LOGO
BLANCHARD GROUP OF FUNDS
VERY IMPORTANT
Enclosed is a proxy vote card
which requires your signature.
It has to do with the pending merger of
the Blanchard Short-Term Global Income Fund
into the Blanchard Short-Term Flexible Income Fund.
PLEASE REVIEW AND CAST YOUR VOTE TODAY!
Dear Valued Shareholder:
As you may be aware, there have been a number of exciting developments in
regards to the Blanchard Group of Funds in recent months. One of the benefits
has been that the management and Trustees have identified a number of changes
which they feel will either enhance performance, reduce expenses, or expand
the services offered to Blanchard fund shareholders.
I am writing you today to inform you of a recommended change which affects
your Blanchard Short-Term Global Income Fund.
/ /Namely, the Board of Trustees has unanimously recommended a merger of
the Blanchard Short-Term Global Income Fund into the Blanchard Short-
Term Flexible Income Fund.
A MORE APPROPRIATE INVESTMENT STRATEGY
The reasons for the proposed merger can be best summed up as follows: while
both Funds have similar investment objectives--helping investors to earn a
solid level of income while enjoying a relative stability of principal--the
Blanchard Short-Term Flexible Income Fund appears to be better positioned to
meet this objective on an ongoing basis.
This is because the costs associated with hedging the foreign currency
component of the Blanchard Short-Term Global Income Fund have reached a level
at which we believe it is no longer in the best interest of the shareholders
to continue utilizing the same portfolio strategy.
By contrast, while the Blanchard Short-Term Flexible Income Fund enjoys the
ability to invest in overseas markets, and to hedge those investments, the
portfolio strategy revolves around utilizing a high-quality blended portfolio
that concentrates on U.S. markets. The Fund, which was established April 16,
1993, has an unbroken record of paying monthly dividends and an exceptional
record of stability of principal.
A COMPARISON OF PAST PERFORMANCE
Below are data which compare the performance of the Blanchard Short-Term
Global Income Fund (BSTGIF) with the Blanchard Short-Term Flexible Income Fund
(BSTFIF).
While past performance is no guarantee of future results, you can see the
success which has been attained by the BSTFIF as compared to the BSTGIF over
the past few years.
You may wish to note that the BSTFIF has had a positive total return in each
calendar year as traced from April 16, 1993 through November 30, 1995--a time
period which included one of the worst bear bond markets in history in which
only a handful of U.S. fixed income funds had positive total returns.
TOTAL RETURNS BY FUND EACH YEAR
[See Appendix A]
Other important performance numbers of which you should be aware . . .
/ /The one-year average annual return of the Blanchard Short-Term
Flexible Income Fund through 9/30/95 is 7.69% vs. 2.61%* for the
Blanchard Short-Term Global Income Fund.
/ /Since the Blanchard Short-Term Flexible Income Fund's inception on
4/16/93 through 11/30/95, the total return of the Fund is 14.15% vs.
21.67%*, since its inception 1/8/91, for the Blanchard Short-Term
Global Income Fund.
/ /The 30-day yield as of 11/30/95 for the Blanchard Short-Term Flexible
Income Fund is 6.12% vs. 5.84%* for the Blanchard Short-Term Global
Income Fund.
(For the Blanchard Short-Term Flexible Income Fund, the average annual
return since inception, 4/16/93, through 9/30/95 is 4.30%. For the Blanchard
Short-Term Global Income Fund, the average annual return since inception,
1/8/91, through 9/30/95 is 3.87%.)
Naturally, as with all bond funds, the yield, investment return and
principal value of both the Blanchard Short-Term Flexible Income Fund and the
Blanchard Short-Term Global Income Fund will vary with changing market
conditions so that shares, when redeemed, may be worth more or less than their
original purchase price.
THE BOARD OF TRUSTEES RECOMMEND VOTING "FOR" THIS MERGER
Enclosed with this letter is a proxy and a voting card. It is very important
that you fill out and return the voting card ASAP. Only then can we move ahead
with proposed changes. In addition to an investment strategy that appears more
appropriate for today's global economic environment, there are three more
reasons we believe this merger is in your best interest:
1. This merger of assets is tax-free, so there are no taxable consequences for
you.
2. The increased asset size of the combined fund will result in an expense
ratio that is lower than that of the Blanchard Short-Term Global Income
Fund, which will be dissolved upon the successful conclusion of the merger.
3. You will continue to enjoy all of the same shareholder privileges,
including free check writing, free telephone switches between Blanchard
mutual funds, free telephone redemptions, and convenient monthly account
statements.
It is for all of these reasons that the Board of Trustees has unanimously
voted to recommend that you vote "FOR" the merger.
- --------
* The returns and yield quoted above for the Blanchard Short-Term Flexible
Income Fund do not reflect certain management fees which were waived during
the period. If reflected, the returns and yield would be lower. The returns
and yield quoted above for the Blanchard Short-Term Global Income Fund do
not reflect the one-time account opening fee which was charged at the Fund's
inception, but is no longer charged. If reflected, the returns and yield
would be lower. Average annual return numbers are total return annualized
and compounded, and assume reinvestment of all distributions.
PLEASE VOTE TODAY!
Because shareholder approval is required for this Fund merger, your
individual vote is of critical importance. This gives you an important say in
the management of your investment.
/ /A voting card is enclosed. It is essential that you mark your card in the
appropriate space and return it in the postage-paid envelope provided.
Only by voting will this merger be able to move ahead. If the proxy is
approved, the merger of the Blanchard Short-Term Global Income Fund into the
Blanchard Short-Term Flexible Income Fund is scheduled to be completed
February 9, 1996.
If a majority of shareholders do not return their votes, additional proxy
statements must be sent out, costing money, as well as valuable time. In
addition, as the meeting date approaches, the Investors' Services staff may
call you to remind you to send in your proxy voting card. So please, take a
few moments now to fill out and return the enclosed proxy voting card, while
the material is at hand.
Before voting, please refer to the sections of the Blanchard Group of Funds'
prospectus which contains more complete details on investment objectives,
management fees, risks and expenses for both the Blanchard Short-Term Flexible
Income Fund and, for comparison purposes, the Blanchard Short-Term Global
Income Fund.
For your information, a fact sheet on the Blanchard Short-Term Flexible
Income Fund is enclosed. If you have additional questions on the voting
process, or on the Fund, please call 1-800-829-3863. A friendly and
experienced Investors' Services Representative will be standing by between
9:00 a.m. and 5:30 p.m., EST.
Please vote your proxy today. Thank you for your continued confidence in the
Blanchard Group of Funds.
Sincerely,
Blanchard Short-Term Global Income Fund
[LOGO OF MICHAEL FREEDMAN]
Michael Freedman
Executive Vice-President
Signet Financial Services, Inc.
The Blanchard Group of Funds are distributed by Federated Securities Corp.
and are advised by Virtus Capital Management, Inc.
THE BLANCHARD GROUP OF FUNDS ARE NOT DEPOSITS, OBLIGATIONS OF, OR
GUARANTEED BY ANY BANK OR OTHER FINANCIAL INSTITUTION, AND ARE NOT INSURED
BY THE FDIC OR AND FEDERAL AGENCY. IN ADDITION, THEY INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
LOGO
LOGO
BLANCHARD SHORT-TERM
FLEXIBLE INCOME FUND
ABOUT THE BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
(formerly the Blanchard Short-Term Bond Fund)
INVESTMENT OBJECTIVE:
To produce a solid level of income for investors, while maintaining a stable
principal value. Since inception, 4/16/93, the share price of the Fund has
fluctuated no more than 4% up or down.
1) Month end share prices for the BSTFIF:
LOGO
[See Appendix B]
While past performance is no guarantee of future results . . .
IN 1994, THE MOST VOLATILE YEAR FOR BONDS IN RECORDED HISTORY, THE
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND WAS ONE OF ONLY 214 FIXED
INCOME FUNDS TO HAVE TURNED IN A POSITIVE PERFORMANCE OUT OF 3,233
FIXED INCOME FUNDS TRACKED BY LIPPER ANALYTICAL SERVICES.
PORTFOLIO ADVISER:
The Fund's portfolio is managed by OFFITBANK, one of the nation's premier
private trust banks. OFFITBANK specializes in the management of fixed income
portfolios for a clientele comprised of wealthy family groups, corporate
pension plans and non-profit organizations. OFFITBANK currently manages over
$6
billion in globally diversified fixed income investments. Jack D. Burks,
Managing Director of OFFITBANK, has over ten years of experience in fixed
income portfolio management, and is responsible for the day-to-day management
of the Fund's portfolio.
PORTFOLIO QUALITY:
While the Fund has the flexibility to invest across the spectrum of fixed
income investments, including all grades of U.S. Treasuries, GNMAs, asset-
backed securities, corporate bonds and, when appropriate, foreign issues, the
Fund places an emphasis on quality. Since inception, the dollar-weighted
average quality rating of the fixed income investments in the Fund's portfolio
has been consistently maintained at "A" or better.
PORTFOLIO MATURITY:
The Blanchard Flexible Short-Term Income Fund has been designed to serve the
needs of cautious investors interested in higher income, but who are concerned
about the prospect of rising interest rates.
Historically, the price of shorter-term fixed income securities has been far
less volatile than longer-term securities. Especially in a rising interest
rate environment. That's why the dollar-weighted average portfolio maturity of
the Blanchard Flexible Short-Term Income Fund will normally not exceed 3
years.
RISK MANAGEMENT:
One of the primary reasons that OFFITBANK was chosen as portfolio manager is
because of their expertise in the risk management of fixed income portfolios.
With the Blanchard Flexible Short-Term Income Fund they utilize a number of
important tools in the attempt to better manage risk:
/ /A short maturity portfolio, offering more price stability than longer-term
bonds.
/ / Diversification between fixed income sectors and issues--including the
ability to shift a portion of the Fund's assets overseas if market
conditions warrant.
/ / An emphasis on quality--with a current high "A" average portfolio rating.
Of course, past performance, no matter how strong, is not an assurance of
future success. There can never be a guarantee that the Fund will meet the
objective of higher yields and a stable share price. The Fund's yield,
investment return and principal value will vary with changing market
conditions so that shares, when redeemed, may be worth more or less than their
original purchase price.
FOR MORE INFORMATION ON THE BLANCHARD FLEXIBLE SHORT-TERM INCOME FUND, CALL
INVESTORS' SERVICES AT 1-800-829-3863.
The Blanchard Group of Funds are available through Signet Financial Services,
Inc., and are advised by Virtus Capital Management, Inc. an affiliate of
Signet Financial Services, Inc. (1107) 03PR1095
PRODUCTS OFFERED THROUGH SIGNET FINANCIAL SERVICES, INC., ARE NOT DEPOSITS,
OBLIGATIONS OF, OR GUARANTEED BY SIGNET FINANCIAL SERVICES, INC., ANY BANK
OR OTHER FINANCIAL INSTITUTION, AND ARE NOT INSURED BY THE FDIC OR ANY
FEDERAL AGENCY. IN ADDITION, THEY INVOLVE RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL INVESTED.
LOGO
BLANCHARD FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF BLANCHARD SHORT-TERM GLOBAL INCOME FUND:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Blanchard
Short-Term Global Income Fund ("Short-Term Global"), a portfolio of Blanchard
Funds, will be held at 2:00 p.m. on February 9, 1996 at Federated Investors
Tower, 19th Floor, Pittsburgh, Pennsylvania 15222-3779 for the following
purposes:
1. To approve or disapprove a proposed agreement pursuant to which
Blanchard Short-Term Flexible Income Fund (formerly known as
Blanchard Short-Term Bond Fund) would acquire all of Short-Term
Global's assets in exchange for shares of Blanchard Short-Term
Flexible Income Fund ("Short-Term Flexible Shares"). Short-Term
Global would then distribute the Short-Term Flexible Shares so
received pro rata to its shareholders and would terminate its
existence; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
By Order of the Board of Trustees,
John W. McGonigle
Dated: December 22, 1995 Secretary
Shareholders of record at the close of business December 12, 1995 are
entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF
FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR
VOTE IN PERSON IF YOU ATTEND THE MEETING.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................................................... 2
Risk Factors............................................................... 7
Information About the Reorganization....................................... 8
Information About Blanchard Funds, Short-Term Flexible and Short-Term Glob-
al........................................................................ 11
Voting Information......................................................... 11
Exhibit A--Agreement and Plan of Reorganization............................ A-1
</TABLE>
I
PROSPECTUS/PROXY STATEMENT
DECEMBER 20, 1995
ACQUISITION OF THE ASSETS OF
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
("SHORT-TERM GLOBAL"),
BY AND IN EXCHANGE FOR SHARES OF
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
("SHORT-TERM FLEXIBLE")
(FORMERLY, BLANCHARD SHORT-TERM BOND FUND),
EACH A PORTFOLIO OF BLANCHARD FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-829-3863
This Prospectus/Proxy Statement describes the proposed Agreement and Plan of
Reorganization (the "Plan") whereby Short-Term Flexible would acquire all of
the assets of Short-Term Global, in exchange for Short-Term Flexible Shares.
These shares would then be distributed pro rata by Short-Term Global to its
shareholders, and as a result, each Short-Term Global shareholder will own
Short-Term Flexible shares having a total net asset value equal to the total
net asset value of his or her holdings in Short-Term Global. The Plan would
result in the complete liquidation and the termination of Short-Term Global.
Blanchard Funds is an open-end management investment company which currently
includes ten portfolios, each of which has a distinct investment objective.
The investment objective of Short-Term Flexible is a high level of current
income consistent with preservation of capital through investing primarily in
a broad range of short-term debt securities. The investment objective of
Short-Term Global is high current income with minimum risk of principal and
relative stability of net asset value. Both Funds invest primarily in
investment grade short-term debt securities. For a comparison of the
investment policies of the Funds, see "Summary-Investment Objectives,
Policies, and Limitations."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about Blanchard Funds and Short-Term
Flexible that a prospective investor should know before investing in Short-
Term Flexible. This Prospectus/Proxy Statement is accompanied by the
Prospectus of Short-Term Flexible and Short-Term Global dated August 7, 1995,
which is incorporated herein by reference. The Statements of Additional
Information for Short-Term Flexible and Short-Term Global, each dated August
7, 1995 (relating to the Prospectuses of Short-Term Flexible and Short-Term
Global, respectively, of the same date) and December 20, 1995 (relating to
this Prospectus/Proxy Statement), and the Annual Report of Short-Term Flexible
for the fiscal year ended April 30, 1995, all containing additional
information have been filed with the Securities and Exchange Commission and
are incorporated herein by reference. Copies of the Statements of Additional
Information and Annual Report may be obtained without charge by calling the
Funds at the telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF SIGNET BANK OR ANY OF ITS AFFILIATES, OR OF ANY BANK, ARE NOT
ENDORSED OR GUARANTEED BY SIGNET BANK OR ANY OF ITS AFFILIATES, OR BY ANY
BANK, AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
SUMMARY OF FUND EXPENSES
- ------------------------------------------------------------------------------
- -
<TABLE>
<CAPTION>
Combined
Short-Term
Short- Short- Global/
Term Term Short-Term
Global Flexible Flexible
SHAREHOLDER TRANSACTION EXPENSES ------ -------- ----------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............. None None None
Maximum Sales Load Imposed on Reinvested Divi-
dends
(as a percentage of offering price)............. None None None
Contingent Deferred Sales Charge (as a percentage
of original
purchase price or redemption proceeds, as appli-
cable).......................................... None None None
Redemption Fees (as a percentage of amount re-
deemed, if applicable).......................... None None None
Exchange Fee..................................... None None None
ANNUAL OPERATING EXPENSES
(as a percentage of projected average net assets)
Management Fee (after waiver) (1)................ 0.71% 0.17%(2) 0.60%
12b-1 Fee (after waiver) (3)..................... 0.24% 0.23% 0.25%
Total Other Expenses............................. 0.56% 0.98% 0.53%
Total Fund Operating Expenses (4)............ 1.51% 1.38% 1.38%(5)
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee by the investment adviser. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.75%.
(2) VCM has conditioned its right to receive a portion of any earned but
deferred fees and expenses based upon this Fund reaching and maintaining a
certain level of net assets. Effective November 30, 1995, the provision
has been discontinued. See "Management of the Funds."
(3) The maximum 12b-1 fee is 0.25%.
(4) The Total Fund Operating Expenses for the fiscal year ended April 30, 1995
would have been 1.56% and 2.13% for Short-Term Global and Short-Term
Flexible, respectively, absent the voluntary waivers of portions of the
management fees and distribution fees.
(5) VCM has agreed to cap the Fund's total operating expenses until July 11,
1997 so that the expense ratio will not exceed the Fund expense ratio for
the fiscal year ended April 30, 1995.
TOTAL EXPENSES FOR SHORT-TERM FLEXIBLE ARE ESTIMATED BASED ON AVERAGE
EXPENSES EXPECTED TO BE INCURRED DURING THE FISCAL YEAR ENDING APRIL 30, 1996.
DURING THE COURSE OF THIS PERIOD, EXPENSES MAY BE MORE OR LESS THAN THE
AVERAGE AMOUNT SHOWN.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS
AND EXPENSES, SEE "THE BLANCHARD FUNDS INFORMATION" AND "INVESTING IN THE
FUND." WIRE-TRANSFERRED REDEMPTIONS MAY BE SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return
and (2) redemption at the end of each time pe-
riod. The Fund charges no redemption fees
Short-Term Global............................. $16 $49 $84 $183
Short-Term Flexible........................... $14 $44 $76 $169
Combined Short-Term Global/Short-Term Flexi-
ble........................................... $14 $44 $76 $169
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUNDS' FISCAL YEAR ENDING APRIL 30,
1996.
SUMMARY
ABOUT THE PROPOSED REORGANIZATION
The Board of Trustees of Blanchard Funds has voted to recommend to
shareholders of Short-Term Global the approval of a Plan whereby Short-Term
Flexible would acquire all of the assets of Short-Term Global in exchange for
shares of Short-Term Flexible. These shares would thereupon be distributed pro
rata by Short-Term Global to its shareholders and, as a result, each
shareholder of Short-Term Global will become the owner of Short-Term Flexible
shares having a total net asset value equal to the total net asset value of
his or her holdings in Short-Term Global. These transactions (referred to as
the "Reorganization") would result in the complete liquidation and the
termination of Short-Term Global.
As a condition to the Reorganization transactions, Blanchard Funds will
receive an opinion of counsel that the Reorganization will be considered a
tax-free "reorganization" under applicable provisions of the Internal Revenue
Code so that no gain or loss will be recognized by either Short-Term Flexible
or Short-Term Global or their shareholders. The tax cost basis of the Short-
Term Flexible shares received by Short-Term Global shareholders will be the
same as the tax cost basis of their shares in Short-Term Global.
In recommending the Reorganization, the Blanchard Funds' investment adviser,
Virtus Capital Management, Inc., and the Board of Trustees of Blanchard Funds,
considered the fact that Short-Term Flexible, which has an investment
objective similar to that of Short-Term Global, has been more effective in
producing price stability and acceptable total returns than has Short-Term
Global, and have concluded that economies of scale, and potentially lower
expense ratios, could be realized by transferring the assets of Short-Term
Global into Short-Term Flexible.
The following discussion compares certain key aspects of Short-Term Flexible
and Short-Term Global (collectively, the "Funds").
INVESTMENT OBJECTIVES, POLICIES, AND LIMITATIONS
The investment objectives of Short-Term Global and Short-Term Flexible are
substantially identical. Short-Term Global seeks to produce high current
income with minimum risk of principal and relative stability of net asset
value. Short-Term Flexible seeks to provide a high level of current income
consistent with preservation of capital. Both Funds intend that the dollar-
weighted average maturity of their portfolios will not normally exceed three
years.
Short-Term Flexible pursues its investment objective by investing at least
80% of its assets in U.S. debt securities, and may invest up to 20% of its
assets in foreign debt securities. Short-Term Global is managed in accordance
with a global investment strategy, with Short-Term Global's assets being
allocated among securities denominated in the U.S. dollar as well as the
currencies of a number of foreign countries.
Short-Term Flexible will normally invest 65% of its assets in investment
grade debt securities, which are securities rated at least Baa by Moody's
Investors Service, Inc. ("Moody's") or at least BBB by Standard & Poor's
Ratings Group ("S&P"), and may invest up to 34.9% of its assets in securities
rated as low as Caa by Moody's or Ccc by S&P (commonly called "junk bonds" or
"high yield, high risk bonds"). Short-Term Global will invest primarily in
investment grade debt securities, but may
invest up to 10% of its assets in debt securities rated as low as Ba by
Moody's or BB by S&P (i.e., "junk bonds" or "high yield, high risk bonds"). If
a debt security is downgraded below the minimum standard specified for
investment, the Funds are not required to sell the security from its
portfolio; however, the adviser will endeavor to dispose of the security as
soon as practicable thereafter, taking into account existing market conditions
and the cost of such sales including potential losses.
Short-Term Flexible's portfolio consists of the following categories of U.S.
and foreign debt securities: bonds, notes, mortgage securities, asset-backed
securities, government and government agency obligations, zero coupon
securities, convertible securities, and short-term obligations such as
banker's acceptances, certificates of deposits and commercial paper. Short-
Term Global's portfolio consists of the following categories of debt
securities: U.S. government securities, obligations of foreign governments and
supra-national organizations, corporate debt securities, certificates of
deposit, banker's acceptances, and commercial paper. Prior to the date of the
reorganization, Short-Term Global will restructure its portfolio so that its
investments will conform at the effective time of the reorganization to those
permitted to be held by Short-Term Flexible. Both Funds may, on a
substantially similar basis, enter into repurchase agreements, futures
contracts, options on futures contracts, options on foreign currencies,
options on portfolio securities, and forward foreign currency exchange
contracts.
Short-Term Flexible and Short-Term Global are subject to certain investment
limitations. The investment limitations of the two funds are substantially
identical. These limitations include provisions that, in effect, prohibit
either fund from: selling any securities short or purchasing any securities on
margin; issuing senior securities, except that each fund may borrow up to 20%
of the value of its total assets; mortgaging, pledging, or hypothecating any
assets except to secure permitted borrowings; and lending any of their
respective assets, except portfolio securities up to one-third of the value of
their total assets or investing more than 10% of the value of their respective
net assets in illiquid securities.
Reference is hereby made to the Prospectuses and the Statements of
Additional Information of Short-Term Flexible and Short-Term Global, all dated
August 7, 1995, which set forth in full the investment objectives, policies
and investment limitations of both funds and which are incorporated by
reference herein.
DISTRIBUTION ARRANGEMENTS
Federated Securities Corp. is the principal distributor for shares of
Blanchard Funds. Under distribution plans adopted in accordance with
Investment Company Act Rule 12b-1 (the "12b-1 Plan"), Short-Term Flexible and
Short-Term Global may each pay to Federated Securities Corp. an amount
computed at an annual rate of 0.25 of 1% of each respective Fund's average
daily net assets to finance any activity which is principally intended to
result in the sale of shares subject to the 12b-1 Plan. Currently, Short-Term
Flexible and Short-Term Global are paying fees under the 12b-1 Plan at an
annual rate of 0.23 of 1% and 0.24 of 1%, respectively, of such respective
Fund's average daily net assets. Short-Term Flexible will not, as a result of
the reorganization, assume any liabilities or make any voluntary
reimbursements on account of Short-Term Global's 12b-1 Plan.
ADVISORY AND OTHER FEES
Virtus Capital Management, Inc. ("VCM"), a Maryland corporation and a
wholly-owned subsidiary of Signet Banking Corporation provides overall
management services for Short-Term Flexible and Short-Term Global. In carrying
out its obligations, VCM shall: (i) provide or arrange for investment research
and supervision of the Funds; (ii) select and evaluate the performance of the
Funds' Portfolio Advisers (if any); (iii) select and evaluate the performance
of the administrator; and (iv) conduct or arrange for a continuous program of
appropriate sale or other distribution and reinvestment of a Fund's assets.
VCM is entitled to receive an annual management fee equal to 0.75 of 1% of
each Fund's average daily net assets. The fee payable to VCM by Short-Term
Flexible and Short-Term Global, while higher than the investment advisory fees
paid by other mutual funds in general, is comparable to fees paid by other
mutual funds with similar policies and objectives. Currently, Short-Term
Flexible and Short-Term Global are paying management fees of 0.17 of 1% and
0.71 of 1%, respectively. See also the "Summary of Fund Expenses." VCM has
undertaken to reimburse each Fund, up to the amount of its management fee, for
operating expenses in excess of limitations established by certain states. VCM
may further voluntarily waive a portion of its fee or reimburse either Fund
for certain operating expenses. This agreement to waive fees or reimburse
expenses may be terminated by VCM at any time in its discretion.
VCM selects, monitors and evaluates the Portfolio Advisers to Short-Term
Flexible and Short-Term Global. The Portfolio Advisers--OFFITBANK, in the case
of Short-Term Flexible, and Lombard Odier International Portfolio Limited
("Lombard Odier"), in the case of Short-Term Global, receive sub-advisory fees
from VCM at the annual rate of, in the case of OFFITBANK, .30% of the first
$25 million of Short-Term Flexible's average daily net assets; .25% of the
next $25 million of average daily net assets; and .20% of average daily net
assets in excess of $50 million; and, in the case of Lombard Odier, at the
annual rate of .35% of the first $10 million of Short-Term Global's average
daily net assets; .30% of the next $10 million of average daily net assets;
.25% of the next $10 million of average daily net assets; .20% of the next $10
million of average daily net assets; and .15% of average daily net assets in
excess of $40 million.
Jack D. Burks, Managing Director of OFFITBANK, has over ten years of
experience in fixed income portfolio management and is responsible for the
day-to-day management of Short-Term Flexible's portfolio. Paul Abberly, a
Director of Lombard Odier, has more than eight years of experience as a
portfolio manager and is responsible for the day-to-day management of Short-
Term Global's Portfolio.
Federated Administrative Services, a subsidiary of Federated Investors,
provides the Funds with certain administrative personnel and services
necessary to operate the Funds. The rate charged for such administrative
services is 0.15 of 1% of the first $250 million of average aggregate daily
net assets of Blanchard Funds, 0.125 of 1% on the next $250 million, 0.10 of
1% on the next $250 million and 0.075 of 1% of average aggregate daily net
assets of Blanchard Funds in excess of $750 million. The administrative fee
received during any fiscal year shall be at least $75,000 per fund. During
Blanchard's most recent fiscal year, neither Short-Term Flexible nor Short-
Term Global incurred an administrative fee, because the agreement with
Federated Administrative Services did not commence until after the close of
such fiscal year. Short-Term Flexible estimates that its administrative fee
expense for the current fiscal year will be 0.35 of 1% of its average
aggregate daily net assets. Short-Term Global
estimates that its administrative fee expense for the current fiscal year will
be 0.12 of 1% of its average aggregate daily net assets.
The total annual operating expenses for Short-Term Flexible are expected to
be 1.38% of average daily net assets and would be 2.23% of average daily net
assets absent the voluntary waivers of portions of the 12b-1 fee and the
advisory fee. The total annual operating expenses for Short-Term Global are
expected to be 1.51% of average daily net assets.
PURCHASE AND REDEMPTION PROCEDURES
Procedures for the purchase and redemption of shares of Short-Term Flexible
are identical to procedures applicable to the purchase and redemption of
Short-Term Global shares. For a complete description of the purchase and
redemption procedures applicable to purchases and redemptions of shares, refer
to the Prospectuses of the Funds dated August 7, 1995, which are incorporated
herein by reference. Any questions about such procedures may be directed to,
and assistance in effecting purchases, redemptions, or exchanges of shares may
be obtained by calling 1-800-829-3863.
Shares of Short-Term Flexible and Short-Term Global are sold on all business
days except on days on which the New York Stock Exchange is closed and federal
or state holidays restricting wire transfers. Shares are sold at their net
asset value next determined after an order is received. The net asset value is
calculated as of the close of the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) on days shares are sold. Purchases of shares of either Fund may
be made by wire, by check, or by ACH. Orders are considered received after
payment is converted into federal funds. The minimum initial investment in
each of the Funds is $3,000, except for qualified pension Plans (IRAs, Keoghs,
etc.), which require a minimum initial investment of $2,000.
Redemption requests cannot be executed on days which the New York Stock
Exchange is closed and federal or state holidays restricting wire transfers.
Shares are redeemed at their net asset value next determined after the
redemption request is received. Proceeds will be distributed by wire or check.
Requests for redemption can be made by telephone or by mail as more
particularly described in the above-referenced Prospectuses.
EXCHANGE PRIVILEGES
Shareholders of Short-Term Flexible and Short-Term Global may exchange
shares of Short-Term Flexible and Short-Term Global for shares of another Fund
in the Blanchard Funds on the basis of relative net asset values per share at
the time of exchange. No fees are charged in connection with the exchange. The
dollar amount of an exchange must meet the initial investment requirement of
the Fund into which the exchange is being made. All subsequent exchanges into
that Fund must be at least $1,000.
Shareholders of Short-Term Flexible and Short-Term Global may exchange
shares of Short-Term Flexible or Short-Term Global for Investment Shares of
The Virtus Funds, which also are managed by VCM, at net asset value. No fees
are charged in connection with the exchange. The dollar amount of any exchange
into a Virtus Fund must be at least $1,000.
TAX CONSEQUENCES
As a condition to the Reorganization transactions, Blanchard Funds will
receive an opinion of counsel that the Reorganization will be considered a
tax-free "reorganization" under applicable provisions of the Internal Revenue
Code so that no gain or loss will be recognized by either Short-Term Flexible
or Short-Term Global or their respective shareholders. The tax cost basis of
Short-Term Flexible shares received by Short-Term Global shareholders will be
the same as the tax cost basis of their shares in Short-Term Global.
* * * * *
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
THE VALUE OF A $10,000 INVESTMENT IN THE BLANCHARD SHORT-TERM BOND FUND
inception 4/16/93 through 4/30/95 as compared to the Merrill Lynch Short-Term
Treasuries Index for the same period
[See Appendix C]
* The average annual and total returns
quoted above and the chart shown above do
not reflect the deduction of management
fees and some expenses which have been
waived. If reflected, the returns, which
also reflect reinvestment of
distributions, would be lower.The total
return incudes changes in principal
value. Average annual return is total
return annualized and compounded. Past
performance is no guarantee of future
results.
+Source: Merrill Lynch Short-Term
Treasury Index is an unmanaged index of
U.S. Treasury bonds with maturities from
1 to 2.999 years. Unlike the BSTBF,
Treasury bonds are guaranteed by the U.S.
government.
Source: Merrill Lynch Short-Term
Government Corporate Index is an
unmanaged index of corporate and
government issues with maturities from 1
to 4.99 years.
This chart is for comparative purposes
only and is not intended to reflect
future performance of the BSTBF, the
indices, or Treasury bonds.
The following information was included in Short-Term Flexible's Annual
Report for the fiscal year ended April 30, 1995. (At the date of the Annual
Report, Short-Term Flexible was known as Blanchard Short-Term Bond Fund.) The
Management Discussion contained in the Annual Report in its entirety, is as
follows:
Thanks to an unprecedented series of interest rate hikes by Alan Greenspan
and the Federal Reserve, 1994 was a very difficult year for bond markets. Even
so, your Blanchard Short-Term Bond Fund was able to produce a positive total
return of 1.02% for the 12 months ending 12/31/94, and 5.34% for the 12 months
ending 4/30/95.
This was no small feat, as only a total of 192 bond funds were able to claim
a positive total return in 1994. That's out of a total universe of 2,959 bond
funds tracked by Morningstar, Inc.
Of course, past performance is no guarantee of future results. As with any
fixed income investment, the Fund's yield, investment return and principal
value will vary so that shares, when redeemed, may be worth more or less than
their original purchase price.
As you might surmise, we are very pleased with the result, as the overriding
objective of your Fund is to provide a solid level of steady income while
making every effort to preserve capital.
We were able to produce such a result by investing the portfolio in high-
quality bonds, and keeping its average portfolio maturity very short. We
avoided the mistake of some short-term bond funds, which may have been
imprudent in their exposure to riskier alternative markets, including even
emerging market debt.
So far, 1995 has been a far more positive environment for bond investors,
allowing us to add a satisfactory level of capital gains to our income. Over
the two years since its inception, your Fund has continued to provide a
relatively stable share price and solid monthly income. As shown in the chart
at the beginning of this letter, its performance compares favorably with the
Merrill Lynch Short-Term Treasuries Index, an unmanaged index of U.S. Treasury
Bonds which cannot be invested in directly. We have also compared performance
to the Merrill Lynch Short-Term Government Corporate Index. We believe that,
going forward, this index more closely approximates the portfolio make-up of
your Blanchard Short-Term Bond Fund. Naturally, past performance is no
guarantee of future results.
LOOKING AHEAD
Following the strong bond rally early in 1995, we have become somewhat more
cautious on a short-term basis. As a result, the Fund's conservative portfolio
mandate should serve you well.
Longer-term, however, we believe that interest rates have now settled in a
lower range than they have been in several years. While inflation may move
somewhat higher, we don't believe it will increase to any significant degree.
In essence, we are currently enjoying what a number of analysts have come to
call a "soft landing." In simple terms, this means that while economic
activity will most likely regain some momentum, helped along by the recent
decline in interest rates and by the decline in the value of the dollar, any
such expansion should not accelerate to a worrisome level in the foreseeable
future.
* * * * *
RISK FACTORS
Investment in Short-Term Flexible is subject to certain risks which are set
forth in its Prospectus dated August 7, 1995, and its Statement of Additional
Information dated August 7, 1995 and incorporated herein by reference thereto.
Briefly, these risks include, but are not limited to, fluctuation of the value
of shares of Short-Term Flexible; the ability of the issuers of securities
owned by Short-Term Flexible to meet their obligations for the payment of
principal and interest when due; unanticipated pre-payment of mortgages;
uncertainty that a secondary market for options or for positions in futures
contracts will exist at all times; imperfect correlation between financial
futures and options on financial futures with the prices of the securities
subject to the futures contracts which could cause a futures contract and any
related options to react differently than the portfolio securities to market
changes;
the greater price volatility, lesser liquidity and greater risk of default of
lower rated fixed income securities; and, with respect to foreign securities,
the risks of currency fluctuation and imposition of currency exchange control
regulation, the lack of information available concerning foreign issuers, the
fact that foreign issuers are not subject to financial reporting standards
comparable to those in the U.S. and the possibility of expropriation of assets
and political instability. Investment in Short-Term Global carries risks of a
substantially similar nature, as more fully described in its Prospectus dated
August 7, 1995 and in its Statement of Additional Information dated August 7,
1995.
INFORMATION ABOUT THE REORGANIZATION
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
On July 12, 1995, VCM acquired the assets and business of Sheffield
Management Co. ("Sheffield"), which was, until that time, manager of the
Blanchard Funds. Upon succeeding Sheffield as manager, VCM conducted a review
and evaluation of the viability of the portfolios of the Blanchard Funds. As a
result of this review, VCM proposed to representatives of Short-Term Global
that the Board consider a transfer of all of Short-Term Global's assets to
Short-Term Flexible, which has an investment objective similar to that of
Short-Term Global, and which, in VCM's opinion, has been more effective in
producing share price stability and acceptable total returns than has Short-
Term Global. In connection with this proposal, VCM emphasized that the
combination of the two Funds would enable shareholders of both Funds to
benefit from increased diversification. The Board of Trustees of Blanchard
Funds and VCM have concluded that economies of scale, and potentially lower
expense ratios, could be realized by transferring the assets of Short-Term
Global into Short-Term Flexible.
The Trustees also noted that the shareholders of both Short-Term Global and
Short-Term Flexible will receive the quality portfolio advisory services of
OFFITBANK, Short-Term Flexible's current Portfolio Adviser, following
consummation of the Reorganization.
The Trustees of Blanchard Funds, including the independent Trustees, have
unanimously concluded that consummation of the Reorganization is in the best
interests of Short-Term Flexible and Short-Term Global and the shareholders of
Short-Term Flexible and Short-Term Global and that the interests of Short-Term
Flexible and Short-Term Global shareholders would not be diluted as a result
of effecting the Reorganization and have unanimously approved the Plan.
DESCRIPTION OF THE PLAN OF REORGANIZATION
The Plan provides that on or about February 9, 1996 (the "Closing Date")
Short-Term Flexible will acquire all of the assets of Short-Term Global in
exchange for Short-Term Flexible shares to be distributed pro rata by Short-
Term Global to its shareholders in complete liquidation and termination of
Short-Term Global. Shareholders of Short-Term Global will become shareholders
of Short-Term Flexible as of 4:00 p.m. (Eastern time) on the Closing Date and
will begin accruing dividends on the next day. Shares of Short-Term Flexible
received by Short-Term Global shareholders in connection with the acquisition
of the assets of Short-Term Global will not be subject to a sales load.
Shareholders of Short-Term Global will earn their last dividend from Short-
Term Global on the Closing Date.
Consummation of the Reorganization is subject to the conditions set forth in
the Plan, including receipt of an opinion in form and substance satisfactory
to Blanchard Funds, as described under the caption "Federal Income Tax
Consequences" below. The Plan may be terminated and the Reorganization may be
abandoned at any time before or after approval by shareholders of Short-Term
Global prior to the Closing Date by Blanchard Funds if it believes that
consummation of the Reorganization would not be in the best interests of the
shareholders of either Short-Term Global or Short-Term Flexible.
VCM is responsible for the payment of all expenses of the Reorganization
incurred by either Fund, whether or not the Reorganization is consummated.
Such expenses include, but are not limited to, legal fees, registration fees,
transfer taxes (if any), the fees of banks and transfer agents and the costs
of preparing, printing, copying and mailing proxy solicitation materials to
shareholders of Short-Term Global and the costs of holding the Special Meeting
of Shareholders.
The foregoing brief summary of the Plan entered into between Short-Term
Global and Short-Term Flexible is qualified in its entirety by the terms and
provisions of the Plan, a copy of which is attached hereto as Exhibit A and
incorporated herein by reference.
DESCRIPTION OF SHORT-TERM FLEXIBLE SHARES
Shares of Short-Term Flexible to be issued to shareholders of Short-Term
Global under the Plan will be fully paid and nonassessable when issued and
transferable without restriction and will have no preemptive or conversion
rights. Reference is hereby made to the Prospectus of Short-Term Flexible
dated August 7, 1995 provided herewith for additional information about Short-
Term Flexible shares.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to the Reorganization transactions, Blanchard Funds will
receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to
Blanchard Funds, to the effect that, on the basis of the existing provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax purposes: (1)
the Reorganization as set forth in the Plan will constitute a tax-free
reorganization under section 368(a)(1)(C) of the Code; (2) no gain or loss
will be recognized by Short-Term Flexible upon its receipt of Short-Term
Global's assets solely in exchange for Short-Term Flexible shares; (3) no gain
or loss will be recognized by Short-Term Global upon the transfer of its
assets to Short-Term Flexible in exchange for Short-Term Flexible shares or
upon the distribution (whether actual or constructive) of Short-Term Flexible
shares to Short-Term Global shareholders in exchange for their shares of
Short-Term Global; (4) no gain or loss will be recognized by shareholders of
Short-Term Global upon the exchange of their Short-Term Global shares for
Short-Term Flexible shares; (5) the tax basis of Short-Term Global's assets
acquired by Short-Term Flexible will be the same as the tax basis of such
assets to Short-Term Global immediately prior to the Reorganization; (6) the
tax basis of Short-Term Flexible shares received by each shareholder of Short-
Term Global pursuant to the Plan will be the same as the tax basis of Short-
Term Global shares held by such shareholder immediately prior to the
Reorganization; (7) the holding period of the assets of Short-Term Global in
the hands of Short-Term Flexible will include the period during which those
assets were held by Short-Term Global; and (8) the holding period of Short-
Term Flexible shares received by each shareholder of Short-Term Global will
include the period during which the Short-Term Global shares exchanged
therefor were held by such shareholder, provided the Short-Term Global shares
were held as capital assets on the date of the Reorganization.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
Blanchard Funds is organized as a business trust pursuant to a Declaration
of Trust under the laws of the Commonwealth of Massachusetts. The rights of
shareholders of Short-Term Global and Short-Term Flexible as set forth in the
Declaration of Trust are substantially identical. Set forth below is a brief
summary of the significant rights of shareholders of Short-Term Global and
Short-Term Flexible.
Neither Fund is required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations or
the election of trustees under certain circumstances. A special meeting of
shareholders of either fund for any permissible purpose is required to be
called by the Trustees upon the written request of the holders of at least 10%
of the outstanding shares of the relevant Fund.
Under certain circumstances, shareholders of Short-Term Global, Short-Term
Flexible, or any other portfolio of Blanchard Funds may be held personally
liable as partners under Massachusetts law for obligations of Blanchard Funds.
To protect shareholders of all portfolios of Blanchard Funds, Blanchard Funds
has filed legal documents with the Commonwealth of Massachusetts that
expressly disclaim the liability of shareholders of portfolios of Blanchard
Funds for such acts or obligations of Blanchard Funds. These documents require
that notice of this disclaimer be given in each agreement, obligation or
instrument of Blanchard Funds or its trustees enter into or sign on behalf of
Blanchard Funds.
In the unlikely event a shareholder of a portfolio of Blanchard Funds is
held personally liable for obligations of Blanchard Funds, Blanchard Funds is
required to use its property to protect or compensate the shareholder. On
request, Blanchard Funds will defend any claims made and pay any judgment
against a shareholder of a portfolio of Blanchard Funds for any act or
obligation of Blanchard Funds. Therefore, financial loss resulting from
liability as a shareholder of a portfolio of Blanchard Funds will occur only
if Blanchard Funds cannot meet its obligation to indemnify shareholders and
pay judgments against it from the assets of Blanchard Funds.
CAPITALIZATION
The following table sets forth the capitalization of Short-Term Global and
Short-Term Flexible as of September 30, 1995, and on a pro forma basis as of
that date:
<TABLE>
<CAPTION>
SHORT-TERM SHORT-TERM PRO FORMA
GLOBAL FLEXIBLE COMBINED
------------ ----------- ------------
<S> <C> <C> <C>
Net Assets................................ $200,851,306 $20,739,907 $221,591,213
Shares Outstanding........................ 119,309,919 6,978,253 74,609,836
Price Per Share........................... $1.68 $2.97 $2.97
</TABLE>
INFORMATION ABOUT BLANCHARD FUNDS, SHORT-TERM FLEXIBLE, AND SHORT-TERM GLOBAL
Information about Blanchard Funds, Short-Term Flexible, and Short-Term
Global is contained in their Prospectus dated August 7, 1995, which is
incorporated by reference herein, and a copy of which is included herewith.
Additional information about Short-Term Flexible is included in the Statements
of Additional Information of Short-Term Flexible dated August 7, 1995
(relating to the Prospectus of Short-Term Flexible of the same date), and
December 20, 1995 (relating to this Prospectus/Proxy Statement) which are
incorporated herein by reference. Additional information about Short-Term
Global is included in the Statement of Additional Information of Short-Term
Global dated August 7, 1995 (relating to the prospectus of Short-Term Global
of the same date) and December 20, 1995 (relating to this Prospectus/Proxy
Statement), which are incorporated herein by reference. Copies of the
Statements of Additional Information, which have been filed with the
Securities and Exchange Commission (the "SEC"), may be obtained without charge
by contacting Blanchard Funds at 1-800-829-3863 or by writing to Signet
Financial Services, Inc., 41 Madison Avenue, 24th Floor, New York, NY 10010.
Blanchard Funds, on behalf of the Funds, are subject to the informational
requirements of the Securities Act of 1933 (the "1933 Act"), the Securities
Exchange Act of 1934 (the "1934 Act") and the Investment Company Act of 1940
(the "1940 Act") and in accordance therewith file reports and other
information with the SEC. Reports, proxy and information statements and other
information filed by Blanchard Funds, on behalf of the Funds, can be obtained
by calling or writing to Blanchard Funds and can also be inspected and copied
by the public at the public reference facilities maintained by the SEC in
Washington, D.C. located at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at certain of its regional offices located at Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60621 and
13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such
material also may be obtained at prescribed rates from the Public Reference
Branch, Office of Consumer Affairs and Information Services, SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549.
This Prospectus/Proxy Statement and the related Statement of Additional
Information do not contain all of the information set forth in the
registration statement that Blanchard Funds have filed with the SEC under the
1933 Act to which reference is hereby made. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference
to the copy of the applicable documents filed with the SEC. The SEC file
number for Blanchard Funds' prospectuses and related Statements of Additional
Information which are incorporated by reference herein is Registration No. 33-
3165.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of Short-Term Global of proxies for use
at the Special Meeting of Shareholders (the "Meeting") to be held on February
9, 1996 and at any adjournment thereof. The proxy confers discretionary
authority on the persons designated therein to vote on other business not
currently contemplated which may properly come before the Meeting. A proxy, if
properly executed, duly returned and not revoked, will be voted in accordance
with the specifications thereon; if no instructions are given, such proxy
will be voted in favor of the Plan. A shareholder may revoke a proxy at any
time prior to use by filing
with the Secretary of Blanchard Funds an instrument revoking the proxy, by
submitting a proxy bearing a later date or by attending and voting at the
Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by VCM. In addition to solicitations through the
mails, proxies may be solicited by officers, employees and agents of Blanchard
Funds and VCM at no additional cost to Blanchard Funds. Such solicitations may
be made by telephone. VCM will reimburse custodians, nominees and fiduciaries
for the reasonable costs incurred by them in connection with forwarding
solicitation materials to the beneficial owners of shares held of record by
such persons.
OUTSTANDING SHARES AND VOTING REQUIREMENTS
The Board of Trustees has fixed the close of business on December 12, 1995
as the record date for the determination of shareholders entitled to notice
of, and to vote at, the Special Meeting of Shareholders and any adjournment
thereof. As of the record date, there were 109,906,898 shares of Short-Term
Global outstanding. Each Short-Term Global share is entitled to one vote and
fractional shares have proportionate voting rights. On the record date, no
person owned of record, or to the knowledge of VCM, beneficially owned, 5% or
more of Short-Term Global's outstanding shares. On the record date, the
trustees and officers of Blanchard Funds as a group owned less than 1% of the
outstanding shares of Short-Term Global.
The votes of the shareholders of Short-Term Flexible are not being
solicited, since their approval or consent is not necessary for approval of
the Reorganization. As of the record date, there were 6,735,654 shares of
Short-Term Flexible outstanding. On the record date, no person owned of
record, or to the knowledge of VCM, beneficially owned, 5% or more of Short-
Term Flexible's outstanding shares.
Approval of the Plan requires the affirmative vote of the majority of Short-
Term Global's outstanding shares. The votes of shareholders of Short-Term
Flexible are not being solicited since their approval is not required in order
to effect the Reorganization.
A majority of the outstanding shares of Short-Term Global, represented in
person or by proxy, will be required to constitute a quorum at the Special
Meeting for the purpose of voting on the proposed Reorganization. For purposes
of determining the presence of a quorum, shares represented by abstentions and
"broker non-votes" will be counted as present, but not as votes cast, at the
Special Meeting. Under the Declaration of Trust, the approval of any action
submitted to shareholders is determined on the basis of a majority of votes
entitled to be cast at the Special Meeting.
DISSENTER'S RIGHT OF APPRAISAL
Shareholders of Short-Term Global objecting to the Reorganization have no
appraisal or dissenter's rights under the Declaration of Trust or
Massachusetts law. Under the Plan, if approved by Short-Term Global
shareholders, each Short-Term Global shareholder will become the owner of
Short-Term Flexible shares having a total net asset value equal to the total
net asset value of his or her holdings in Short-Term Global at the Closing
Date.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
Management of Short-Term Global knows of no other matters that may properly
be, or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named in
the proxy intend to vote thereon in accordance with their best judgment.
If at the time any session of the Special Meeting is called to order, a
quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Special Meeting to
a later date. In the event that a quorum is present but sufficient votes in
favor of one or more of the proposals have not been received, the persons
named as proxies may propose one or more adjournments of the Special Meeting
to permit further solicitation of proxies with respect to any such proposal.
All such adjournments will require the affirmative vote of a majority of the
Shares present in person or by proxy at the session of the Special Meeting to
be adjourned. The persons named as proxies will vote those proxies which they
are entitled to vote in favor of the proposal, in favor of such an
adjournment, and will vote those proxies required to be voted against the
proposal, against any such adjournment. A vote may be taken on one or more of
the proposals in this proxy statement prior to any such adjournment if
sufficient votes for its approval have been received and it is otherwise
appropriate.
So far as management is presently informed, there is no litigation pending
or threatened against Blanchard Funds.
Whether or not shareholders expect to attend the meeting, all shareholders
are urged to sign, fill in and return the enclosed proxy form promptly.
EXHIBIT
A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated October 6, 1995 (the
"Agreement"), between Blanchard Short-Term Flexible Income Fund (hereinafter
called the "Acquiring Fund"), and Blanchard Short-Term Global Income Fund
(hereinafter called the "Acquired Fund"). Both the Acquiring Fund and the
Acquired Fund are portfolios of BLANCHARD FUNDS, a Massachusetts business
trust (the "Trust").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of
the assets of the Acquired Fund in exchange solely for shares of beneficial
interest of the Acquiring Fund (the "Acquiring Fund Shares") and the
distribution, after the Closing Date hereinafter referred to, of the Acquiring
Fund Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Trust is a registered open-end management investment company
and the Acquired Fund owns securities in which the Acquiring Fund is permitted
to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue their shares of beneficial interest;
WHEREAS, the Board of Trustees, including a majority of the Trustees who are
not "interested persons" (as defined under the Investment Company Act of 1940,
as amended (the "1940 Act")), of the Trust has determined that the exchange of
all of the assets of the Acquired Fund for Acquiring Fund Shares is in the
best interests of the Acquiring Fund shareholders and that the interests of
the existing shareholders of the Acquiring Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the Trustees who are
not "interested persons" (as defined under the 1940 Act), of the Trust has
determined that the exchange of all of the assets of the Acquired Fund for
Acquiring Fund Shares is in the best interests of the Acquired Fund
shareholders and that the interests of the existing shareholders of the
Acquired Fund would not be diluted as a result of this transaction;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired
Fund agrees to assign, transfer and convey to the Acquiring Fund all of the
assets of the Acquired Fund, including all securities and cash, other than
cash in an amount necessary to pay any unpaid dividends and distributions
as provided in paragraph 1.5, and the Acquiring Fund agrees in exchange
therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund
Shares, including fractional Acquiring Fund Shares, determined as set forth
in paragraph 2.3. Such transaction shall take place
at the closing (the "Closing") on the closing date (the "Closing Date")
provided for in paragraph 3.1. In lieu of delivering certificates for the
Acquiring Fund Shares, the Acquiring Fund shall credit the Acquiring Fund
Shares to the Acquired Fund's account on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the Acquired
Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall
be made on the Closing Date and shall be delivered to Signet Trust Company,
Richmond, Virginia, the Acquiring Fund's custodian (the "Custodian"), for
the account of the Acquiring Fund, together with proper instructions and
all necessary documents to transfer to the account of the Acquiring Fund,
free and clear of all liens, encumbrances, rights, restrictions and claims.
All cash delivered shall be in the form of currency and immediately
available funds payable to the order of the Custodian for the account of
the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund hereunder. The Acquired
Fund will transfer to the Acquiring Fund any distributions, rights or other
assets received by the Acquired Fund after the Closing Date as
distributions on or with respect to the securities transferred. Such assets
shall be deemed included in assets transferred to the Acquiring Fund on the
Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to the Acquired Fund's shareholders of record, determined as of the
close of business on the Closing Date (the "Acquired Fund Shareholders"),
the Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. In addition, each shareholder of record of the Acquired Fund
shall have the right to receive any unpaid dividends or other distributions
which are declared before the Valuation Date with respect to the shares of
the Acquired Fund that are held by the shareholders on the Valuation Date.
Such liquidation and distribution will be accomplished by the transfer of
the Acquiring Fund Shares then credited to the account of the Acquired Fund
on the books of the Acquiring Fund to open accounts on the share record
books of the Acquiring Fund in the names of the Acquired Fund Shareholders
and representing the respective pro rata number of the Acquiring Fund
Shares due such shareholders. All issued and outstanding shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with Section 2.3. The Acquiring Fund shall not
issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's current prospectus
and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on
the books of the Acquired Fund as of
that time shall, as a condition of such issuance and transfer, be paid by
the person to whom such Acquiring Fund Shares are to be issued and
transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund up to and including the Closing
Date and such later dates, with respect to liquidation and termination of
the Acquired Fund, on which the Acquired Fund is liquidated and terminated.
2.VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of
the close of the New York Stock Exchange (normally 4:00 p.m., Eastern time)
on the Closing Date (such time and date being hereinafter called the
"Valuation Date"), using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.2 The net asset value of an Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on the Valuation Date, using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the Acquired
Fund determined using the same valuation procedures referred to in
paragraph 2.1 by the net asset value of one Acquiring Fund Share determined
in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund.
3.CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be January 12, 1996 or such later date as the
parties may mutually agree. All acts taking place at the Closing Date shall
be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held at 4:00
p.m. (Eastern time) at the offices of the Acquiring Fund, Federated
Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place
as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to
trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading shall be disrupted so that accurate appraisal of the
value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
3.3 Federated Services Company, as transfer agent for each of the
Acquired Fund and Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the
names and addresses of the Acquired Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Secretary of the Acquired Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, assumption agreements, share
certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request.
4.REPRESENTATIONS AND WARRANTIES.
4.1 With respect to the Acquired Fund, the Trust represents and warrants
as follows:
(a) The Trust is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and has power to own all of its properties and assets and
to carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Trust is not, and the execution, delivery and performance of
this Agreement will not result, in material violation of its
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired
Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability
to it after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of its properties
or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Securities
and Exchange Commission (the "Commission") thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein as necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Statements of Assets and Liabilities of the Acquired Fund at
April 30, 1995 and 1994 have been audited by Price Waterhouse LLP,
independent accountants, and have been
prepared in accordance with generally accepted accounting principles,
consistently applied, and such statements (copies of which have been
furnished to the Acquiring Fund) fairly reflect the financial condition
of the Acquired Fund as of such dates, and there are no known
contingent liabilities of the Acquired Fund as of such dates not
disclosed therein.
(h) Since April 30, 1995, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(i) At the Closing Date, all Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by such
date shall have been filed, and all Federal and other taxes shall have
been paid so far as due, or provision shall have been made for the
payment thereof, and to the best of the Acquired Fund's knowledge no
such return is currently under audit and no assessment has been
asserted with respect to such returns.
(j) For each fiscal year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. All of the issued and outstanding shares
of the Acquired Fund will, at the time of the Closing, be held by the
persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full right,
power and authority to sell, assign, transfer and deliver the assets to
be transferred by it hereunder.
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action on the part of the Trustees of the Trust and, subject to the
approval of the Acquired Fund Shareholders, this Agreement will
constitute the valid and legally binding obligation of the Acquired
Fund enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors'
rights generally and court decisions with respect thereto, and to
general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.5 (other than information therein
that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
(o) Virtus Capital Management, Inc. has agreed to assume the expense
of the reorganization including accountants' fees, legal fees,
registration fees, transfer taxes (if any), the fees of banks and
transfer agents and the costs of preparing, printing, copying and
mailing proxy solicitation materials to the Acquiring Fund's
shareholders and the costs of holding the Special Meeting of
Shareholders.
4.2 With respect to the Acquiring Fund, the Trust represents and
warrants as follows:
(a) The Trust is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and has the power to carry on its business as it is now
being conducted and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act as an open-end,
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) The Trust is not, and the execution, delivery and performance of
this Agreement will not result, in material violation of its
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquiring
Fund is a party or by which it is bound.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquiring Fund or any of its
properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(f) The Statement of Assets and Liabilities of the Acquiring Fund at
April 30, 1995, have been audited by Price Waterhouse LLP, independent
auditors, and have been prepared in accordance with generally accepted
accounting principles, consistently applied, and such statements
(copies of which have been furnished to the Acquired Fund) fairly
reflect the financial condition of the Acquiring Fund as of such date.
(g) Since April 30, 1995, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of any indebtedness,
except as otherwise disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed shall
have been filed, and all Federal and other taxes shown as due on said
returns and reports shall have been paid or provision shall have been
made for the payment thereof.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(j) All issued and outstanding shares of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other right to subscribe for or
purchase any of the Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the Trust's Trustees, and this Agreement
will constitute the valid and legally binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto,
and to general principles of equity and the discretion of the court
(regardless of whether the enforceability is considered in a proceeding
in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on
the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement under which
Virtus Capital Management, Inc. will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents
and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the Acquired Fund's shareholders and the
costs of holding the Special Meeting of Shareholders.
5.COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated
herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do
or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days after
the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in
such form as is reasonably satisfactory to the Acquiring Fund, a statement
of the earnings and profits of the Acquired Fund for Federal income tax
purposes which will be carried over to the Acquiring Fund as a result of
Section 381 of the Code and which will be certified by the Acquired Fund's
President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement, referred to in paragraph 4.1(n),
all to be included in a Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933
Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in
connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have a dividend
or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company
taxable income, if any, for the taxable periods or years ended on April 30,
1995 and for the period from said date to and including the Closing Date
(computed without regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized in taxable periods or years ended on
or before April 30, 1995 and in the period from said date to and including
the Closing Date.
6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquired Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Acquired Fund.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund, to the effect that the
representations and warranties of the Acquired Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request.
7.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Acquired Fund, to the effect that the
representations and warranties of the Acquiring Fund made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquired Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the
Acquired Fund's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Acquired
Fund, provided that either party hereto may for itself waive any of such
conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of
the parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under the
1933 Act.
8.5 The Trust shall have received an opinion of Dickstein, Shapiro &
Morin, L.L.P. substantially to the effect that for Federal income tax
purposes:
(a) The transfer of all of the Acquired Fund assets in exchange for
the Acquiring Fund Shares and the distribution of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code; (b) No gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the
Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No
gain or loss will be recognized by the Acquired Fund upon the transfer
of the Acquired Fund assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to Acquired Fund
Shareholders in exchange for their shares of the Acquired Fund; (d) No
gain or loss will be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Acquiring Fund
Shares; (e) The tax basis of the Acquired Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization; (f) The tax
basis of the Acquiring Fund Shares received by each of the Acquired
Fund Shareholders pursuant to the Reorganization will be the same as
the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will
include the period during which those assets were held by the Acquired
Fund; and (h) The holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as
capital assets on the date of the Reorganization).
9.TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of the
Trust at any time prior to the Closing Date if circumstances should develop
that, in the opinion of either of the parties' Board of Trustees, make
proceeding with the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated hereby
is abandoned pursuant to the provisions of this Section 9, this Agreement
shall become void and have no effect, without any liability on the part of
any party hereto or the trustees, officers or shareholders of the Acquiring
Fund or of the Acquired Fund, in respect of this Agreement.
10.WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Trust, if, in the judgment of
either, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the shareholders of the Acquiring Fund or
of the Acquired Fund, as the case may be.
11.MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements, and understandings
of every kind and nature between them relating to the subject matter
hereof. Neither party shall be bound by any condition, definition, warranty
or representation, other than as set forth or provided in this Agreement or
as may be set forth in a later writing signed by the party to be bound
thereby.
11.3 This Agreement shall be governed and construed in accordance with
the internal laws of the Commonwealth of Massachusetts, without giving
effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of counterparts, each
of which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquiring Fund and agrees that the obligations assumed by the
Acquiring Fund pursuant to this Agreement shall be limited in any case to
the Acquiring Fund and its assets and the Acquired Fund shall not seek
satisfaction of any such obligation from the shareholders of the Acquiring
Fund, the trustees, officers, employees or agents of the Acquiring Fund or
any of them.
11.7 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by the
Acquired Fund pursuant to this Agreement shall be limited in any case to
the Acquired Fund and its assets and the Acquiring Fund shall not seek
satisfaction of any such obligation from the shareholders of the Acquired
Fund, the trustees, officers, employees or agents of the Acquired Fund or
any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have caused
this
Agreement and Plan of Reorganization to be executed and attested on its behalf
by its duly authorized representatives as of the date first above written.
Acquired Fund:
BLANCHARD FUNDS, on behalf of its
Portfolio,
BLANCHARD SHORT-TERM GLOBAL INCOME
FUND
Attest:
/s/ C. Grant Anderson By: /s/ Joseph S. Machi
......................................
...................................
Assistant Secretary
Name: Joseph S. Machi
................................
Title:Vice President
.................................
Acquiring Fund:
BLANCHARD FUNDS, on behalf of its
Portfolio,
BLANCHARD SHORT-TERM FLEXIBLE INCOME
FUND
Attest:
/s/ C. Grant Anderson By: /s/ Joseph S. Machi
......................................
...................................
Assistant Secretary
Name: Joseph S. Machi
................................
Title:Vice President
.................................
LOGO
ACQUISITION OF THE ASSETS OF
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
BY AND IN EXCHANGE FOR SHARES OF THE
BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-829-3863
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information dated December 20, 1995 is
not a prospectus. A Prospectus/Proxy Statement dated December 20, 1995
related to the above-referenced matter may be obtained from Blanchard
Funds on behalf of its portfolio, Blanchard Short-Term Flexible Income
Fund, through Signet Financial Services, Inc. at 41 Madison Avenue,
24th Floor, New York, New York 10010. This Statement of Additional
Information should be read in conjunction with such Prospectus/Proxy
Statement.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated December 20, 1995
FEDERATED SECURITIES CORP.
--------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
- --
1. Statement of Additional Information of Blanchard Short-Term Global Income
Fund, dated August 7, 1995
2. Statement of Additional Information of Blanchard Short-Term Flexible Income
Fund, dated August 7, 1995
3. Financial Statements of Blanchard Short-Term Global Income Fund, dated
April
30, 1995
4. Financial Statements of Blanchard Short-Term Flexible Income Fund, dated
April 30, 1995
5. Pro Forma Financial Statements
The Statements of Additional Information of Blanchard Short-Term Global Income
Fund and Blanchard Short-Term Flexible Income Fund dated August 7, 1995, are
incorporated herein by reference to Post-Effective Amendment No. 29 to
Blanchard Funds' Registration Statement on Form N-1A (File No. 33-3165) which
was filed with the Securities and Exchange Commission on or about August 7,
1995. A copy may be obtained from Signet Financial Services, Inc. at 41
Madison
Avenue, 24th Floor, New York, New York 10010. Telephone Number: 1-800-829-
3863.
The financial statements of Blanchard Short-Term Global Income Fund and
Blanchard Short-Term Flexible Income Fund dated April 30, 1995 are
incorporated
herein by reference to their respective Statements of Additional Information
dated August 7, 1995, and filed with the Securities and Exchange Commission on
or about August 7, 1995.
THE BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND (FORMERLY THE BLANCHARD SHORT-
TERM BOND FUND) THE BLANCHARD SHORT-TERM GLOBAL INCOME FUND
Introduction to Proposed Fund Merger (unaudited) April 30, 1995
The accompanying unaudited Pro Forma Combining Portfolio of Investments,
Statement of Assets and Liabilities and the Statement of Operations reflect
the
accounts of The Blanchard Short-Term Flexible Income Fund (formerly The
Blanchard Short-Term Bond Fund) and The Blanchard Short-Term Global Income
Fund
(the "Funds") at and for the year ended April 30, 1995. Effective October 10,
1995, the Blanchard Short-Term Bond Fund changed its name to the Blanchard
Short-Term Flexible Income Fund.
The Blanchard Short-Term Flexible Income Fund (formerly The Blanchard Short-
Term Bond Fund) The Blanchard Short-Term Global Income Fund Pro Forma
Combining
Schedule of Portfolio of Investments (unaudited)
April 30, 1995
<TABLE>
<CAPTION>
Principal Amount Value
----------------------------------------- ------------------------------------------
The Blanchard The Blanchard The Blanchard The Blanchard
Short-Term Short-Term Short-Term Short-Term
Flexible Income Global Income Pro Forma Flexible Income Global Income Pro Forma
Fund Fund Combined Fund Fund Combined
--------------- ------------- ----------- --------------- ------------- ------------
<C> <C> <C> <S> <C> <C> <C>
FOREIGN FIXED INCOME -
23.9%
GERMANY - 6.4%
GOVERNMENT/AGENCY - 6.4%
Dem $17,500,000 $17,500,000 Allemagne, 6.63%, $ 12,887,568 $ 12,887,568
1/20/98
5,100,000 5,100,000 Treuhandanat, 6.13%, 3,703,978 3,703,978
6/25/98
------------ ------------
Total 16,591,546 16,591,546
------------ ------------
<CAPTION>
NETHERLANDS - 7.3%
GOVERNMENT/AGENCY - 7.3%
Nlg 29,000,000 29,000,000 Hollande, 6.25%, 7/15/98 18,790,416 18,790,416
------------ ------------
UNITED KINGDOM - 10.2%
FINANCIAL SERVICES -
5.5%
Gbp 1,000,000 1,000,000 Abbey National, 7.75%, 1,574,870 1,574,870
6/23/98
2,225,000 2,225,000 Abbey National, 6.00%, 3,242,286 3,242,286
8/10/99
1,000,000 1,000,000 Bayerische Hypotheken, 1,530,620 1,530,620
7.00%, 12/21/98
2,000,000 2,000,000 Halifax, 7.75%, 12/03/98 3,113,535 3,113,535
830,000 830,000 Leeds Permanent, 7.38%, 1,285,440 1,285,440
5/06/98
1,000,000 1,000,000 Lloyds Bank, 10.25%, 1,665,379 1,665,379
3/11/98
1,000,000 1,000,000 National Providence
Building, 8.25%,
11/04/98 1,586,938 1,586,938
------------ ------------
Total 13,999,068 13,999,068
------------ ------------
GOVERNMENT/AGENCY - 4.7%
8,140,000 8,140,000 United Kingdom Treasury,
7.00%, 11/06/01 12,217,760 12,217,760
------------ ------------
Total United Kingdom 26,216,828 26,216,828
------------ ------------
TOTAL FOREIGN FIXED
INCOME (IDENTIFIED
COST $61,998,519) 61,598,790 61,598,790
------------ ------------
U.S. FIXED INCOME -
65.6%
AIRLINES - 1.3%
3,000,000 3,000,000 *United Airlines Inc.,
Series A, 10.67%,
5/01/04 3,268,370 3,268,370
------------ ------------
COMPUTERS & RELATED -
2.5%
5,000,000 5,000,000 Comdisco Inc., 7.25%, 4,998,800 4,998,800
4/15/98
1,000,000 1,000,000 Unisys Corp. Sr. Note, 1,026,446 1,026,446
9.75%, 9/15/96
500,000 500,000 Unisys Corp. Sr. Note, 500,750 500,750
9.50%, 7/15/98
------------ ------------
Total 6,525,996 6,525,996
------------ ------------
CONSUMER RELATED - 2.0%
$ 500,000 500,000 RJR Nabisco, 8.30%, $ 509,828 509,828
4/15/99
2,000,000 2,000,000 RJR Nabisco, 8.75%, 1,942,688 1,942,688
8/15/05
2,500,000 2,500,000 Valassis Inserts, 9.38%, 2,592,003 2,592,003
3/15/99
----------- ------------ ------------
Total 509,828 4,534,691 5,044,519
----------- ------------ ------------
ELECTRICAL UTILITIES -
2.0%
2,750,000 2,750,000 Long Island Lighting, 2,603,736 2,603,736
7.30%, 7/15/99
2,500,000 2,500,000 Niagara Mohawk Power
Corp., 9.95%, 6/01/00 2,632,675 2,632,675
------------ ------------
Total 5,236,411 5,236,411
------------ ------------
</TABLE>
The Blanchard Short-Term Flexible Income Fund
(formerly The Blanchard Short-Term Bond Fund)
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Schedule of Portfolio of Investments (unaudited)
April 30, 1995
<TABLE>
<CAPTION>
Principal Amount Value
----------------------------------------- ------------------------------------------
The Blanchard The Blanchard The Blanchard The Blanchard
Short-Term Short-Term Short-Term Short-Term
Flexible Income Global Income Pro Forma Flexible Income Global Income Pro Forma
Fund Fund Combined Fund Fund Combined
--------------- ------------- ----------- --------------- ------------- ------------
<C> <C> <C> <S> <C> <C> <C>
ENTERTAINMENT - 2.1%
$ 2,000,000 $ 2,000,000 Caesar's World Inc. Sr.
Sub Notes, 8.88%,
8/15/02 $ 2,065,000 $ 2,065,000
3,000,000 3,000,000 Time Warner
Entertainment Co.,
9.63%, 5/01/02 3,245,991 3,245,991
------------ ------------
Total 5,310,991 5,310,991
------------ ------------
FINANCIAL SERVICES -
30.4%
5,000,000 5,000,000 Advanta MTC, Series
1995, 7.82%, 8/25/03 4,996,875 4,996,875
3,211,457 3,211,457 CMC Securities Corp.,
1993, 7.50%, 2/25/23 3,193,376 3,193,376
5,000,000 5,000,000 Chrysler Financial MTN,
7.44%, 10/20/97 5,013,220 5,013,220
5,802,456 5,802,456 Contimortage 1995-1,
8.75%, 4/15/07 5,894,933 5,894,933
5,000,000 5,000,000 Dean Witter Discover &
Co., 6.00%, 3/01/98 4,855,365 4,855,365
10,275,000 10,275,000 Discover Credit Corp.
MTN, 7.76%, 5/13/97 10,394,180 10,394,180
5,000,000 5,000,000 Ford Motor Credit Corp.,
5.32%, 9/15/98 4,716,200 4,716,200
5,686,741 5,686,741 General Electric Capital
Mtg., 1992, 7.50%,
11/25/18 5,681,406 5,681,406
4,642,955 4,642,955 General Motors
Acceptance Corp., 1993
B A, 4.00%, 9/15/98 4,537,932 4,537,932
2,500,000 2,500,000 Groupe Videotron,
10.63%, 2/15/05 2,612,500 2,612,500
6,000,000 6,000,000 International Business
Machines Credit, 7.40%,
1/19/96 6,035,352 6,035,352
5,000,000 5,000,000 Lehman Brothers Hldg.
MTN, 8.63%, 2/26/99 5,104,805 5,104,805
2,470,391 2,470,391 Merrill Lynch Mtge.
Inv., 1990, 9.20%,
1/15/11 2,566,465 2,566,465
4,962,460 4,962,460 Money Store, Series
1995-A, 8.00%, 9/15/05 4,999,679 4,999,679
7,500,000 7,500,000 (e)+ New American
Capital, 7.69%, 7/12/95 7,500,000 7,500,000
------------ ------------
Total 78,102,288 78,102,288
------------ ------------
GOVERNMENT/AGENCY -
21.9%
$1,000,000 1,000,000 Federal National
Mortgage Assoc., 8.20%,
8/10/98 $ 1,005,763 1,005,763
5,000,000 5,000,000 Government National
Mortgage Assoc., 9.50%,
12/15/21 5,262,500 5,262,500
209,064 209,064 Government National
Mortgage Assoc. II,
10.00%, 6/20/16 221,673 221,673
Resolution Trust Corp.
250,000 250,000 6.00%, 1/15/04 249,688 249,688
6,795,834 6,795,834 (b) 5.33%, 9/25/21 6,583,465 6,583,465
3,559,951 3,559,951 (b) 5.83%, 9/25/19 3,453,152 3,453,152
2,728,754 2,728,754 5.90%, 7/25/23 2,701,466 2,701,466
2,106,119 2,106,119 (b) 5.97%, 5/25/21 2,042,936 2,042,936
2,093,821 2,093,821 (b) 6.98%, 3/25/22 2,088,586 2,088,586
2,340,164 2,340,164 (b) 7.32%, 11/25/25 2,305,062 2,305,062
6,456,497 6,456,497 7.75%, 12/25/18 6,424,214 6,424,214
3,886,383 3,886,383 7.87%, 9/25/29 3,879,096 3,879,096
</TABLE>
The Blanchard Short-Term Flexible Income Fund
(formerly The Blanchard Short-Term Bond Fund)
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Schedule of Portfolio of Investments (unaudited)
April 30, 1995
<TABLE>
<CAPTION>
Principal Amount Value
----------------------------------------- ------------------------------------------
The Blanchard The Blanchard The Blanchard The Blanchard
Short-Term Short-Term Short-Term Short-Term
Flexible Income Global Income Pro Forma Flexible Income Global Income Pro Forma
Fund Fund Combined Fund Fund Combined
--------------- ------------- ----------- --------------- ------------- ------------
<C> <C> <C> <S> <C> <C> <C>
$ 3,931,403 $ 3,931,403 (b) 8.15%, 1/25/21 $ 3,975,631 $ 3,975,631
937,699 937,699 (b) 8.77%, 3/25/21 937,230 937,230
1,273,000 1,273,000 8.80%, 8/25/23 1,303,234 1,303,234
U.S. Treasury Notes
4,500,000 4,500,000 6.88%, 10/31/96 $ 4,523,904 4,523,904
2,500,000 2,500,000 7.50%, 2/29/96 2,523,438 2,523,438
2,000,000 2,000,000 7.50%, 1/31/96 2,016,874 2,016,874
5,000,000 5,000,000 5.50%, 4/30/96 4,959,375 4,959,375
----------- ------------ ------------
Total 15,500,715 40,956,572 56,457,287
----------- ------------ ------------
HOTELS - 1.0%
2,500,000 2,500,000 Embassy Suites, 8.75%,
3/15/00 2,487,500 2,487,500
------------ ------------
INDUSTRIAL RELATED - 1.7%
2,500,000 2,500,000 Oryx Energy Co., 9.75%,
9/15/88 2,521,875 2,521,875
$ 500,000 500,000 PDV America Inc., 7.25%,
8/01/98 455,841 455,841
2,000,000 2,000,000 (c) USX Corp.,
Subordinated Deb.,
5.75%, 7/01/01 1,725,000 1,725,000
----------- ------------ ------------
Total 455,841 4,246,875 4,702,716
----------- ------------ ------------
UTILITIES - 0.7%
1,650,000 1,650,000 Arkla Inc., 8.88%,
7/15/99 -- 1,699,106 1,699,106
----------- ------------ ------------
TOTAL U.S. FIXED
INCOME (IDENTIFIED
COST $167,916,934) 16,466,384 152,368,800 168,835,184
----------- ------------ ------------
U.S. HIGH YIELD SECURITIES
- 2.3%
AIRLINES - 0.1%
200,000 200,000 U.S. Air Inc., Series D,
9.80%, 1/15/00 173,250 173,250
----------- ------------
BASIC MATERIALS - 0.2%
500,000 500,000 Owens Illinois Inc.,
10.25%, 4/01/99 511,250 511,250
----------- ------------
CONSUMER RELATED - 0.3%
200,000 200,000 MacAndrews & Forbes
Group Inc., 12.25%,
7/01/96 201,500 201,500
500,000 500,000 Revlon Consumer Products
Corp., 9.50%, 6/01/99 491,250 491,250
----------- ------------
Total 692,750 692,750
----------- ------------
ENERGY & OIL RELATED -
0.3%
400,000 400,000 Texas New Mexico Power
Co., 9.25%, 9/15/00 399,584 399,584
500,000 500,000 Triton Energy Corp., 0%,
11/01/97 398,750 398,750
----------- ------------
Total 798,334 798,334
----------- ------------
FINANCIAL SERVICES - 0.7%
500,000 500,000 Great American Holding
Corp., 11.00%, 8/15/98 501,875 501,875
500,000 500,000 Navistar Financial Group
Corp., 8.88%, 11/15/98 492,500 492,500
400,000 400,000 Presidential Life Corp.,
9.50%, 12/15/00 386,000 386,000
500,000 500,000 Reliance Group Holdings
Inc., 9.00%, 11/15/00 476,875 476,875
----------- ------------
Total 1,857,250 1,857,250
----------- ------------
</TABLE>
The Blanchard Short-Term Flexible Income Fund
(formerly The Blanchard Short-Term Bond Fund)
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Schedule of Portfolio of Investments (unaudited)
April 30, 1995
<TABLE>
<CAPTION>
Principal Amount Value
----------------------------------------- ------------------------------------------
The Blanchard The Blanchard The Blanchard The Blanchard
Short-Term Short-Term Short-Term Short-Term
Flexible Income Global Income Pro Forma Flexible Income Global Income Pro Forma
Fund Fund Combined Fund Fund Combined
--------------- ------------- ----------- --------------- ------------- ------------
<C> <C> <C> <S> <C> <C> <C>
INDUSTRIAL RELATED - 0.5%
$ 350,000 $ 350,000 Armco, Inc. 9.38%,
11/01/00 $ 331,625 $ 331,625
350,000 350,000 Sequa Corp., 8.75%,
12/15/01 329,437 329,437
500,000 500,000 Unisys Corp., 10.63%,
10/01/99 527,197 527,197
----------- ------------
Total 1,188,259 1,188,259
----------- ------------
MEDICAL SERVICES - 0.1%
350,000 350,000 Healthsouth
Rehabilitation Corp.,
9.50%, 4/01/01 357,875 357,875
----------- ------------
TELECOMMUNICATIONS - 0.1%
168,800 168,800 SCI Television Inc.,
7.50%, 6/30/98 167,112 167,112
----------- ------------
TOTAL U.S. HIGH YIELD
SECURITIES (IDENTIFIED
COST $5,880,640) 5,746,080 5,746,080
----------- ------------
SHORT-TERM SECURITIES - 6.1%
$ 1,000,000 1,000,000 American Express Credit
Corp., 5.70%, 5/01/95 $ 1,000,000 1,000,000
740,000 740,000 Associates Corp. of
N.A., 5.80%, 5/01/95 740,000 740,000
5,000,000 5,000,000 Salomon Inc., 5.91%,
9/29/95 4,976,730 4,976,730
9,000,000 9,000,000 U.S. Treasury Bill,
4.56%, 5/04/95 8,995,800 8,995,800
----------- ------------ ------------
TOTAL SHORT-TERM
SECURITIES (IDENTIFIED
COST $15,715,006) 740,000 14,972,530 15,712,530
----------- ------------ ------------
OUTSTANDING OPTIONS PURCHASED
- 0.0%
Contracts
------------- PUT OPTIONS
150 150 (d) Euro$ Future,
expiring 9/18/95 @
$93.50
TOTAL OUTSTANDING
OPTIONS PURCHASED
(IDENTIFIED COST
$72,376) 75,000 75,000
----------- ------------ ------------
TOTAL INVESTMENTS
(IDENTIFIED COST
$251,583,475) (A) $22,952,464 $229,015,120 $251,967,584
----------- ------------ ------------
</TABLE>
* Securities partially segregated to collateralize forward currency
contracts
and options. Total market value segregated is $1,089,457.
+ Registered under SEC rule 144-A, resale restricted as to qualified
institutional buyers: represents 3.21% of net assets.
(a) The aggregate cost for federal income tax purposes is $251,585,654; the
gross unrealized appreciation is $1,260,810; and the unrealized
depreciation is $878,880; resulting in net unrealized appreciation of
$381,930.
(b) Variable rate security. Rate shown reflects the current rate as of April
30, 1995.
(c) Convertible security.
(d) Non-income producing.
(e) Pays interest at LIBOR plus 137.5 basis points until July 12, 1995. After
July 12, 1995, the rate resets to 7.69%.
LIBOR = London Interbank Offered Rate
MTN = Medium Term Note
Note: The categories of investments are shown as a percentage of net assets
($257,313,955) at April 30, 1995.
Certain securities held in The Blanchard Short-Term Global Income Fund are not
permissable investments of The Blanchard Short-Term Flexible Income Fund and
will be subsequently liquidated prior to the reorganization.
(See Notes to Pro Forma Financial Statements)
The Blanchard Short-Term Flexible Income Fund
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Schedule of Portfolio of Investments (unaudited)
Schedule of Open Forward Currency Contracts as of April 30, 1995
The Blanchard Short-Term Global Income Fund
<TABLE>
<CAPTION>
The Blanchard
Unrealized Short-Term
Currency Currency Delivery Appreciation Flexible Income Pro Forma
Sold Amount Purchased Amount Date (Depreciation) Fund Combined
- -------- --------------- --------- --------------- --------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dem $ 27,281,492 Nlg $ 30,561,000 2-May-95 $21,420 $21,420
Dem 20,246,000 Gbp 9,115,714 4-May-95 76,039 76,039
Dem 18,092,800 Itl 22,368,128,640 10-May-95 270,545 270,545
Itl 28,349,000,000 Dem 25,415,766 10-May-95 1,494,739 1,494,739
US$ 7,904,785 Jpy 778,400,000 10-May-95 1,371,578 1,371,578
US$ 10,000,000 Esp 1,289,950,000 10-May-95 471,053 471,053
US$ 24,600,661 Esp 3,075,082,650 10-May-95 385,791 385,791
----------- ----------- -----------
TOTAL UNREALIZED APPRECIATION $4,091,165 $4,091,165
----------- ----------- -----------
Nlg $ 30,561,000 Dem $ 27,281,735 10-May-95 ($21,246) ($21,246)
Gbp 7,490,400 US$ 11,879,774 10-May-95 (171,000) (171,000)
US$ 10,000,000 Aud 13,747,594 10-May-95 (1,822) (1,822)
US$ 15,000,000 Aud 20,270,270 10-May-95 (258,092) (258,092)
US$ 9,785,787 Aud 13,241,931 10-May-95 (147,651) (147,651)
Dem 48,433,000 US$ 34,643,997 10-May-95 (292,382) (292,382)
Itl 29,710,219,600 US$ 17,099,407 10-May-95 (547,643) (547,643)
Aud 45,976,000 US$ 33,333,979 10-May-95 (102,868) (102,868)
Dem 29,903,730 Itl 31,967,087,370 10-May-95 (2,583,016) (2,583,016)
Jpy 778,400,000 US$ 7,942,047 10-May-95 (1,334,316) (1,334,316)
Esp 4,461,200,000 US$ 34,348,630 10-May-95 (1,864,761) (1,864,761)
Gbp 9,170,090 Dem 20,246,000 4-Aug-95 (107,629) (107,629)
----------- ----------- -----------
TOTAL UNREALIZED DEPRECIATION ($7,432,426) ($7,432,426)
----------- ----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
Dem = Deutsche Marks Nlg = Dutch Guilders Esp = Spanish Pesetas
Itl = Italian Lira Gbp = British Pounds Aud = Australian Dollars
Jpy = Japanese Yen
</TABLE>
(See Notes to Pro Forma Financial Statements)
The Blanchard Short-Term Flexible Income Fund
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Schedule of Portfolio of Investments (unaudited)
Schedule of Open Forward Currency Contracts as of April 30, 1995
The Blanchard Short-Term Global Income Fund
SCHEDULE OF FOREIGN CURRENCY HELD AS OF APRIL 30, 1995
<TABLE>
<CAPTION>
The Blanchard
Short-Term
Flexible Income Pro Forma
Currency Held Cost Market Value Fund Combined
------------- ---------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Australian 138,898 $101,097 $101,097 $101,097
Dollars
British 45 73 73 73
Pounds
Deutsche 1,101 793 793 793
Marks
Italian Lira 5,162,758,058 3,032,897 3,072,156 3,072,156
Spanish 17,655,177 143,456 143,456 143,456
Pesetas
---------- ---------- ---------- ----------
$3,278,316 $3,317,575 $3,317,575
---------- ---------- ---------- ----------
</TABLE>
(See Notes to Pro Forma Financial Statements)
The Blanchard Short-Term Flexible Income Fund
(formerly The Blanchard Short-Term Bond Fund)
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Statement of Assets and Liabilities (unaudited)
April 30, 1995
<TABLE>
<CAPTION>
The Blanchard The Blanchard
Short-Term Short-Term
Flexible Income Global Income Pro Forma Pro Forma
Fund Fund Adjustments Combined
--------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in $22,952,464 $229,015,120 $251,967,584
securities, at value
(Identified cost,
$251,583,475)
Cash 47,520 2,426,706 2,474,226
Foreign currencies -- 3,317,575 3,317,575
(Identified cost
$3,278,316)
Receivables for:
Investments sold -- 50,513,648 50,513,648
Shares of beneficial 501 72,379 72,880
interest
Interest 543,053 3,600,873 4,143,926
Forward foreign -- 4,091,165 4,091,165
currency contracts
Deferred organizational 48,680 -- 48,680
expenses
----------- ------------ ----------- ------------
Total assets 23,592,218 293,037,466 316,629,684
----------- ------------ ----------- ------------
LIABILITIES:
Payables for:
Shares of beneficial 106,165 761,158 867,323
interest repurchased
Investments purchased -- 50,456,095 50,456,095
Dividends 7,015 184,269 191,284
Forward foreign -- 7,432,426 7,432,426
currency contracts
Accrued expenses and 34,531 359,930 394,461
other liabilities
----------- ------------ ----------- ------------
Total liabilities 147,711 59,193,878 59,341,589
----------- ------------ ----------- ------------
NET ASSETS $23,444,507 $233,843,588 $257,288,095
----------- ------------ ----------- ------------
NET ASSETS CONSIST OF:
Paid-in capital $24,355,402 $259,231,663 $283,587,065
Net unrealized (189,216) (2,599,236) (2,788,452)
appreciation
(depreciation)
of investments
Net accumulated (58,696) (12,044,793) (12,103,489)
overdistributed
investment income
Accumulated net (662,983) (10,744,046) (11,407,029)
realized gain (loss) on
investments
----------- ------------ ----------- ------------
Total Net Assets $23,444,507 $233,843,588 $257,288,095
----------- ------------ ----------- ------------
Shares Outstanding 7,985,358 141,135,916 (61,487,205) A 87,634,069
----------- ------------ ----------- ------------
NET ASSET VALUE, and
Redemption Proceeds
Per Share: $2.94 $1.66 $2.94
----------- ------------ ----------- ------------
</TABLE>
A) Adjustment to reflect share balance as a result of combination.
(See Notes to Pro Forma Financial Statements)
The Blanchard Short-Term Flexible Income Fund
(formerly The Blanchard Short-Term Bond Fund)
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Statement of Operations (unaudited)
Year Ended April 30, 1995
<TABLE>
<CAPTION>
The Blanchard The Blanchard
Short-Term Short-Term
Flexible Income Global Income Pro Forma Pro Forma
Fund Fund Adjustments Combined
--------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income (net of
foreign withholding tax
of $85,010) $1,934,317 $27,791,428 $ -- $29,725,745
---------- ----------- -------- -----------
EXPENSES:
Investment management fee 235,737 2,811,067 -- 3,046,804
Plan of distribution fee 78,579 937,022 1,015,601
Transfer agent fees 75,999 779,000 854,999
Trustees' fees 36,894 403,258 (435,768) A 4,384
Custodian fees 36,080 337,214 (7,678) B 365,616
Accounting fees 96,176 230,000 (65,000) C 261,176
Professional fees 34,282 168,029 202,311
Shareholder reports and
notices 24,950 62,136 (24,950) D 62,136
Organizational expenses 15,429 26,748 (26,748) E 15,429
Registration fees 27,500 26,500 (26,500) F 27,500
Other 4,474 16,293 20,767
---------- ----------- -------- -----------
Total expenses 666,100 5,797,267 (586,644) 5,876,723
---------- ----------- -------- -----------
Waivers by Manager and
Distributor (234,663) (182,085) 203,120 G (213,628)
---------- ----------- -------- -----------
Net expenses 431,437 5,615,182 (383,524) 5,663,095
---------- ----------- -------- -----------
Net investment income 1,502,880 22,176,246 383,524 24,062,650
---------- ----------- -------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Realized gain (loss) on:
Investments--net (541,619) (10,489,372) -- (11,030,991)
Futures transactions--
net -- (521,197) -- (521,197)
Forward currency
contracts and foreign
exchange contracts--net (30,645) (33,387,574) -- (33,418,219)
---------- ----------- -------- -----------
Total realized
gain(loss) (572,264) (44,398,143) -- (44,970,407)
Change in unrealized
appreciation
(depreciation) on:
Investments--net 443,090 7,167,814 -- 7,610,904
Forward currency
contracts, futures
transactions and
translation of other
assets and liabilities
denominated in foreign
currency--net -- 8,408,763 -- 8,408,763
---------- ----------- -------- -----------
Total unrealized
appreciation
(depreciation) 443,090 15,576,577 -- 16,019,667
---------- ----------- -------- -----------
Net realized and
unrealized gain (loss)
on investments (129,174) (28,821,566) -- (28,950,740)
---------- ----------- -------- -----------
Change in net assets
resulting from
operations $1,373,706 ($6,645,320) $383,524 ($4,888,090)
---------- ----------- -------- -----------
</TABLE>
(See Legend on following page)
(See Notes to Pro Forma Financial Statements)
The Blanchard Short-Term Flexible Income Fund
(formerly The Blanchard Short-Term Bond Fund)
The Blanchard Short-Term Global Income Fund
Pro Forma Combining Statement of Operations (Continued)
Year Ended April 30, 1995 (unaudited)
A) Adjustment to reflect the elimination of the pension plan expense covering
the independent Trustees of The Blanchard Short-Term Flexible Income Fund and
The Blanchard Short-Term Global Income Fund.
B) U.S. Trust Company serves as custodian for the funds. Custody fees would be
charged at the rate of .03 of 1% on the first $50 million of average aggregate
daily net assets of the Fund; .02 of 1% on the next $50 million; and .01 of 1%
of the remaining assets. This adjustment reflects the decrease in fees due to
the increased assets of the combined fund. Effective October 16, 1995, Signet
Trust Company began providing custody services for the Blanchard Short-Term
Flexible Income Fund.
C) Mutual Funds Service Corporation ("MFSC"), a division of United States
Trust Company also maintained the Funds' accounting records. The MFSC fee is
based on the level of each Fund's average net assets for the period, plus out-
of-pocket expenses. This adjustment reflects the decrease of the minimum
charge associated with the Short-Term Flexible Income Fund. Effective October
16, 1995, Federated Services Company began providing portfolio accounting
services for the funds.
D) Printing and postage expenses are adjusted to reflect estimated savings to
be realized by combining two portfolios into a single portfolio.
E) Organizational expenses of each fund were deferred and are amortized over a
five year period from the date of commencement of the funds' operations. This
adjustment reflects the assumption by the Manager of the remaining
organizational expenses on the Short-Term Global Fund.
F) Adjustment to reflect the elimination of state registration costs for The
Blanchard Short-Term Global Income Fund only.
G) Virtus Capital Management, (the "Manager") receives for its services an
advisory fee of .75 of 1% of the Funds' average daily net assets. The Manager
may voluntarily choose to waive a portion of its fee. The Manager can modify
or terminate this voluntary waiver at any time at its sole discretion.
H) All merger related costs will be borne by the advisor, Virtus Capital
Management.
(See Notes to Pro Forma Financial Statements)
The Blanchard Short-Term Flexible Income Fund
(formerly The Blanchard Short-Term Bond Fund)
The Blanchard Short-Term Global Income Fund
Notes to Pro Forma Financial Statements (unaudited)
1. BASIS OF COMBINATION
The unaudited Pro Forma Combining Portfolio of Investments, Statement of
Assets and Liabilities and Statement of Operations reflect the records of
The Blanchard Short-Term Flexible Income Fund (formerly The Blanchard
Short-Term Bond Fund), and the Blanchard Short-Term Global Income Fund, two
of the ten portfolios offered by the Blanchard Funds for the year ended
April 30, 1995.
The Pro Forma Combining Portfolio of Investments, Statement of Assets and
Liabilities and Statement of Operations should be read in conjunction with
the historical financial statements of the Funds incorporated by reference
in the Statement of Additional Information.
The Pro Forma statements give effect to the proposed transfer of the assets
of The Blanchard Short-Term Global Income Fund in exchange for shares of
The Blanchard Short-Term Flexible Income Fund.
The Pro Forma financial statements reflect the anticipated advisory,
administration, custodial, and distribution fee arrangements for the
surviving entity, including anticipated voluntary fee waivers. Certain
other operating costs have also been adjusted to reflect anticipated
expenses of the combined entity. Other costs which may change as a result
of the reorganization are currently indeterminable.
For the fiscal year ended April 30, 1995, The Blanchard Short-Term Flexible
Income Fund and The Blanchard Short-Term Global Income Fund accrued
investment advisory fees computed at the annual rate of 0.75% of average
daily net assets for both Funds. A portion of the investment advisory fee
was waived by the Manager for both Funds.
The manager, administrator, custodian and distributor may voluntarily
choose to waive a portion of their fees and reimburse certain other
operating expenses of The Blanchard Short-Term Flexible Income Fund and The
Blanchard Short-Term Global Income Fund.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes the issuance of 79,648,711
shares of The Blanchard Short-Term Flexible Income Fund in exchange for
141,135,916 shares from The Blanchard Short-Term Global Income Fund which
would have been issued at April 30, 1995, in connection with the proposed
reorganization.
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
CUSIP NO. 093265205
FOR SPECIAL MEETING OF SHAREHOLDERS FEBRUARY 9, 1996
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Blanchard Short-Term Global Income Fund, a portfolio of Blanchard Funds hereby
appoint C. Grant Anderson, Patricia F. Conner, Cathy Ryan, Suzanne Land and
Gia Albanowski or any one of them, true and lawful attorneys, with the power
of substitution of each, to vote all shares of Blanchard Short-Term Global
Income Fund, which the undersigned is entitled to vote, at the Special Meeting
of Shareholders to be held on February 9, 1996, at Federated Investors Tower,
Pittsburgh, Pennsylvania, at 2:00 p.m. (Eastern time) and at any adjournment
or postponement thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
PROPOSAL(S)
1) TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION PROVIDING
FOR THE TRANSFER OF THE ASSETS OF BLANCHARD SHORT-TERM GLOBAL INCOME FUND
TO BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES WHO RECOMMEND THAT
YOU VOTE FOR THE PROPOSED REORGANIZATION. The attorneys named will vote the
shares represented by this proxy in accordance with the choices made on this
card. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL BE VOTED
AFFIRMATIVELY ON THAT MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION. Place the ballot so that the return address, located
on the reverse side of the mail-in-stub, appears through the window of the
envelope.
BLANCHARD SHORT-TERM GLOBAL INCOME FUNDPROXY VOTING MAIL-IN STUB
RECORD DATE SHARES
Please sign EXACTLY as your name(s) appear above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give your
full title as such. If a corporation or partnership, please sign the full
name by an authorized officer or partner. If stock is owned jointly, all
parties should sign.
PROPOSAL(S):
1) FOR AGAINST ABSTAIN
---- ---- ----
Dated: , 19
=============== ====
- ---------------------------
Signature(s) of Shareholders(s)
Appendix A
The graphic presentation displayed here consists of a vertical bar chart
representing the total returns each year by BSTGIF and BSTFIF from April 16,
1993 through November 30, 1995. The first bar, representing the total return
of BSTGIF from April 16, 1993 through December 31, 1993, indicates a total
return of 6.16%. The second bar, representing the total return of BSTGIF from
January 1, 1994 through December 31, 1994, indicates a total return of
(4.59)%. The third bar, representing the total return of BSTGIF from January
1, 1995 through November 30, 1995, indicates a total return of 6.42%. The
fourth bar, representing the total return of BSTFIF from April 16, 1993
through December 31, 1993, indicates a total return of 4.44%. The fifth bar,
representing the total return of BSTFIF from January 1, 1994 through December
31, 1994, indicates a total return of 1.02%. The sixth bar, representing the
total return of BSTFIF from January 1, 1995 through November 30, 1995,
indicates a total return of 8.20%.
Appendix B
The graphic presentation here displayed consists of a horizontal line graph as
a representation of a comparison of change in month end share prices for
BSTFIF from April 16, 1993 through November 30, 1995. BSTFIF is represented by
a horizontal solid line with intermittent blocks indicating each month end
from April 16, 1993 through November 30, 1995. The `y' axis represents five
share prices of $2.625, $2.750, $2.875, $3.000 and $3.125. The `x' axis
reflects computation dates from April 16, 1993 through November 30, 1995.
Appendix C
The graphic presentation here displayed consists of a legend at the bottom of
the graphic illustration indicating the components of the corresponding graph.
Blanchard Short-Term Bond Fund is indicated by a broken line. Merrill Lynch
Short-Term Treasuries Index is indicated by a solid line. Merrill Lynch Short-
Term Government Corporate Index is indicated by a dotted line. The `y' axis of
the graph represents the cost of investment. The `x' axis represents
computation periods from the Fund's inception date, April 16, 1993, through
April 30, 1995. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to Merrill Lynch Short-Term Treasuries
Index and Merrill Lynch Short-Term Government Corporate Index; the ending
values are $10,942, $10,781 and $10,776, respectively. There is also a legend
in the top center of the graphic presentation which indicates the average
annual returns of the Fund through April 30, 1995, beginning with the
inception date of the Fund, April 16, 1993, and the one-year period; the
