Julian G. Winters, Treasurer (Principal Financial Officer and Principal
Accounting Officer)
* By: /s/ C. Frank Watson, III
------------------------------------
C. Frank Watson, III
Attorney-in-Fact Dated: June 30, 1998
<PAGE>
GARDNER LEWIS INVESTMENT TRUST
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
EXHIBIT 11 CONSENT OF AUDITORS
EXHIBIT 16 COMPUTATION OF PERFORMANCE
EXHIBIT 27 FINANCIAL DATA SCHEDULE
EXHIBIT 11
----------
INDEPENDENT AUDITORS' CONSENT
To the Board of Trustees of Gardner Lewis Investment Trust and Shareholders of
The Chesapeake Growth Fund and The Chesapeake Core Growth Fund:
We consent to the incorporation by reference in Post-Effective Amendment No. 17
to Registration Statement (No. 33-53800) of The Chesapeake Growth Fund and The
Chesapeake Core Growth Fund of our report dated March 20, 1998, appearing in the
Annual Report, which is incorporated by reference in such Registration
Statement, and to the reference to us under the heading "Financial Highlights"
in such Prospectus.
/S/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
June 26, 1998
EXHIBIT 16
THE CHESAPEAKE GROWTH FUND
COMPUTATION OF PERFORMANCE DATA
The Fund computes the "average annual total return" of each Class of the Fund by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by determining the ending redeemable value of a
hypothetical $1,000 initial payment. This calculation is as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000 from which the maximum
sales load is deducted.
N = period covered by the computation, expressed in terms of years.
The Fund may also compute the cumulative or aggregate total return of each Class
of the Fund, which is calculated in a similar manner, except that the results
are not annualized.
(ERV - P)/P = TR
Where: ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted
TR = total return
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund may also quote other total
return information that does not reflect the effects of the sales load.
The average annual total return for the Institutional Shares of the Fund for the
year ended February 28, 1998 and since inception (April 6, 1994 to February 28,
1998) was 25.25% and 20.39%, respectively. The cumulative total return for the
Institutional Shares of the Fund since inception through February 28, 1998 was
106.24%.
The average annual total return for the Super-Institutional Shares of the Fund
for the year ended February 28, 1998 and since inception (June 12, 1996 to
February 28, 1998) was 25.40% and 17.36%, respectively. The cumulative total
return for the Super-Institutional Shares of the Fund since inception through
February 28, 1998 was 31.53%.
The average annual total return for the Series A, Series C, and Series D
Investor Shares of the Fund for the year ended February 28, 1998 was 21.06%,
22.95% and 22.20% respectively. The average annual total return since inception
(April 7, 1995 to February 29, 1998) for the Series A, Series C, and Series D
Investor Shares of the Fund was 19.66%, 19.73% and 19.79% respectively. Without
reflecting the effects of the maximum sales load, the average annual total
return for the Series A and Series D Investor Shares for the one year period
ended February 28, 1998 was 24.80% and 24.06% respectively. Without reflecting
the effects of the maximum sales load, the average annual total return for the
Series A and Series D Investor Shares since inception (April 7, 1995 to February
29, 1998) was 20.92% and 20.42% respectively. The cumulative total return for
the Series A, Series C, and Series D Investor Shares since inception (April 7,
1995 to February 29, 1998) was 68.24%, 68.55% and 68.78% respectively. Without
reflecting the effects of the maximum sales load, the cumulative total return
for the Series A and Series D Investor Shares since inception (April 7, 1995 to
February 29, 1998) was 73.45% and 71.35% respectively.
Average Annual Total Return - Institutional Shares:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Inception through February 28, 1998 Year ended February 28, 1998
1,000(1+T)3.90 = 2,062.40 1,000(1+T)1 = 1,252.51
T = (2,062.40/1,000)3.90 - 1 T = (1,252.51/1,000)1 - 1
T = 0.2039 T = 0.2525
T = 20.39% T = 25.25%
ERV = 2,062.40 ERV = 1,252.51
P = 1,000 P = 1,000
n = 3.90 n = 1
Average Annual Total Return - Series A Shares:
Inception through February 28, 1998 Year ended February 28, 1998
1,000(1+T)2.90 = 1,682.45 1,000(1+T)1 = 1,210.60
T = (1,682.45/1,000)2.90 - 1 T = (1,210.60/1,000)1 - 1
T = 0.1966 T = 0.2106
T = 19.66% T = 21.06%
ERV = 1,682.45 ERV = 1,210.60
P = 1,000 P = 1,000
n = 2.90 n = 1
without maximum sales load of 3.00%
Inception through February 28, 1998 Year ended February 28, 1998
1,000(1+T)2.90 = 1,734.48 1,000(1+T)1 = 1,248.04
T = (1,734.48/1,000)2.90 - 1 T = (1,248.04/1,000)1 - 1
T = 0.2092 T = .2480
T = 20.92% T = 24.80%
ERV = 1,734.48 ERV = 1,248.04
P = 1,000 P = 1,000
n = 2.90 n = 1
Average Annual Total Return - Series C Shares:
Inception through February 28, 1998 Year ended February 28, 1998
1,000(1+T)2.90 = 1,685.51 1,000(1+T)1 = 1,229.47
T = (1,685.51/1,000)2.90 - 1 T = (1,229.47/1,000)1 - 1
T = 0.1973 T = 0.2295
T = 19.73% T = 22.95%
ERV = 1,685.51 ERV = 1,229.47
P = 1,000 P = 1,000
n = 2.90 n = 1
Average Annual Total Return - Series D Shares:
Inception through February 28, 1998 Year ended February 28, 1998
1,000(1+T)2.90 = 1,687.22 1,000(1+T)1 = 1,222.02
T = (1,687.82/1,000)2.90 - 1 T = (1,222.02/1,000)1 - 1
T = 0.1979 T = 0.2220
T = 19.79% T = 22.20%
ERV = 1,687.82 ERV = 1,222.02
P = 1,000 P = 1,000
n = 2.90 n = 1
without maximum sales load of 1.50%
Inception through February 28, 1998 Year ended February 28, 1998
1,000(1+T)2.90 = 1,713.52 1,000(1+T)1 = 1,240.62
T = (1,713.52/1,000)2.90 - 1 T = (1,240.62/1,000)1 - 1
T = 0.2042 T = .2406
T = 20.42% T = 24.06%
ERV = 1,713.52 ERV = 1,240.62
P = 1,000 P = 1,000
n = 2.90 n = 1
Average Annual Total Return - Super-Institutional Shares:
Inception through February 28, 1998 Year ended February 28, 1998
1,000(1+T)1.71 = 1,315.54 1,000(1+T)1 = 1,253.97
T = (1,315.54/1,000)1.71 - 1 T = (1,253.97/1,000)1 - 1
T = 0.1736 T = 0.2540
T = 17.36% T = 25.40%
ERV = 1,315.54 ERV = 1,253.97
P = 1,000 P = 1,000
n = 1.71 n = 1
</TABLE>
Cumulative Total Return-Institutional Shares:
Inception through February 28, 1998 - Institutional Shares
(2,062.40 - 1,000)/1,000 = 1.0624
ERV = 2,062.40
P = 1,000
TR = 106.24%
Cumulative Total Return-Series A Shares:
Inception through February 28, 1998 - Series A Investor Shares - with 3%
sales load
(1,682.45 - 1,000)/1,000 = 0.6824
ERV = 1,682.45
P = 1,000
TR = 68.24%
Without sales load
(1,734.48 - 1,000)/1,000 = 0.7345
ERV = 1,734.48
P = 1,000
TR = 73.45%
Cumulative Total Return-Series C Shares:
Inception through February 28, 1998 - Series C Investor Shares
(1,685.51 - 1,000)/1,000 = 0.6855
ERV = 1,685.51
P = 1,000
TR = 68.55%
Cumulative Total Return-Series D Shares:
Inception through February 28, 1998 - Series D Investor Shares - with
1.5% sales load
(1,687.82 - 1,000)/1,000 = 0.6878
ERV = 1,687.82
P = 1,000
TR = 68.78%
Without sales load
(1,713.52 - 1,000)/1,000 = 0.7315
ERV = 1,713.52
P = 1,000
TR = 71.35%
Cumulative Total Return-Super-Institutional Shares:
Inception through February 28, 1998 - Super-Institutional Shares
(1,315.34 - 1,000)/1,000 = 0.3153
ERV = 1,315.34
P = 1,000
TR = 31.53%
<PAGE>
THE CHESAPEAKE CORE GROWTH FUND
COMPUTATION OF PERFORMANCE DATA
The Fund computes the "average annual total return" of the Fund by determining
the average annual compounded rates of return during specified periods that
equate the initial amount invested to the ending redeemable value of such
investment. This is done by determining the ending redeemable value of a
hypothetical $1,000 initial payment. This calculation is as follows:
P(1+T)n = ERV
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted.
N = period covered by the computation, expressed in terms of
years.
The Fund may also compute the cumulative or aggregate total return of the Fund,
which is calculated in a similar manner, except that the results are not
annualized.
The calculation of average annual total return and aggregate total return assume
that the maximum sales load is deducted from the initial $1,000 investment at
the time it is made and that there is a reinvestment of all dividends and
capital gain distributions on the reinvestment dates during the period. The
ending redeemable value is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Fund may also quote other total
return information that does not reflect the effects of the sales load.
The cumulative total return for the Fund since inception (September 29, 1997
through February 29, 1998) was 7.49%.
Cumulative Total Return
(ERV - P)/P = TR
Where: ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period
P = hypothetical initial payment of $1,000 from which the
maximum sales load is deducted
TR = total return
Inception through February 28, 1998
(1,074.89 - 1,000)/1,000 = 0.0749
ERV = 1,074.89
P = 1,000
TR = 7.49%
<TABLE> <S> <C>
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<CIK> 0000893759
<NAME> Chesapeake Growth Fund
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<PER-SHARE-GAIN-APPREC> 4.22
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000893759
<NAME> Chesapeake Growth Fund
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<NAME> Institutional
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<PER-SHARE-NII> (0.15)
<PER-SHARE-GAIN-APPREC> 4.22
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<PER-SHARE-NAV-END> 17.86
<EXPENSE-RATIO> 1.16
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000893759
<NAME> Chesapeake Growth Fund
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<NAME> Series A
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<S> <C>
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<PER-SHARE-NAV-BEGIN> 16.16
<PER-SHARE-NII> (0.21)
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000893759
<NAME> Chesapeake Growth Fund
<SERIES>
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<NAME> Series c
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<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893759
<NAME> Chesapeake Growth Fund
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<NAME> Series d
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<GROSS-EXPENSE> 3,230,210
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 16.09
<PER-SHARE-NII> (0.32)
<PER-SHARE-GAIN-APPREC> 4.15
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<PER-SHARE-DISTRIBUTIONS> (1.94)
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<PER-SHARE-NAV-END> 17.45
<EXPENSE-RATIO> 2.18
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893759
<NAME> Chesapeake Core Growth
<SERIES>
<NUMBER> 6
<NAME> Core Growth Fund
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 5,847,435
<INVESTMENTS-AT-VALUE> 6,282,748
<RECEIVABLES> 14,138
<ASSETS-OTHER> 1,222
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,298,105
<PAYABLE-FOR-SECURITIES> 242,182
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,655
<TOTAL-LIABILITIES> 249,837
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,831,369
<SHARES-COMMON-STOCK> 564,298
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (21,414)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 435,313
<NET-ASSETS> 6,048,268
<DIVIDEND-INCOME> 10,566
<INTEREST-INCOME> 9,145
<OTHER-INCOME> 0
<EXPENSES-NET> 24,311
<NET-INVESTMENT-INCOME> (4,600)
<REALIZED-GAINS-CURRENT> (218,414)
<APPREC-INCREASE-CURRENT> 435,313
<NET-CHANGE-FROM-OPS> 212,299
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (9,859)
<NUMBER-OF-SHARES-SOLD> 563,478
<NUMBER-OF-SHARES-REDEEMED> (10)
<SHARES-REINVESTED> 830
<NET-CHANGE-IN-ASSETS> 6,048,268
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 19,606
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 62,669
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 0.75
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
