SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. )
------
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BLANCHARD FUNDS
(Name of Registrant as Specified In Its Charter)
Federated Investors
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X ] Fee paid previously with preliminary proxy materials.
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LOGO
BLANCHARD GROUP OF FUNDS
Very Important
ENCLOSED IS AN IMPORTANT PROXY STATEMENT AND PROXY VOTE CARD.
THEY CONCERN THE PENDING CHANGE OF PORTFOLIO ADVISERS FOR YOUR BLANCHARD
GLOBAL GROWTH 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'm writing you today to inform you of recommended changes which affect your
Blanchard Global Growth Fund.
X Namely, the Board of Trustees has unanimously recommended that Mellon
Capital Management Corporation (MCM) become the new portfolio adviser of
your BLANCHARD GLOBAL GROWTH FUND. In addition, the Board has recommended a
change to certain of the Fund's policies to enhance investment
efficiencies.
CONSISTENT PAST PERFORMANCE
The reason for the proposed changes can be best summed up as follows: After
careful review, the Board has decided to recommend MCM because of the
consistency of their long-term performance in the area of global investing, as
well as the stability and quality of the organization and the individuals who
make up MCM's investment team.
MCM manages over $40 billion for investment companies and private account
clients.
X The Board considered the fact that MCM manages the EB Global Tactical Asset
Allocation Fund with similar investment objectives as the Blanchard Global
Growth Fund, and has achieved consistently higher average annual returns
since its inception in August of 1991 than those of the Blanchard Global
Growth Fund.
These consistent returns stem from MCM's investment philosophy and process.
The Board believes that the stability in the MCM organization creates a high
likelihood of extending their favorable record into the future, although past
performance is not a guarantee of future performance.
INCREASED EFFICIENCY
As the portfolio manager for the Blanchard Global Growth Fund, MCM will
replace all of the existing sub-advisers to the Fund.
To pursue the Fund's investment objective, MCM will employ portfolio
strategies somewhat different than those currently employed. Here is a brief
review of these recommended strategies:
X MCM will continue to allocate the Fund's assets among the six strategic
investment sectors described in the Fund's current prospectus. The same
maximum percentages set forth in the prospectus for sector allocations will
apply, except that the maximum percentage which could be allocated to the
precious metals securities sector will decrease from 65% to 25%.
X MCM will allocate assets among sectors and make investment selections for
each of the sectors. By combining the allocation and investment selection
processes, MCM seeks to eliminate certain investment inefficiencies that
resulted from the inability of the current sector managers to anticipate
the percentage of Fund assets which the global allocation strategist would
allocate to their respective sectors.
MORE ON MCM'S HIGHLY-DISCIPLINED ASSET ALLOCATION STRATEGY
Once MCM determines the expected return and volatility (risk) potential for
each of the Fund's equity and fixed income sectors, they will attempt to
overweight assets in those sectors which appear undervalued. In this way, they
hope to enhance the Fund's overall return. They will use the following
guidelines when making their investment selections in each sector:
X U.S. EQUITIES. Invest in a diversified portfolio of U.S. common stocks
selected to parallel the performance of the S&P 500 Index.
X U.S. FIXED INCOME. Invest in a diversified portfolio of U.S. fixed income
obligations rated Aa by Moody's or AA by Standard & Poor's, and selected to
parallel the performance of the Lehman Long-Term Treasury Index.
X FOREIGN EQUITIES. Invest in a diversified portfolio of common stocks
selected to parallel the performance of individual country segments of the
Morgan Stanley Index.
X FOREIGN FIXED INCOME. Invest in a diversified portfolio of Foreign
Government fixed income obligations which seeks to track the individual
country segments of the Salomon Brothers World Government (5+) Bond Index.
MCM may also invest Fund assets in the Precious Metals Securities sector and
the Emerging Markets sector to further diversify portfolio holdings, protect
against increases in inflation and enhance overall return. With respect to all
sectors, MCM may utilize stock and bond futures and options, currency hedging,
and other investment techniques as described in the current prospectus and
statement of additional information.
THE BOARD OF TRUSTEES RECOMMENDS VOTING "FOR" THESE CHANGES
The Board of Trustees has unanimously voted to recommend that you vote "FOR"
the change in portfolio adviser for the Blanchard Global Growth Fund because
of MCM's consistent past performance and the quality of their organization, as
well as the potential for greater investment efficiencies.
X 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 THE PROPOSED CHANGES.
If the proxy is approved, MCM will become the manager of your Blanchard
Global Growth Fund effective May 24, 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, if you can,
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 contain more complete details on investment objectives,
management fees, risks and expenses of your Blanchard Global Growth Fund.
If you have questions on the voting process, or on the proposed change of
portfolio managers, 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 on any business day.
Thank you for taking the time to read this important letter. We hope to
receive your proxy vote soon.
Sincerely,
THE BLANCHARD GROUP OF FUNDS
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 any Federal Agency. In addition, they involve risk, including
possible loss of principal invested.
DISTRIBUTED BY FEDERATED SECURITIES CORP.
LOGO
BLANCHARD FUNDS
FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779
BLANCHARD GLOBAL GROWTH FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD MAY 24, 1996
A Special Meeting of the shareholders of Blanchard Global Growth Fund, a
portfolio of the Blanchard Funds, will be held at the Trust's principal
offices at Federated Investors Tower, 19th Floor, Pittsburgh, Pennsylvania
15222-3779, at 2:00 p.m. May 24, 1996, for the following purposes:
(1) To approve a new sub-advisory contract between Virtus Capital
Management, Inc. and Mellon Capital Management Corporation, a Delaware
corporation, with regard to Blanchard Global Growth Fund;
(2) To approve an amendment to Blanchard Global Growth Fund's fundamental
investment restriction concerning commodities;
(3) To approve an amendment to Blanchard Global Growth Fund's fundamental
investment restriction concerning buying on margin; and
(4) To transact such further business as may properly come before the
meeting or any adjournment thereof.
The Board of Trustees has fixed March 26, 1996, as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Trustees
John W. McGonigle
Secretary
Dated: April 9, 1996
SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY TO AVOID ADDITIONAL EXPENSE
YOU CAN HELP THE TRUST AVOID THE NECESSITY OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE UNABLE
TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE SPECIAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
LOGO
BLANCHARD FUNDS
FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Trustees (the
"Board") of Blanchard Funds (the "Trust"), with respect to Blanchard Global
Growth Fund (the "Fund"). The proxy is revocable at any time before it is
voted by sending written notice of the revocation to the Trust, attention
Secretary, or by appearing personally at the special meeting of shareholders
("Special Meeting"). The cost of preparing and mailing the notice of meeting,
proxy card, this proxy statement and any additional proxy materials has been
or is to be borne by the Trust. Proxy solicitations will be made primarily by
mail, but may also be made by telephone, telegraph, or personal interview
conducted by certain officers or employees of the Trust, of Virtus Capital
Management, Inc. ("VCM") (the Trust's adviser), of Federated Services Company
(the Trust's transfer agent), or of Federated Administrative Services (the
Trust's administrator). In the event that the shareholder signs, dates and
returns the proxy ballot but does not indicate a choice, the proxy attorneys
will vote those shares in favor of the proposal.
On March 26, 1996, the Fund had outstanding 6,311,234 shares of beneficial
interest, each share being entitled to one vote. Only shareholders of record
at the close of business on that date will be entitled to notice of and vote
at the Special Meeting. A majority of the outstanding shares of the Fund,
represented in person or by proxy, shall be required to constitute a quorum at
the Special Meeting.
The favorable vote of a majority, as defined in the Investment Company Act
of 1940, of the outstanding voting securities of the Fund is required for the
approval of the proposals to approve a new sub-advisory contract between VCM
and Mellon Capital Management Corporation with regard to the Fund and to
approve amendments to Blanchard Global Growth Fund's fundamental investment
restrictions concerning commodities and buying on margin. The vote of the
holders of a majority (as so defined) of outstanding securities means (a) the
vote of the holders of 67% or more of the shares present at the meeting, if
the holders of more than 50% of the outstanding voting shares of the Fund are
present or represented by proxy, or (b) the vote of the holders of more than
50% of the outstanding shares whichever is less. If a shareholder abstains
from voting as to any matter, then the shares held by such shareholder shall
be deemed present at the Special Meeting for the purposes of determining a
quorum and for purposes of calculating the vote with respect to such matter,
but shall not be deemed to have been voted in favor of such matter.
The Trust will provide, without charge and upon oral or written request, to
each shareholder of the Fund, a copy of the Fund's annual report for the
fiscal year ended April 30, 1995 and its semi-annual report for the sixth
months ended October 31, 1995. Written or telephone requests for such
documents should be directed to Signet Financial Services, Inc., 41 Madison
Avenue, 24th Floor, New York, NY 10010, telephone 1-800-829-3863. The Board
proposes to mail the enclosed notice of meeting, proxy card and this proxy
statement on or about April 9, 1996.
NEW SUB-ADVISORY CONTRACT
BACKGROUND
Currently, the Portfolio Advisers of the Fund are: Shufro Rose & Ehrman
("Shufro"), manager of the U.S. Equities Sector; Fiduciary International, Inc.
("Fiduciary"), manager of the Foreign Equities and Foreign Fixed Income
Sectors; Investment Advisers, Inc. ("IAI"), manager of the U.S. Fixed Income
Sector; Cavelti Capital Management, Ltd. ("Cavelti"), manager of the Precious
Metals Securities and Bullion Sector; and Martin Currie, Inc. ("Currie"),
manager of the Emerging Markets Sector (collectively, the "Current Advisers").
In addition, Fiduciary currently is Global Allocation Strategist of the Fund,
responsible for determining what percentage of the Fund's total assets are to
be allocated into the individual Sectors within the maximum percentages set
forth in the Fund's prospectus.
Virtus Capital Management, Inc. ("VCM"), which on July 12, 1995 succeeded to
the business and assets of Sheffield Management Co. ("Sheffield"), is
responsible for overseeing the Portfolio Advisers for all of the portfolios
(the "Funds") of the Trust. VCM's ongoing responsibilities include: (i)
providing or arranging for investment research and supervision of the
investments of the Funds; (ii) selecting and evaluating the performance of the
Funds' Portfolio Advisers (if any); (iii) selecting and evaluating the
performance of the Funds' administrator; and (iv) conducting or arranging for
a continuous program of appropriate sale or other distribution and
reinvestment of a Fund's assets. In addition, VCM is responsible for
ultimately recommending to the Board whether Portfolio Advisers' contracts
should be renewed, modified or terminated. VCM provides reports to the Board
regarding the results of its evaluation and monitoring functions.
Upon succeeding Sheffield as Manager of the Funds, VCM conducted a review of
the investment objectives and strategies of the Funds. In November, 1995, VCM,
as a result of such review, reported to the Board of the Trust that it
recommended that the sub-advisory agreements between VCM and each of the
Current Advisers of the Fund be terminated and that a new sub-advisory
agreement be entered into with Mellon Capital Management Corporation ("MCM"),
as Portfolio Adviser.
In selecting MCM as the new Portfolio Adviser for the Fund, the Board
considered many factors. The most important of these factors was the
consistency of MCM's long-term performance in the area of global investing and
the stability and quality of the organization as well as the individuals that
make up MCM's investment team. In selecting MCM, the Board recognized that MCM
also manages approximately $2.4 billion for private account clients. The Board
also considered the fact that the EB Global Tactical Asset Allocation Fund and
EB Global Tactical Asset Allocation II Fund, which have investment objectives
similar to those of the Fund, have since inception performed well relative to
their designated benchmarks. These consistent returns stem from MCM's
investment philosophy and process. Also, the Board believed that stability in
the MCM organization creates a high likelihood of extending their favorable
record into the future.
The Board was informed by MCM that the portfolio manager for the Fund would
be Charles J. Jacklin. Mr. Jacklin manages and develops global asset
allocation strategies, and develops and implements MCM's value-added
investment strategies. Prior to joining MCM, he served on the finance
faculties of the Stanford University and University of Chicago Schools of
Business. Mr. Jacklin has also served as Senior Staff Economist for Financial
Markets and Banking for the President's Council of Economic Advisers, and had
primary responsibility for all matters related to financial markets and
banking. He has published a number of articles on finance and investment in
academic research journals, and is an associate editor for the Review of
Quantitative Finance and Accounting. Mr. Jacklin holds a Ph.D. in Finance from
Stanford University.
The terms of the New Sub-Advisory Contract are summarized below.
NEW SUB-ADVISORY CONTRACT
A copy of the New Sub-Advisory Contract is attached as Exhibit 1. It is
substantially similar to the forms of sub-advisory contracts currently in
effect with respect to the Current Advisers.
Under the terms of the New Sub-Advisory Contract, subject to the supervision
of MCM and the Trust's Board, MCM will (i) manage the Fund's assets in
accordance with the Fund's objective, policies and limitations as stated in
the Trust's Prospectus and Statement of Additional Information; (ii) make
investment decisions for the Fund; and (iii) place orders to purchase and sell
securities.
The New Sub-Advisory Contract provides that MCM shall pay all expenses
incurred by it and its staff in connection with the performance of its
services under the New Sub-Advisory Contract, including the payment of
salaries of all officers and employees who are employed by it. VCM will pay
MCM an annual fee not to exceed .375% of the Fund's average daily net assets
up to $100 million; .35% on net assets between $100 million and $150 million;
and .325% on net assets in excess of $150 million. The maximum annual
aggregate of fees payable to the Current Advisers, as a group, equals
approximately .38% of average daily net assets of the Fund. (The Trust pays
VCM an annual fee not to exceed 1.00% of the Fund's average daily net assets
up to $150 million; .875% on net assets between $150 million and $300 million;
and .75% on net assets in excess of $300 million.)
The New Sub-Advisory Contract provides that MCM shall not be liable for any
error of judgment or mistake of law or for any loss suffered by VCM or the
Trust in connection with the matters to which the New Sub-Advisory Contract
relates, provided that nothing in the New Sub-Advisory Contract shall be
deemed to protect or purport to protect MCM against any liability to VCM or
the Trust to which MCM would otherwise be subject by reason of willful
malfeasance, bad faith or gross negligence on its part in the performance of
its duties or by reason of MCM's reckless disregard of its obligation and
duties under the New Sub-Advisory Contract.
The New Sub-Advisory Contract will continue in effect for two years from the
date of its execution, unless terminated, and may be continued from year to
year thereafter by a majority of the Trustees, including a majority of the
Trustees who are not interested Trustees. The New Sub-Advisory Contract would
take effect upon the obtaining of shareholder approval.
The Board, including the disinterested Trustees, has concluded that entry by
the Fund into the New Sub-Advisory Contract would be in the best interest of
the Fund and the Fund's shareholders.
The Board, including the disinterested Trustees, unanimously approved the New
Sub-Advisory Contract for the Fund and recommended such contract for approval
of the shareholders of the Fund at the meeting.
If the Sub-Advisory Contract is not approved by the Fund's shareholders, the
current agreements will continue in effect pending further consideration by
the Fund's Board at the first Board meeting subsequent to the shareholder
meeting, of such further action as they may deem to be in the best interests
of the shareholders of the Fund.
MELLON CAPITAL MANAGEMENT CORPORATION
MCM, established in 1983, provides investment advisory services to
investment companies, pension plans, foundations, endowments and other
institutions located both in the U.S. and abroad. As of September 30, 1995,
MCM had over $40 billion of assets under management. MCM, a wholly owned
indirect subsidiary of Mellon Bank Corporation, is located at 595 Market
Street, Suite 3000, San Francisco, California 94105.
MCM also serves as investment adviser to the Vanguard Asset Allocation Fund.
The net assets of such investment company were $1,791,040,290 as of December
31, 1995. MCM receives a basic investment advisory fee from the Vanguard Asset
Allocation Fund at an annual rate equal to .20% of such Fund's average daily
net assets up to $100 million; and .15% on net assets in excess of $100
million, plus or minus an amount based on the performance of such Fund.
The principal executive officer and directors of MCM are listed below.
Unless otherwise indicated, the business address of each such individual is
595 Market Street, Suite 3000, San Francisco, California 94105.
<TABLE>
<CAPTION>
POSITION
NAME WITH MCM OTHER PRINCIPAL OCCUPATION
---- -------- --------------------------
<C> <C> <S>
William L. Shouse Director Officer of Mellon Bank, N.A.
Thomas F. Loeb Director, Chairman Officer of Mellon Bank, N.A.
and Chief
Executive
Officer
Robert M. Boyles Director, Officer of Mellon Bank, N.A.
President
and Chief
Operating
Officer
Philip R. Roberts Director Executive Vice President of
Mellon Bank, N.A. Mellon Bank, N.A.; Executive
One Mellon Bank Center, Vice President of the Boston
40th Floor Company, Inc.; Executive Vice
Pittsburgh, Pennsylvania President of Boston Safe
15258 Deposit & Trust Co.
</TABLE>
<TABLE>
<CAPTION>
POSITION
NAME WITH MCM OTHER PRINCIPAL OCCUPATION
---- -------- --------------------------
<C> <C> <S>
W. Keith Smith Director Director, Chairman and Chief
Mellon Bank, N.A. Executive Officer of Boston
One Mellon Bank Center, Safe Deposit and Trust
40th Floor Company; Chairman and Chief
Pittsburgh, Pennsylvania Executive Officer of The
15258 Boston Company, Inc.; Director
and Vice-Chairman of Mellon
Bank Corporation; Director and
Vice-Chairman of Mellon Bank,
N.A.; Director and Vice-
Chairman of The Dreyfus
Corporation.
Christopher M. Condron Director Director, President and Chief
The Boston Company Operating Officer of the
One Boston Place, #024-014A Dreyfus Corporation; Chairman,
Boston, Massachusetts 02108 Chief Executive Officer and
Director of the Boston Company
Asset Management, Inc.; Vice
Chairman of Mellon Bank
Corporation; Vice Chairman and
Director of The Boston
Company, Inc.; President and
Director of Boston Safe
Deposit and Trust Company.
Thomas B. Hazuka Executive Vice Officer of Mellon Bank, N.A.
President and
Chief Investment
Officer
Brenda J. Oakley Executive Vice Officer of Mellon Bank, N.A.
President and
Chief Investment
Officer
Mary C. Shovsi Executive Vice Officer of Mellon Bank, N.A.
President
</TABLE>
CHANGES IN THE FUND'S PORTFOLIO STRATEGIES
If MCM is named sole Portfolio Adviser for the Fund to replace the five
Current Advisers and the Global Allocation Strategist, the Fund will seek to
achieve its investment objective by employing portfolio strategies somewhat
different than those currently employed.
MCM would continue to allocate the Fund's assets among the six strategic
investment sectors described in the Fund's current prospectus, and in the same
maximum and minimum percentages set forth in the prospectus, except that the
maximum percentage which could be allocated to the Precious Metals Securities
and Bullion Sector would decrease to 25% from 65% and the name of such Sector
will be changed to the "Precious Metals Securities Sector" to reflect the fact
that assets allocated to that Sector will no longer be invested in bullion,
but will only be invested in Precious Metals Securities
(as that term is defined in the Fund's current prospectus). Accordingly,
following would be the maximum percentage of total assets of the Fund which
could be invested in each Sector (the Fund may have zero percent allocated to
any Sector when MCM deems it appropriate): U.S. Equities, Foreign Equities,
U.S. Fixed Income and Foreign Fixed Income Sectors, 65%; Precious Metals
Securities Sector, 25%; and Emerging Markets Sector, 15%.
Currently, each sector of the Fund is managed by a Sector Manager--i.e., the
Current Advisers--and the Global Allocation Strategist determines what
percentage of the Fund's total assets are to be allocated into the various
"strategic investment sectors" from time-to-time. VCM has determined that the
separation of the asset allocation function from the investment selection has
resulted in inefficiencies because of the inability of the Sector Managers to
anticipate percentages of assets to be allocated by the Global Allocation
Strategist to their sectors from time-to-time. Accordingly, if MCM is approved
by the shareholders as Portfolio Manager, MCM will both allocate Fund assets
among sectors, and make investment selections for each of the Sectors.
MCM will actively allocate Fund assets, through investments in the U.S.
Equities, Foreign Equities, U.S. Fixed Income and Foreign Fixed Income
Sectors, across the major debt and equity markets of the world, overweighting
sectors that MCM believes are undervalued. MCM may also allocate Fund assets
to the Precious Metals Sector and the Emerging Markets Sector in an attempt to
further diversify portfolio holdings, protect against increases in inflation
and enhance overall returns. MCM will monitor currency exposure, and such
exposure will be actively hedged as currencies become overvalued.
Within the four U.S. and foreign equities and income sectors, MCM will use a
highly disciplined process to determine the percentage of the Fund's assets
which will be from time-to-time allocated among each U.S. and foreign
country's markets, based upon MCM's assessment of the degree by which each
such market is currently undervalued. (The foreign countries which will be
included within the Foreign Equities and the Foreign Fixed Income Sectors are
the following: Australia, Austria, Belgium, Canada, Denmark, France, Finland,
Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Singapore/Malaysia, South Africa, Spain, Sweden, Switzerland and the
United Kingdom. This list may be modified from time-to-time to conform to the
list of countries included in the Morgan Stanley Capital International World
Index [the "Morgan Stanley Index"]).
In estimating the relative attractiveness of each asset class, MCM will take
into account various factors. Common stocks will be evaluated using a
"dividend-discount" model. This model provides an expected return of the
relevant common stock index of each market in which the Fund may invest (i.e.,
the Standard & Poor's 500 Composite Stock Price Index [the "S&P 500 Index"]
for the U.S. Equities Sector, and the separate country indexes comprising the
Morgan Stanley Index for the Foreign Equities Sector) based upon earnings for
companies whose stocks are included in such Indexes. The expected bond return
is that expected to be produced by long-term bonds with credit risks similar
to bonds rated Aa by Moody's Investors Service, Inc. or AA by Standard &
Poor's Corporation.
Once expected return and volatility (risk) estimates are developed for each
asset class within the four U.S. and foreign equity and fixed income sectors,
MCM will attempt to identify apparent imbalances in the relative prices of the
securities of each market, using a computer model.
To implement its allocation strategy, MCM will invest in the following
securities: (i) in the U.S. Equity Sector, MCM will invest in a diversified
portfolio of common stocks which seeks to track the performance of the S&P 500
Index; (ii) in the U.S. Fixed Income Sector, MCM will invest in a diversified
portfolio of U.S. fixed income obligations which seeks to track the
performance of the Lehman Long-Term Treasury Index; (iii) in the Foreign
Equities Sector, MCM will invest in a diversified portfolio of common stocks
which seeks to track the performance of individual country segments of the
Morgan Stanley Index; (iv) and in the Foreign Fixed Income Sector, MCM will
invest in a portfolio of Foreign Government fixed income obligations which
seeks to track the individual country segments of the Salomon Brothers World
Government (5+) Bond Index.
In addition, MCM may invest Fund assets in the Precious Metals Securities
Sector and the Emerging Markets Sector, as described in the Fund's current
prospectus (subject to the modifications described above with respect to the
Precious Metals Securities Sector). Further, with respect to all Sectors, MCM
may utilize any or all stock and bond futures and options, currency hedging,
and other investment techniques described in the Fund's current prospectus and
Statement of Additional Information.
The approval of the New Sub-Advisory Contract requires the affirmative of:
(a) 67% or more of the shares of the Fund present at the Special Meeting, if
the holders of more than 50% of the outstanding shares of the Fund are present
or represented by proxy; or (b) more than 50% of the outstanding shares of the
Fund, whichever is less.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS APPROVE THE NEW SUB-ADVISORY CONTRACT
BETWEEN VIRTUS CAPITAL MANAGEMENT, INC. AND MELLON CAPITAL MANAGEMENT
CORPORATION WITH RESPECT TO BLANCHARD GLOBAL GROWTH FUND.
PORTFOLIO TRANSACTIONS
Subject to the supervision of the Board and VCM, decisions to buy and sell
specific securities for a Fund are made by its Portfolio Adviser. The
Portfolio Advisers are authorized, subject to most favorable price and
execution, to place portfolio transactions with brokerage firms that provide
assistance in the distribution of Fund shares and/or supply research. The
Board has also authorized the Funds to allocate brokerage business to the
Portfolio Advisers or an affiliated broker-dealer as well as to use the
Distributor, on an agency basis, or affiliates thereof, to effect portfolio
transactions which are executed on United States and foreign stock exchanges
or which are traded in the over-the-counter market. The Funds have adopted
certain procedures incorporating the standards of Rule 17e-1 of the 1940 Act,
which require that the commissions paid to a Portfolio Adviser or the
Distributor or to affiliated broker-dealers must be "reasonable and fair
compared to the commission, fee, or other remuneration received, or to be
received, by other brokers in connection with comparable transactions
involving similar securities during a comparable period of time." From time to
time, a Fund may purchase portfolio securities directly from dealers acting as
principals, underwriters or market makers. As these transactions are usually
conducted on a net basis, no brokerage commissions are paid by that Fund.
Transactions are allocated to various dealers selected by VCM or the Portfolio
Advisers primarily on the basis of prompt execution of orders at the most
favorable prices. Transactions may be allocated based on the sale of the
Funds' shares. Funds have determined that the foregoing
arrangements are in the best interest of the Funds' shareholders. See
"Portfolio Transactions" in each Fund's Statement of Additional Information
for further information.
AMENDMENT TO THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING COMMODITIES
As described above, the Fund may, in pursuing its investment objective,
utilize stock, bond, and currency futures (collectively, "Financial Futures"),
in the manner set forth in the Fund's current Prospectus and Statement of
Additional Information.
The Fund currently has a fundamental investment restriction (the "Current
Restriction") which provides that "the Fund may not purchase or sell commodity
contracts, except to the extent that forward foreign exchange contracts are
deemed to be commodity contracts."
While management of the Fund does not believe that the language of the
Current Restriction, in prohibiting transactions in "commodity contracts,"
would prohibit the purchase and sale of Financial Futures, management believes
that, in order to remove any doubt on the issue, the language should be
clarified to explicitly except Financial Futures from the Current Restriction.
Such amendment would not change the investment policies as described in the
Prospectus and Statement of Additional Information, but would simply remove
any possible question of interpretation as to whether the language of the
Restriction is consistent with the investment policies.
The Current Restriction, as proposed to be amended, would read as follows:
"The Fund may not purchase or sell commodity contracts, except
for stock, bond, currency and other financial futures
contracts."
Approval of the amendment to the Fund's fundamental restriction concerning
commodities requires the affirmative vote of (a) 67% or more of the shares of
the Fund present at the Special Meeting, if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy; or (b)
more than 50% of the outstanding shares of the Fund, whichever is less.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS APPROVE THE PROPOSED AMENDMENT TO
THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING COMMODITIES.
AMENDMENT TO THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING BUYING ON MARGIN
As described in the Fund's current Statement of Additional Information, in
connection with transactions in Financial Futures, the Fund will be required
to deposit as "initial margin" an amount of cash and short-term U.S.
Government Securities generally equal to from 5% to 10% of the contract
amount, and to make subsequent payments (referred to as "variation margin") to
the broker to reflect changes in the value of the futures contract.
The Fund currently has a fundamental investment restriction (the "Current
Restriction") which provides that "the Fund may not buy any securities or
other property on margin (except for such short term credits as are necessary
for the clearance of transactions) or engage in short sales."
The concept of "margin" in Financial Futures transactions differs from the
commonly used concept applied in general securities transactions in that, in
Financial Futures transactions, margin is in the nature of a good faith
deposit which is returned upon termination of the transaction, whereas, in
general securities transactions, margin involves the borrowing of funds by the
Fund to finance the transactions. Thus, it may be argued that the language of
the Current Restriction would only prohibit the use of margin in general
securities transactions and not in transactions involving Financial Futures.
Management of the Fund, however, believes that the language of the Current
Restriction should be amended to make it clear that the use of margin in
Financial Futures transactions is permissible. Such amendment would not change
the investment policies described in the Prospectus and Statement of
Additional Information.
The Current Restriction, as proposed to be amended, would read as follows:
"The Fund may not buy or sell any securities or other property
on margin, except for such short term credits as are necessary
for the clearance of transactions, and except for margin
payments in connection with the use of stock, bond, currency
and other financial futures contracts; and the Fund may not
engage in short sales."
Approval of the amendment to the Fund's fundamental restriction concerning
buying on margin requires the affirmative vote of (a) 67% or more of the
shares of the Fund present at the Special Meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy;
or (b) more than 50% of the outstanding shares of the Fund, whichever is less.
THE TRUSTEES RECOMMEND THAT SHAREHOLDERS APPROVE THE PROPOSED AMENDMENT TO
THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING BUYING ON MARGIN.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
While the Special Meeting is called to act upon any other business that may
properly come before it, at the date of this proxy statement the only business
which the Board intends to present or knows that others will present is the
business mentioned in the notice of meeting. If any other matters lawfully
come before the Special Meeting, and as to all procedural matters at the
meeting, it is the intention that the enclosed proxy shall be voted in
accordance with the best judgment of the attorneys named therein, or their
substitutes, present and acting at the Special Meeting.
In the event that 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 the proposal 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 the 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.
To the best knowledge of the Trust, there were no beneficial owners of more
than 5% of the outstanding Shares of the Trust as of March 26, 1996.
If you do not expect to attend the Special Meeting, please sign your proxy
and return it in the enclosed envelope to avoid unnecessary expense and delay.
No postage is necessary.
By Order of the Trustees
John W. McGonigle
Secretary
BLANCHARD FUNDS SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 1st day of December, 1995 by and between VIRTUS
CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Manager"), and MELLON
CAPITAL MANAGEMENT CORPORATION, a Delaware corporation (the "Portfolio
Manager" or "MCMC") with respect to the following recital of fact:
RECITAL
WHEREAS, Blanchard Funds (the "Trust") is registered as an open-end, non-
diversified, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations promulgated
thereunder; and
WHEREAS, the Portfolio Manager is registered as an investment manager under
the Investment Advisers Act of 1940, as amended, and engages in the business
of acting as an investment adviser; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate series, with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Trust offers shares in one series called the Blanchard Global
Growth Fund (such series, being referred to as the "Fund"); and
WHEREAS, the Trust and the Manager have entered into an agreement of even
date herewith to provide for management services for the Fund on the terms and
conditions set forth therein (the "Management Agreement"); and
WHEREAS, the Portfolio Manager proposes to render investment advisory
services to the Manager in connection with the Manager's responsibilities to
the Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Investment Management. MCMC shall act as a Portfolio Manager for the Fund
and shall, in such capacity, supervise the investment and reinvestment of the
cash, securities or other properties comprising the Fund's portfolio, subject
at all times to the direction of the Manager and the policies and control of
the Trust's Board of Trustees. MCMC shall give the Fund the benefit of its
best judgment, efforts and facilities in rendering its services as Portfolio
Manager.
2. Investment Analysis and Implementation. In carrying out its obligation
under paragraph 1 hereof, the Portfolio Manager shall:
(a) use the same skill and care in providing such service as it uses
in providing services to fiduciary accounts for which it has investment
responsibilities;
(b) obtain and evaluate pertinent information about significant
developments and economics, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the
Fund's portfolio and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which the issuers engage, or with respect to securities which the
Portfolio Manager considers desirable for inclusion in the Fund's
portfolio;
(c) determine which issuers and securities shall be represented in
the Fund's portfolio and regularly report thereon to the Trust's Board
of Trustees;
(d) formulate and implement continuing programs for the purchases and
sales of the securities of such issuers and regularly report thereon to
the Trust's Board of Trustees; and
(e) take, on behalf of the Fund, all actions which appear to the
Trust and the Manager necessary to carry into effect such purchase and
sale programs and supervisory functions as aforesaid, including the
placing of orders for the purchase and sale of securities for the Fund
and the prompt reporting to the Manager of such purchases and sales.
3. Broker-Dealer Relationships. The Portfolio Manager is responsible for
decisions to buy and sell securities for the Fund's portfolio, broker-dealer
selection, and negotiation of brokerage commission rates. The Portfolio
Manager's primary consideration in effecting a security transaction will be
its best efforts to execute at the most favorable price. In selecting a
broker-dealer to execute each particular transaction, the Portfolio Manager
will take the following into consideration: the net price available, the
reliability, integrity and financial condition of the broker-dealer; the size
of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on
a continuing basis. Accordingly, the price to the Fund in any transaction may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Trustees may
determine, the Portfolio Manager shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Fund to pay a broker for effecting a portfolio
investment transaction in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction, if the Portfolio
Manager determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by
such broker or dealer, viewed in terms of either that particular transaction
or the Portfolio Manager's overall responsibilities with respect to the Fund
and to its other clients as to which it exercises investment discretion.
Subject to the provisions of the Investment Company Act of 1940, the Portfolio
Manager is further authorized to allocate the orders placed by it on behalf of
the Fund to any affiliated broker-dealer or to such brokers
and dealers who also provide research or statistical material, or other
services to the Fund or the Portfolio Manager. Such allocation shall be in
such amounts and proportions as the Portfolio Manager shall determine and the
Portfolio Manager will report on said allocations regularly to the Board of
Trustees of the Trust indicating the brokers to whom such allocations have
been made and the basis therefor.
4. Control by Board of Trustees. Any investment program undertaken by the
Portfolio Manager pursuant to this Agreement, as well as any other activities
undertaken by the Portfolio Manager on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Trustees of
the Trust. The Manager shall provide the Portfolio Manager with written notice
of all such directives, so long as this Agreement remains in effect.
5. Compliance with Applicable Requirements. In carrying out its obligations
under this Agreement, the Portfolio Manager shall at all times conform to:
(a) all applicable provisions of the 1940 Act; and
(b) the provisions of the Registration Statement of the Trust under
the Securities Act of 1933 and the 1940 Act; and
(c) any other applicable provisions of state and federal law.
6. Expenses. The Portfolio Manager shall maintain, at its expense and
without cost to the Manager or the Fund, a trading function in order to carry
out its obligations under subparagraph (e) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio securities for the Fund.
7. Delegation of Responsibilities. Upon request of the Manager and with the
approval of the Trust's Board of Trustees, the Portfolio Manager may perform
services on behalf of the Fund which are not required by this Agreement. Such
services will be performed on behalf of the Fund and the Portfolio Manager's
cost in rendering such services may be billed monthly to the Manager, subject
to examination by the Manager's independent accountants. Payment or assumption
by the Portfolio Manager of any Fund expense that the Portfolio Manager is not
required to pay or assume under this Agreement shall not relieve the Manager
or the Portfolio Manager of any of their obligations to the Fund or obligate
the Portfolio Manager to pay or assume any similar Fund expense on any
subsequent occasions.
8. Compensation. For the services to be rendered and the facilities
furnished hereunder, the Manager shall pay the Portfolio Manager a monthly fee
at the annual rate of .375% of the Fund's average daily net assets up to $100
million; .35% on net assets between $100 million and $150 million; and .325 %
on net assets in excess of $150 million. Compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Portfolio
Manager's compensation for the preceding month shall be made as promptly as
possible after the end of each month.
9. Non-Exclusivity. The services of the Portfolio Manager to the Manager are
not to be deemed to be exclusive, and the Portfolio Manager shall be free to
render investment advisory or other services to others (including other
investment companies) and to engage in other activities, so long as its
services under this agreement are not impaired thereby.
10. Term. This Agreement shall become effective at the close of business on
the date hereof and shall remain in force and effect for an initial term of
two years, and shall remain in effect thereafter if approved in the manner set
forth in Section 11 hereof.
11. Renewal. Following the expiration of its initial two year term, this
Agreement shall continue in force and effect from year to year, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Trust's Board of Trustees or (ii) by the vote of a
majority of the Fund's outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a trustee of the Trust), by votes cast in
person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Trust's Board of Trustees or by vote of
a majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), or by the Manager or the Portfolio Manager, on
sixty (60) days' written notice to the other party. This Agreement shall
automatically terminate: (a) in the event of its assignment, the term
"assignment" having the meaning defined in Section 2(a)(4) of the 1940 Act, or
(b) in the event that the Management Agreement between the Fund and the
Manager shall terminate.
13. Liability of the Portfolio Manager. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Portfolio
Manager or its officers, directors or employees, or reckless disregard by the
Portfolio Manager of its duties under this Agreement, the Portfolio Manager
shall not be liable to the Manager, the Trust or to any shareholder of the
Trust for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
14. Notices. Any notices under this Agreement shall be in writing, addressed
and delivered or mailed postage paid to the other party at such address as
such other party may designate for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of the Manager for
this purpose shall be 707 East Main Street, Suite 1300, Richmond, Virginia
23219, that of the Trust for this purpose shall be Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779, and the address of the Portfolio Manager
for this purpose shall be 595 Market Street, San Francisco, California 94105.
Attention: Charles Jacklin.
15. Questions of Interpretation. Any question of interpretation of any term
or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to
such term or provision of the 1940 Act and to interpretations thereof, if any,
by the United States Courts or in the absence of any controlling decision of
any such court, by rules, regulations or orders of the Securities and Exchange
Commission issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in the provision of this Agreement is
revised by rule, regulation or order of the Securities and Exchange
commission, such provision shall be deemed to incorporate the effect of such
rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
MELLON CAPITAL MANAGEMENT
CORPORATION
Attest:
By
...................................... ..................................
VIRTUS CAPITAL MANAGEMENT, INC.
Attest:
By
...................................... ..................................
Cusip 093265106
G01479-05
BLANCHARD GLOBAL GROWTH FUND
FOR SPECIAL MEETING OF SHAREHOLDERS MAY 24, 1996
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
BLANCHARD GLOBAL GROWTH FUND hereby appoint Patricia Godlewski, Patricia
Conner, Stephen R. Newcamp, Scott A. Tretter, and C. Grant Anderson, or any
one of them true and lawful attorneys, with power of substitution of each, to
vote all shares of BLANCHARD GLOBAL GROWTH FUND, which the undersigned is
entitled to vote, at the Special Meeting of Shareholders to be held on May
24, 1996, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:00
P.M., and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys
named will vote the shares represented by this proxy in accordance with the
choice made on this card. IF NO CHOICE IS INDICATED FOR ANY MATTER, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THE MATTER PRESENTED.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
Please sign EXACTLY as your name(s) appear below. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give 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.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS
KEEP THIS PORTION FOR YOUR RECORDS
BLANCHARD GLOBAL GROWTH FUNDDETACH AND RETURN THIS PORTION ONLY
FOR AGAINST ABSTAIN1. To approve a new sub-advisory contract between
Virtus Capital Management, Inc. and Mellon Capital
- ---- ------- -------
Management Corporation, a Delaware Corporation, with
regard to Blanchard Global Growth Fund;.
FOR AGAINST ABSTAIN2. To approve an amendment to Blanchard Global
Growth Fund's fundmental investment restriction
- ---- ------- -------
concerning commodities;
FOR AGAINST ABSTAIN3. To approve an amendment to Blanchard Global
Growth Fund's fundamental investment restriction
- ---- ------- -------
concerning buying on margin; and
FOR AGAINST ABSTAIN4. To transact such other business as may properly
come before the meeting or any adjournment thereof.
- ---- ------- -------
