Dear Shareholders,
Enclosed please find the annual report on the performance of your Blanchard
Short-Term Global Income Fund for the fiscal year ending April 30, 1995, as well
as the current outlook for the markets in which it has the flexibility to
invest.
As you know, 1994 was a particularly challenging year for fixed income
investors, primarily because of two key market trends: First, global bond yields
moved sharply higher in response to the re-emergence of economic growth
throughout the developed world; second, the U.S. Federal Reserve returned to a
policy of monetary tightening.
In response to these trends, your Fund took a more cautious stance by
reducing its exposure to short-dated bonds and increasing its exposure to cash
deposits.
Additionally, in an effort to increase overall yield, the Fund also took a
small 5% position in the Mexican peso. However, this particular strategy
suffered when the Mexican government unexpectedly devalued its currency in
December. Exposure to "emerging markets" has since been reduced to zero.
On a more positive note, since the beginning of 1995, there has been a
marked change in investor sentiment for global bonds as investors have begun to
realize that the threat of inflation may be misplaced.
This realization has coincided with some evidence that the pace of economic
expansion in the United States is slowing. While we still believe that there
could be some pick-up in inflationary pressures, we feel that U.S. bond yields
may have
The following information was reprint as a line graph.
The Value of a $10,000 Investment in the
Blanchard Short-Term Global Income Fund
from inception 1/8/91 through 4/30/95 as compared to
the J.P. Morgan Cash Index for the same period
-----------------------------------------
Avg. Annual Returns through 4/30/95
Blanchard Short-Term Global Income Fund*
-----------------------------------------
1 year -1.45%
since inception 3.36%
-----------------------------------------
FYE 4/30/91 FYE 4/30/92 FYE 4/30/93 FYE 4/30/94 FYE 4/30/95
STGF 2.15% 5.85% 4.97% 3.12% -1.45%
J.P.M. CASH IDX 3.18% 8.17% 5.76% 2.68% 5.65%
$9,925 $10,138 $10.731 $11.262 $11,613 $11,445
$10,000 $10,318 $11,161 $11,804 $12,120 $12,805
Reflects deduction of $75 acct opening fee
Blanchard J.P. Morgan
Short-Term Global Cash
Income Fund^ Index(D)
*The average annual returns quoted above do not reflect reinvestment of
distributions, but do not reflect the deduction of the one-time account opening
fee. If reflected, the returns would be lower. The total return includes changes
in principal value. The average annual return is total return annualized and
compounded. Past performance is no guarantee of future results.
(D)Source: J.P. Morgan Cash Index is an unmanaged index based on the cash
returns of constant maturity euro-currency deposits.
^Reflects deduction of one-time-only $75 account opening fee.
This chart is for comparative purposes only and is not intended to reflect on
future performance of the index or the BSTGIF.
(over, please)
<PAGE>
further to fall as investors have yet to fully adjust to the fact that inflation
is turning out to be lower than they had feared. Because of this, we, as
managers of the portfolio, have decided to switch a vast majority of the Fund's
assets into U.S. dollar denominated bonds _ while maintaining an exposure to
European bonds (currently 30% of the Fund's total assets) in the core markets of
Germany and Holland.
There are some inflationary signs in Germany, but, as with the United
States, these signs are limited. Any indication that the economy is slowing in
Germany is likely to be well received by the bond markets and may exert a
negative effect on German inflation.
The Fund also has a small exposure to U.K. bonds, where we believe that
investors have underestimated the resolve of the Bank of England and the
government to control inflation.
A Look Ahead
Looking ahead, economic growth seems secure in most countries, although it
is likely to decelerate somewhat in the United States as 1995 progresses. While
past performance is no guarantee of future performance, the evidence so far
suggests that the disinflationary trends of the 1980s have been sufficiently
powerful to prevent a resurgence of inflation.
Assuming any eventual upturn in inflation is modest in scale, the prevailing
nominal bond yields throughout the world currently offer attractive value.
Nevertheless, central banks will need to remain vigilant in order to convince
investors that they will continue to take no risks with inflation.
On our part, we will continue to closely monitor global interest rate and
economic conditions, and, as warranted, make any necessary portfolio adjustments
in pursuit of maximum return at lowest risk.
Sincerely,
RM:ml Robert McHenry
Assistant Director
Lombard Odier International Portfolio Management Ltd.
Portfolio Managers of the Blanchard Short-Term Global Income Fund
Distributed by Sheffield Investments, Inc. (1551) 03ARSL0695
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND-PORTFOLIO OF INVESTMENTS
APRIL 30, 1995
(Left Column)
Principal Value
--------- -----
FOREIGN FIXED INCOME (26.34%)
GERMANY (7.10%)
GOVERNMENT/AGENCY (7.10%)
Allemagne
6.63%, 1/20/98 ..... Dem 17,500,000 $ 12,887,568
Treuhandanat
6.13%, 6/25/98 ..... 5,100,000 3,703,978
------------
TOTAL
GERMANY ........ 16,591,546
------------
NETHERLANDS (8.03%)
GOVERNMENT/AGENCY (8.03%)
Hollande
6.25%, 7/15/98 ..... Nlg 29,000,000 18,790,416
------------
UNITED KINGDOM (11.21%)
FINANCIAL SERVICES (5.99%)
Abbey National
7.75%, 6/23/98 ..... (PS)1,000,000 1,574,870
Abbey National
6.0%, 8/10/99 ...... 2,225,000 3,242,286
Bayerische
Hypotheken
7.0%, 12/21/98 ... 1,000,000 1,530,620
Halifax
7.75%, 12/03/98 .... 2,000,000 3,113,535
Leeds Permanent
7.38%, 5/06/98 ..... 830,000 1,285,440
Lloyds Bank
10.25%, 3/11/98 .... 1,000,000 1,665,379
National Providence
Building
8.25%, 11/04/98 .... 1,000,000 1,586,938
------------
13,999,068
------------
GOVERNMENT/AGENCY (5.22%)
United Kingdom
Treasury
7.0%, 11/06/01 ... (PS)8,140,000 12,217,760
------------
TOTAL
UNITED KINGDOM 26,216,828
------------
TOTAL FOREIGN
FIXED INCOME
(IDENTIFIED COST
$61,998,519) .... 61,598,790
------------
U.S. FIXED INCOME (65.15%)
AIRLINES (1.40%)
*United Airlines Inc.
Series A
10.67%, 5/01/04 ..... $3,000,000 3,268,370
------------
COMPUTERS & RELATED (2.79%)
Comdisco Inc.
7.25%, 4/15/98 ..... 5,000,000 4,998,800
Unisys Corp.
Sr. Note
9.75%, 9/15/96 ..... 1,000,000 1,026,446
Unisys Corp.
9.5%, 7/15/98 ...... 500,000 500,750
------------
6,525,996
------------
(Right Column)
Principal Value
--------- -----
CONSUMER RELATED (1.94%)
RJR Nabisco
8.75%, 8/15/05 ..... $ 2,000,000 $ 1,942,688
Valassis Inserts
9.38%, 3/15/99 ..... 2,500,000 2,592,003
------------
4,534,691
------------
ELECTRICAL UTILITIES (2.24%)
Long Island Lighting
7.3%, 7/15/99 ...... 2,750,000 2,603,736
Niagara Mohawk
Power Corp.
9.95%, 6/01/00 ..... 2,500,000 2,632,675
------------
5,236,411
------------
ENTERTAINMENT (2.27%)
Caesar's World Inc.
Sr. Sub Notes
8.88%, 8/15/02 ..... 2,000,000 2,065,000
Time Warner
Entertainment Co.
9.63%, 5/01/02 ..... 3,000,000 3,245,991
------------
5,310,991
------------
FINANCIAL SERVICES (33.40%)
Advanta MTC
Series 1995
7.82%, 8/25/03 ..... 5,000,000 4,996,875
CMC Securities Corp.
1993 7.5%,
02/25/23 ........... 3,211,457 3,193,376
Chrysler Financial MTN
7.44%, 10/20/97 .... 5,000,000 5,013,220
Contimortage 1995-1
8.75%, 4/15/07 ..... 5,802,456 5,894,933
Dean Witter
Discover & Co.
6.0%, 3/01/98 ...... 5,000,000 4,855,365
Discover Credit
Corp. MTN
7.76%, 5/13/97 ..... 10,275,000 10,394,180
Ford Motor
Credit Corp.
5.32%, 9/15/98 ..... 5,000,000 4,716,200
General Electric
Capital Mtg. 1992
7.5%, 11/25/18 ..... 5,686,741 5,681,406
General Motors
Acceptance Corp.
1993 B A
4.0%, 9/15/98 ...... 4,642,955 4,537,932
Groupe Videotron
10.63%, 2/15/05 .... 2,500,000 2,612,500
International Business
Machines Credit
7.4%, 1/19/96 ...... 6,000,000 6,035,352
Lehman Brothers
Hldg. MTN
8.63%, 2/26/99 ..... 5,000,000 5,104,805
Merrill Lynch Mtge.
Inv. 1990
9.2%, 1/15/11 ...... 2,470,391 2,566,465
3
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND-PORTFOLIO OF INVESTMENTS (continued)
APRIL 30, 1995
(Left Column)
Principal Value
--------- -----
(e)(D)New American Capital
7.69%, 7/12/95 ... $ 7,500,000 $ 7,500,000
Money Store
Series 1995-A
8.0%, 9/15/05 .... 4,962,460 4,999,679
------------
78,102,288
------------
GOVERNMENT/AGENCY (17.51%)
Government National
Mortgage
Association,
9.5%, 12/15/21 ..... 5,000,000 5,262,500
(b)Resolution Trust Corp.
5.33%, 9/25/21 ..... 6,795,834 6,583,465
(b)Resolution Trust Corp.
5.83%, 9/25/19 ..... 3,559,951 3,453,152
Resolution Trust Corp.
5.9%, 7/25/23 ...... 2,728,754 2,701,466
(b)Resolution Trust Corp.
5.97%, 5/25/21 ..... 2,106,119 2,042,936
(b)Resolution Trust Corp.
6.98%, 3/25/22 .. 2,093,821 2,088,586
(b)Resolution Trust Corp.
7.32%, 11/25/25 .... 2,340,164 2,305,062
Resolution Trust Corp.
7.75%, 12/25/18 .... 6,456,497 6,424,214
Resolution Trust Corp.
7.87%, 9/25/29 ..... 3,886,383 3,879,096
(b)Resolution Trust Corp.
8.15%, 1/25/21 ..... 3,931,403 3,975,631
(b)Resolution Trust Corp.
8.77%, 3/25/21 ..... 937,699 937,230
Resolution Trust Corp.
8.8%, 8/25/23 ...... 1,273,000 1,303,234
------------
40,956,572
------------
HOTELS (1.06%)
Embassy Suites
8.75%, 03/15/00 ..... 2,500,000 2,487,500
------------
INDUSTRY RELATED (1.81%)
Oryx Energy Co.
9.75%, 9/15/98 ...... 2,500,000 2,521,875
(c)USX Corp.
Subordinated
Debenture
5.75%, 7/01/01 ..... 2,000,000 1,725,000
------------
4,246,875
------------
(Right Column)
Principal Value
--------- -----
UTILITIES (.73%)
Arkla Inc.
8.88%, 7/15/99 ..... $ 1,650,000 $ 1,699,106
------------
TOTAL U.S.
FIXED INCOME
(IDENTIFIED COST
$151,395,894) ........ 152,368,800
------------
SHORT-TERM
SECURITIES (6.40%)
American Express
Credit Corp.
5.7%, 5/01/95 ........ 1,000,000 1,000,000
Salomon Inc
5.91%, 9/29/95 ....... 5,000,000 4,976,730
U.S. Treasury Bill
4.56%, 5/04/95 ....... 9,000,000 8,995,800
------------
TOTAL SHORT-TERM
SECURITIES
(IDENTIFIED
COST
$14,975,006) ......... 14,972,530
------------
OUTSTANDING OPTIONS
PURCHASED (0.03%)
PUT OPTIONS Contracts
---------
Euro$ Future
expiring 9/18/95
@ $93.50 (d) ......... 150 75,000
------------
TOTAL
OUTSTANDING
OPTIONS
PURCHASED
(IDENTIFIED
COST $72,376) ........ 75,000
------------
TOTAL
INVESTMENTS
(IDENTIFIED
COST
$228,441,795)(a)
(97.92%) ............. 229,015,120
CASH AND OTHER
ASSETS IN
EXCESS OF
LIABILITIES
(2.08%) .............. 4,854,328
------------
NET ASSETS
(100%) ............... $233,869,448
------------
*Securities partially segregated to collateralize forward currency contracts
and options. Total market value segregated is $1,089,457.
(D)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 $228,444,420; the gross
unrealized appreciation is $1,248,009; and the unrealized depreciation is
$676,863; resulting in net unrealized appreciation of $571,146.
(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%.
MTN = Medium Term Note
See notes to financial statements.
4
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND-PORTFOLIO OF INVESTMENTS (continued)
APRIL 30, 1995
Schedule of Open Forward Currency Contracts as of April 30, 1995
Unrealized
Currency Currency Appreciation
Sold Amount Purchased Amount Delivery Date (Depreciation)
Dem 27,281,492 Nlg 30,561,000 2-May-95 $(21,420)
Dem 20,246,000 Gbp 9,115,714 4-May-95 76,039
Dem 18,092,800 Itl 22,368,128,640 10-May-95 270,545
Itl 28,349,000,000 Dem 25,415,766 10-May-95 1,494,739
US$ 7,904,785 Jpy 778,400,000 10-May-95 1,371,578
US$ 10,000,000 Esp 1,289,950,000 10-May-95 471,053
US$ 24,600,661 Esp 3,075,082,650 10-May-95 385,791
-----------
Total Unrealized Appreciation $(4,091,165)
===========
Nlg 30,561,000 Dem 27,281,735 10-May-95 $ (21,246)
Gbp 7,490,400 US$ 11,879,774 10-May-95 (171,000)
US$ 10,000,000 Aud 13,747,594 10-May-95 (1,822)
US$ 15,000,000 Aud 20,270,270 10-May-95 (258,092)
US$ 9,785,787 Aud 13,241,931 10-May-95 (147,651)
Dem 48,433,000 US$ 34,643,997 10-May-95 (292,382)
Itl 29,710,219,600 US$ 17,099,407 10-May-95 (547,643)
Aud 45,976,000 US$ 33,333,979 10-May-95 (102,868)
Dem 29,903,730 Itl 31,967,087,370 10-May-95 (2,583,016)
Jpy 778,400,000 US$ 7,942,047 10-May-95 (1,334,316)
Esp 4,461,200,000 US$ 34,348,630 10-May-95 (1,864,761)
Gbp 9,170,090 Dem 20,246,000 4-Aug-95 (107,629)
-----------
Total Unrealized Depreciation $(7,432,426)
===========
Dem=Deutsche Marks Nlg=Dutch Guilders Esp=Spanish Pesetas
Itl=Italian Lira Gbp=British Pounds Aud= Australian Dollars
Jpy=Japanese Yen
Schedule of Foreign Currency Held as of April 30, 1995
Currency Held Cost Market Value
------------- ---- ------------
Australian Dollars 138,898 $ 101,097 $ 101,097
British Pounds 45 73 73
Deutsche Marks 1,101 793 793
Italian Lira 5,162,758,058 3,032,897 3,072,156
Spanish Pesetas 17,655,177 143,456 143,456
---------- ----------
$3,278,316 $3,317,575
========== ==========
See notes to financial statements.
5
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
(Left Column)
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995
Assets:
Investments in securities, at value (Identified
cost $228,441,795) (note 1) ................... $229,015,120
Cash ............................................ 2,426,706
Foreign currencies (Identified Cost
$3,278,316) ..................................... 3,317,575
Receivables for:
Investments sold .............................. 50,513,648
Shares of beneficial interest sold ............ 72,379
Interest ...................................... 3,600,873
Forward foreign currency contracts ............ 4,091,165
Deferred organizational expenses ............ 25,860
------------
Total assets ............................ 293,063,326
------------
Liabilities:
Payables for:
Shares of beneficial interest
repurchased ................................. 761,158
Investments purchased ......................... 50,456,095
Dividends ..................................... 184,269
Forward foreign currency contracts ............ 7,432,426
Accrued expenses and other liabilities .......... 359,930
------------
Total liabilities ....................... 59,193,878
------------
Net assets .............................. $233,869,448
============
Net assets are comprised of:
Paid in capital (unlimited authorized shares
of beneficial interest, $.01 par value,
141,135,916 shares outstanding) ............... $259,231,663
Accumulated overdistributed investment
income-net .................................... (12,018,933)
Accumulated realized loss-net ................... (10,744,046)
Unrealized net depreciation on investments,
forward foreign currency contracts,
options and net currency translation
adjustments ................................... (2,599,236)
------------
Net assets ...................................... $233,869,448
============
Net asset value per share ....................... $1.66
=====
(Right Column)
STATEMENT OF OPERATIONS
For the Year Ended April 30, 1995
Investment income:
Interest (net of foreign withholding
tax of $85,010) ................................. $27,791,428
-----------
Expenses:
Investment manage-
ment fee
(note 2) .............$ 2,811,067
Plan of distribution
fee (note 3) ......... 937,022
Transfer agent fees .... 779,000
Trustees' fees, retire-
ment plan curtail-
ment and other
expenses (note 5) .... 403,258
Custodian fees ......... 337,214
Accounting fees ........ 230,000
Professional fees ...... 168,029
Shareholder reports
and notices .......... 62,136
Organizational
expenses (note 1) .... 26,748
Registration fees ...... 26,500
Other .................. 16,293
-----------
Total expenses ..... 5,797,267
Less: Fund expenses
voluntarily waived
by the Manager and
Distributor .......... (182,085) 5,615,182
----------- -----------
Net investment income ........................... 22,176,246
-----------
Realized and unrealized
gain (loss) - net
(note 1):
Realized gain (loss) on:
Investments in
securities - net .......(10,489,372)
Futures transac-
tions - net ............ (521,197)
Forward currency
contracts and
foreign exchange
transactions - net .....(33,387,574) (44,398,143)
-----------
Change in unrealized
appreciation/
depreciation on:
Investments - net ...... 7,167,814
Forward currency
contracts, futures
transactions and
translation of other
assets and liabilities
denominated in
foreign currency - net ... 8,408,763 15,576,577
----------- -----------
Net realized and unrealized losses .................. (28,821,566)
-----------
Net decrease in net assets resulting from
operations ........................................ $(6,645,320)
===========
See notes to financial statements.
6
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
April 30, 1995 April 30, 1994
-------------- --------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Investment income - net $ 22,176,246 $ 41,432,828
Realized loss - net (44,398,143) (15,128,722)
Change in unrealized appreciation or depreciation - net 15,576,577 (4,248,674)
------------ ------------
Net increase (decrease) in net assets resulting from operations (6,645,320) 22,055,432
------------ ------------
Dividends and distributions to shareholders from:
Investment income - net - (3,616,387)
Tax return of capital (22,509,967) (37,657,313)
------------ ------------
(22,509,967) (41,273,700)
Transactions in shares of beneficial interest - net decrease
(note 6) (272,116,356) (144,823,458)
------------ ------------
Net decrease in net assets (301,271,643) (164,041,726)
Net assets:
Beginning of year 535,141,091 699,182,817
------------ ------------
End of year (including accumulated overdistributed net investment income of
$12,018,933 and $18,495,810, respectively) $233,869,448 $535,141,091
============ ============
</TABLE>
See notes to financial statements.
7
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
NOTE 1 - Organization and Accounting Policies:
Blanchard Short-Term Global Income Fund (the "Fund") is a series of
Blanchard Funds which was organized as a Massachusetts business trust on January
24, 1986. The Fund is a registered, open-end non-diversified management
investment company under the Investment Company Act of 1940, as amended ("the
Act"). The Fund had no operations before January 8, 1991 other than the sale of
shares of beneficial interest to four parties who are also shareholders of
Sheffield Management Company (the "Manager").
The following is a summary of the significant accounting policies followed
by the Fund:
A. Valuation of Investments-Portfolio securities traded on domestic or
foreign exchanges are valued at the 4 PM EST price on that date, or if no sale
is made on that day, at the closing bid price (or the mean price in cases where
a mean is reported instead of the closing bid). In cases where a security is
traded on more than one exchange, it is valued at the quotation on the exchange
determined to be the primary market for such security by the Trustees or the
Manager. All other portfolio securities for which over-the-counter market
quotations are readily available are valued at the latest available bid prices.
Short-term debt securities which mature in 60 days or less are valued at
amortized cost if their original maturity was 60 days or less. Short-term debt
securities having a maturity date of more than sixty days at the time of
purchase are valued on a mark to market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day. All other
securities and other assets of the Fund are valued at fair value as determined
in good faith by the Trustees. Foreign currency exchange rates are determined
when such rates are made available to the Fund at times prior to the close of
the New York Stock Exchange. The abilities of the issuers of debt securities
held by the Fund to meet their obligations may be affected by economic or
political developments in a particular country.
B. Accounting for Investments-Security transactions are accounted for on the
trade date (date the buy or sell order is executed). Realized gains and losses
on security transactions are determined on the identified cost method. Interest
income is accrued daily. Premiums or discounts on debt securities are amortized
or accreted as adjustments to interest income over the lives of such securities.
C. Foreign Currency Contracts & Translation-The books and records of the
Fund are maintained in U.S. dollars as follows: (1) the foreign currency market
value of investment securities, forward currency contracts, and other assets and
liabilities denominated in foreign currencies are translated at the exchange
rates at the end of the period; and (2) purchases, sales, income and expenses
are translated at the rates of exchange prevailing on the respective dates of
such transactions. The Fund does not separately identify that portion of the
results of operations of the Fund that arise as a result of changes in the
exchange rates from the fluctuations that arise from changes in market prices of
equity investments during the year. However, in accordance with the requirements
of the Internal Revenue Code, the Fund isolates the effect of changes in foreign
exchange rates from the fluctuations arising from changes in market prices of
foreign debt obligations sold, and such net foreign exchange gains, which
amounted to $2,904,998, are included in ordinary income for federal income tax
purposes and in realized gain (loss) on forward currency contracts and foreign
exchange transactions-net in the Statement of Operations.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin
as a result of, among other factors, level of governmental supervision and
regulation of foreign securities markets and the possibility of political or
economic instability.
8
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund may enter into forward currency contracts to protect the U.S.
dollar value of securities and related receivables and payables against changes
in future exchange rates. Forward currency contracts are valued based upon the
current forward rates. Fluctuations in the value of such contracts are recorded
as unrealized gains or losses; realized gains or losses include net gains or
losses on contracts which have settled. The Fund generally enters into a forward
currency contract as a hedge against foreign exchange rate fluctuation, upon the
purchase or sale of a security denominated in a foreign currency. The Fund
maintains, as collateral, U.S. Government or other highly liquid debt
obligations in an amount equal to or greater than its net obligation for forward
currency contracts. The Fund bears the risk of an unfavorable change in the
foreign exchange rate underlying the forward contracts. Risks may also arise as
a result of the potential inability of the counterparties to meet the terms of
their contracts. Forward contracts involve elements of market risk in excess of
the amount reflected in the Statement of Assets and Liabilities.
D. Futures Contracts-A futures contract is an agreement between two parties
to buy and sell a security at a set price on a future date. Upon entering into
such a contract the Fund is required to pledge to the broker an amount of cash
equal to the minimum "initial margin" requirement of the exchange on which the
futures contract is traded. The contract amount reflects the extent of the
Fund's exposure in these financial instruments. The Fund invests in futures
contracts in order to hedge its existing portfolio securities against
fluctuations in value caused by changes in prevailing interest rates. The Fund's
participation in the futures markets involves certain risks, including the
potential inability of the contract party to meet the terms of the contracts,
imperfect correlation between movements in the price of futures contracts and
movements in the price of securities hedged or used for cover. Should interest
rates move unexpectedly, the Fund may not achieve the anticipated benefits of
the futures contracts and may realize a loss. Pursuant to a contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the Fund as unrealized appreciation or
depreciation. The Fund maintains, as collateral, U.S. Government or other highly
liquid debt obligations in an amount equal to or greater than its potential loss
on futures contracts. When a contract is closed, the Fund records a realized
gain or loss equal to the difference between the value of the contract at the
time it was opened and the value at the time it was closed.
E. Option Writing-When the Fund writes an option, an amount equal to the
premium received by the Fund is recorded as a liability and is subsequently
adjusted to the current market value of the option written. Premiums received
from writing options which expire unexercised are treated by the Fund on the
expiration date as realized gains. The difference between the premium and the
amount paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium is less than
the amount paid for the closing purchase transaction, as a realized loss. If a
call option is exercised, the premium is added to the proceeds from the sale of
the underlying security or currency in determining whether the Fund has realized
a gain or loss. If a put option is exercised, the premium reduces the cost basis
of the securities or currencies purchased by the Fund. The Fund as writer of an
option may have no control over whether the underlying securities or currencies
may be sold (called) or purchased (put) and as a result bears the market risk of
an unfavorable change in the price of the security or currency underlying the
written option.
F. Federal Income Tax Status-It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, no federal income tax provision is required.
9
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
G. Dividends and Distributions to Shareholders-The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in capital.
H. Organizational Expenses-The Fund's Manager paid the organizational
expenses of the Fund incurred prior to the public offering of its shares
amounting to approximately $133,706. The Fund has reimbursed the Manager for
such expenses and deferred and is amortizing such expenses over five years from
the date of commencement of the Fund's operations.
I. Other-Certain expenses of the Blanchard Funds are allocated among the
funds based upon their relative average net assets.
NOTE 2 - Investment Management Agreement:
Pursuant to a management agreement (the "Agreement"), the Manager manages
the Fund and the investment of the Fund's assets, subject at all times to the
supervision of the Fund's Trustees. In addition to providing overall business
management and administrative services, the Manager selects, monitors and
evaluates the Portfolio Adviser described below. The Manager receives from the
Fund an advisory fee payable monthly at an annual rate of .75% of the Fund's
average daily net assets.
Expenses of the Fund, exclusive of taxes, interest, brokerage commissions,
distribution fees, extraordinary expenses and certain other excludable expenses,
are subject to the expense limitation imposed by one of the states in which
shares of the Fund are offered for sale. For the year ended April 30, 1995, the
Fund's expenses did not exceed the above limitation.
Certain officers and/or Trustees of the Fund are officers/directors of the
Manager.
The Manager has a sub-advisory agreement with Lombard Odier International
Portfolio Management Limited (the "Portfolio Adviser"). The Manager has advised
the Fund that the amount of fees paid to the Portfolio Adviser was $612,384 for
the year ended April 30, 1995. The Manager and Distributor voluntarily waived a
portion of the advisory and distribution fee, which amounted to $146,844 and
$35,241, respectively, for the year ended April 30, 1995.
NOTE 3 - Distribution Agreement and Plan:
Pursuant to a Distribution Agreement, Sheffield Investments, Inc. (the
"Distributor"), an affiliated company of the Manager, acts as principal
distributor of the Fund's shares. The Distributor has the exclusive right to
distribute Fund shares directly or through other broker-dealers.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act which provides that the Fund may finance activities which are
primarily intended to result in the sale of the Fund's shares,
10
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
including but not limited to advertising, printing of prospectuses and reports
for other than existing shareholders, preparation and distribution of
advertising material and sales literature, and payments to dealer and
shareholder servicing agents who enter into agreements with the Manager or
Distributor.
Pursuant to the Plan, the Fund may pay distribution fees not to exceed .25%
per annum of the Fund's average daily net assets. Provided that the Plan
continues in effect, any cumulative expenses incurred by the Distributor, but
not yet reimbursed by the Fund, may be reimbursed through future distribution
fees from the Fund. The Distributor has advised the Fund that at April 30, 1995,
the unreimbursed distribution expenses amounted to $497,152. If the Plan is
terminated or discontinued in accordance with its terms, the obligation of the
Fund to make payments to the Distributor pursuant to the Plan will cease and the
Fund will not be required to make any payments past the date the Plan is
terminated.
NOTE 4 - Acquisition Agreement:
Sheffield Management Company (the "Manager") and Sheffield Investments, Inc.
(the "Distributor"), have entered into an acquisition agreement (the
"Acquisition Agreement") with Signet Banking Corporation and two of its
subsidiaries("Signet"), dated February 15, 1995, pursuant to which Sheffield
will sell to Signet assets relating to, and the ability to succeed to contracts
with, the Blanchard Funds, including Blanchard Short-Term Global Income Fund
(collectively, the "Funds"). The transactions contemplated by the Acquisition
Agreement which have been approved by the Board of Trustees of the Funds are
conditioned upon the approval of the shareholders of each Fund, of (1) a new
investment management agreement with Signet, (2) a new distribution agreement
with Federated Securities Corp., and (3) certain other conditions.
No material changes are contemplated in the operation of the Funds and no
management or distribution and administration fee increases are being proposed.
NOTE 5 - Security Transactions and Transactions with Affiliates:
Purchases and sales of portfolio securities of the year ended April 30,
1995, excluding short-term investments with maturities of less than one year at
the time of purchase, aggregated $652,051,381 and $719,145,194, respectively,
including purchases and sales of U.S. Government obligations of $66,275,242 and
$5,226,497, respectively. The Distributor has advised the Fund that it received
$11,700 from shareholders as account opening fees for the year ended April 30,
1995. The Manager has advised the Fund that, for the same period, it incurred
costs amounting to $195,996, which were reimbursed by the Fund, for performing
internal accounting and transfer agency functions for the Fund.
Transactions in options written during the year ended April 30, 1995, were
as follows:
<TABLE>
<CAPTION>
Number of Premiums
Contracts Received
--------- --------
<S> <C> <C>
Written options outstanding at April 30, 1994 ....................... 601 $ 304,257
Options written ..................................................... 2,155 893,630
Options expired or terminated in closing purchase transactions ...... (2,756) (1,197,887)
------ ----------
Options outstanding at April 30, 1995 ............................... 0 $ 0
====== ==========
</TABLE>
11
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
The Funds have adopted an unfunded noncontributory pension plan (the "Plan")
covering all independent directors/trustees of the Funds who will have served as
an independent director/trustee for at least five years at the time of
retirement. Benefits under this plan are based on an annual amount equal to 75%
of the director/trustee fee at the time of retirement, plus 5% for each year of
service in excess of five years of service but not in excess of ten years of
service. Net periodic pension expenses included in Trustees' fees, retirement
plan curtailment and other expenses in the Statement of Operations for the year
ended April 30, 1995 was $73,214. As indicated in Note 4, the Manager has
entered into an agreement which provides for the acquisition of the Manager by
Signet. Following the acquisition, the independent directors/trustees of the
Funds will not stand for re-election. As a result, the Plan was curtailed and
additional pension expense of $277,539 was recorded to reflect the previously
unrecognized prior service costs of the independent directors/trustees. Included
in accrued expenses and other liabilities at April 30, 1995 is $350,753 of
accrued pension expense.
NOTE 6 - Shares of Beneficial Interest:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
April 30, 1995 April 30, 1994
-------------- --------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sold ...................... 46,167,838 $ 80,352,297 160,419,084 (298,532,697
Reinvestment of dividends . 10,834,258 18,687,481 20,537,136 38,161,388
------------ ------------- ----------- -------------
57,002,096 99,039,778 180,956,220 336,694,085
Repurchased ............... (214,657,986) (371,156,134) (259,498,407) (481,517,543)
------------ ------------- ----------- -------------
Net decrease .............. (157,655,890) $(272,116,356) (78,542,187) $(144,823,458)
============ ============= =========== =============
</TABLE>
NOTE 7 - Federal Income Taxes
Capital and foreign currency losses incurred after October 31 ("post-October
losses") within the taxable year are deemed to arise on the first business day
of the Fund's next taxable year. The Fund incurred and will elect to defer net
capital and foreign currency losses of approximately $3,036,000 and $13,924,000,
respectively during fiscal 1995.
As of April 30, 1995, the Fund had temporary book/tax differences primarily
attributable to post-October loss deferrals and non-deductible expenses. The
Fund had permanent book/tax differences primarily attributable to foreign
currency losses. To reflect reclassifications arising from permanent book/tax
differences for the year ended April 30, 1995, paid-in-capital was charged
$40,341,564, accumulated realized loss-net was credited $33,530,966 and
accumulated overdistributed investment income-net was credited $6,810,598.
At April 30, 1995 the Fund had a net capital loss carryover of $7,705,131
which is available through April 30, 2003 to offset future capital gains. To the
extent that these carryover losses are used to offset future capital gains, it
is probable that the gains so offset will not be distributed to shareholders.
12
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS (continued)
NOTE 8 - Financial Highlights:
Selected ratios and per share data for a share of beneficial interest
outstanding:
<TABLE>
<CAPTION>
For the Period
January 8,
1991*
For the Year Ended April 30, through
1995 1994 1993 1992 April 30, 1991
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period . $1.79 $1.85 $1.89 $1.95 $1.97
Income from investment operations:
Net investment income .............. .10(D) .12 .13 .17 .06
Net gains or losses on investments
(both realized and unrealized) ... (.07)(D) (.06) (.04) (.06) (.02)
Net income (loss)
from investment operations ... (.03) .06 .09 .11 .04
Less dividends and distributions:
Dividends from investment
income - net ..................... -- (.01) (.13) (.17) (.06)
Tax return of capital .............. (.10) (.11) .00 .00 .00
Change in net asset value ...... (.13) (.06) (.04) (.06) (.02)
Net asset value, end of period ....... $1.66 $1.79 $1.85 $1.89 $1.95
Total return .........................(1.45%) 3.12% 4.94% 5.85% 2.15%(3)
Ratios/Supplemental Data:
Net assets, end of period
($ Millions) ....................... $234 $535 $699 $1,241 $230
Ratio of expenses to average
net assets ......................... 1.51%(2) 1.44% 1.44%(2) 1.32%(2) .38%(1)(2)
Ratio of net investment income to
average net assets ................. 5.95%(2) 6.41% 6.97%(2) 8.50%(2) 11.30%(1)(2)
Portfolio turnover ................... 386% 327% 610% 412% 63%
</TABLE>
- ------------
*Commencement of operations.
(1)Annualized.
(2)The ratios of expenses to average net assets and net investment income to
average net assets would have been 1.56% and 5.90%, respectively, for the
year ended April 30, 1995, unchanged for the year ended April 30, 1993, 1.41%
and 8.41%, respectively, for the year ended April 30,1992 and 2.23% and
9.45%, respectively, for the period ended April 30, 1991 if the management
and distribution fees had not been waived and with respect to the period
ended April 30, 1991, other expenses had not been borne by the Manager.
(3)Not annualized.
(D)Calculated based on average shares outstanding.
13
<PAGE>
BLANCHARD SHORT-TERM GLOBAL INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
Blanchard Short-Term Global Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Blanchard Short-Term Global Income
Fund (the "Fund") at April 30, 1995, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the four years in the
period then ended and for the period January 8, 1991 (commencement of
operations) through April 30, 1991, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statement based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at April 30, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
June 20, 1995
14
<PAGE>
(Left Column)
Portfolio Advisers
Lombard Odier International
Portfolio Mgt. Ltd.
WLO Global Management
Custodian and Transfer Agent
United States Trust Company
of New York
Independent Accountants
Price Waterhouse LLP
Legal Counsel
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
Blanchard Short-Term
Global Income Fund
41 Madison Ave., 24th Floor
New York, NY 10010-2267
(Right Column)
Blanchard
Short-Term
Global Income
Fund
Annual Report
April 30, 1995
Managed by: Sheffield Management Company
41 Madison Ave., 24th Floor
New York, NY 10010-2267
1-800-922-7771
