BLANCHARD GROWTH & INCOME FUND
(A PORTFOLIO OF THE BLANCHARD GROUP OF FUNDS)
ADDENDUM TO THE ANNUAL REPORT DATED OCTOBER 31, 1996
BLANCHARD GROWTH & INCOME FUND
Addendum to Annual Report for the period ended October 31, 1996
Omitted from the most recent Annual Report for Blanchard Growth & Income
Fund, were the results of the last Special Meeting of Shareholders of
Blanchard Growth & Income Fund.
The Shareholders of Blanchard Growth & Income Fund (`BGIF'') voted to
approve the following items:
AN INTERIM INVESTMENT ADVISORY AGREEMENT BETWEEN GROWTH & INCOME
PORTFOLIO (THE ``MASTER PORTFOLIO') AND THE CHASE MANHATTAN BANK,
(AND THE SUCCESSOR ENTITY THERETO) (THE ``ADVISER') WHICH BECAME
EFFECTIVE UPON THE MERGER OF THE CHASE MANHATTAN CORPORATION (THE
PARENT COMPANY OF THE ADVISER) AND CHEMICAL BANKING CORPORATION.
The motions were duly adopted with 977,443 shares having voted to approve
the proposed Agreement, 9,280 having voted negatively and 22,982 shares
having abstained from voting.
A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE MASTER PORTFOLIO AND
THE ADVISER, AND A SUB-ADVISORY AGREEMENT BETWEEN THE ADVISER AND
CHASE ASSET MANAGEMENT, INC. WITH RESPECT TO THE MASTER PORTFOLIOS
TO TAKE EFFECT AS SOON AS PRACTICABLE.
The motions were duly adopted with 960,371 shares having voted to approve
the proposed Agreement, 10,222 having voted negatively and 39,112 shares
having abstained from voting.
APPROVAL OF THE FOLLOWING PROPOSALS PERTAINING TO THE FUNDAMENTAL
INVESTMENT RESTRICTIONS OF THE MASTER PORTFOLIO AND OF BGIF:
A. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING BORROWING;
The motion was duly adopted with 697,358 shares having voted to approve the
proposed Agreement, 46,018 having voted negatively, 46,430 shares having
abstained from voting and 219,899 broker non-votes.
B. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING INVESTMENT FOR THE PURPOSE OF
EXERCISING CONTROL;
The motion was duly adopted with 713,912 shares having voted to approve the
proposed Agreement, 27,147 having voted negatively, 48,747 shares having
abstained from voting and 219,899 broker non-votes.
C. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING THE MAKING OF LOANS;
The motion was duly adopted with 687,706 shares having voted to approve the
proposed Agreement, 46,624 having voted negatively, 55,476 shares having
abstained from voting and 219,899 broker non-votes.
D. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING PURCHASES OF SECURITIES ON
MARGIN;
The motion was duly adopted with 678,209 shares having voted to approve the
proposed Agreement, 59,385 having voted negatively, 52,212 shares having
abstained from voting and 219,899 broker non-votes.
E. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING CONCENTRATION OF INVESTMENT;
The motion was duly adopted with 701,703 shares having voted to approve the
proposed Agreement, 26,786 having voted negatively, 61,317 shares having
abstained from voting and 219,899 broker non-votes.
F. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING COMMODITIES AND REAL ESTATE;
The motion was duly adopted with 671,836 shares having voted to approve the
proposed Agreement, 52,977 having voted negatively, 64,993 shares having
abstained from voting and 219,900 broker non-votes.
G. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION REGARDING INVESTMENTS IN RESTRICTED AND
ILLIQUID SECURITIES;
The motion was duly adopted with 680,048 shares having voted to approve the
proposed Agreement, 54,591 having voted negatively, 55,167 shares having
abstained from voting and 219,900 broker non-votes.
H. A RECLASSIFICATION, AS NON-FUNDAMENTAL, OF THE MASTER PORTFOLIO
AND BGIF'S FUNDAMENTAL RESTRICTION CONCERNING THE USE OF
OPTIONS;
The motion was duly adopted with 675,588 shares having voted to approve the
proposed Agreement, 42,139 having voted negatively, 72,079 shares having
abstained from voting and 219,900 broker non-votes.
I. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING SENIOR SECURITIES; AND
The motion was duly adopted with 701,381 shares having voted to approve the
proposed Agreement, 23,939 having voted negatively, 64,486 shares having
abstained from voting and 219,900 broker non-votes.
J. AN AMENDMENT TO THE MASTER PORTFOLIO AND BGIF'S FUNDAMENTAL
INVESTMENT RESTRICTION REGARDING SHORT SALES OF SECURITIES.
The motion was duly adopted with 675,645 shares having voted to approve the
proposed Agreement, 43,790 having voted negatively, 70,371 shares having
abstained from voting and 219,900 broker non-votes.
AN AMENDMENT TO BGIF'S FUNDAMENTAL INVESTMENT OBJECTIVE TO CONFORM
SUCH OBJECTIVE TO THE INVESTMENT OBJECTIVE AND POLICIES OF THE
MASTER PORTFOLIO IN WHICH BGIF INVESTS.
The motion was duly adopted with 714,579 shares having voted to approve the
proposed Agreement, 20,281 having voted negatively, 54,946 shares having
abstained from voting and 219,900 broker non-votes.
March 4, 1997
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 093265304
G01687-14 (3/97)
Portfolio Adviser
Chase Manhattan Bank, N.A.
[LOGO]
Blanchard
Growth & Income Fund
The Blanchard Group of Funds and the Virtus(SM) Funds are available through
Signet(R) Financial Services, Inc., member NASD, and are advised by an
affiliate, Virtus Capital Management, Inc., which is compensated for this
service.
Investment products are not deposits, obligations of, or guaranteed by any
bank. They are not insured by the FDIC. They involve risk, including the
possible loss of principal invested.
Virtus(SM) is a service mark and Signet" is a registered mark of Signet Banking
Corporation. Virtus Capital Management, Inc. and Signet Financial Services,
Inc. are subsidiaries of Signet Banking Corporation.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the FundOs prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
(2235)
CUSIP 093265304
G01684-10 (12/96)
Blanchard
Growth & Income
Fund
[LOGO]
Annual Report
October 31, 1996
Managed by: Virtus Capital Management, Inc.
Blanchard
PRESIDENT'S MESSAGE
December 15, 1996
Dear Shareholder:
I am pleased to present the Annual Report for the Blanchard Growth & Income
Fund for the 12-month period ended October 31, 1996. This report begins with a
discussion by the fund's portfolio management team, a complete list of
holdings, and the financial statements.
As always, if you would like the most recent performance update for the fund,
or if you have any questions, please call Investors' Services at 1-800-829-
3863.
Thank you for pursuing your financial goals through the Blanchard Growth &
Income Fund.
Sincerely,
Edward C. Gonzales
President
Dear Shareholder,
Enclosed you will find the Annual Report for your Blanchard Growth & Income
Fund for the fiscal year ended October 31, 1996.
[GRAPH APPEARS HERE]
The Blanchard Growth & Income Fund had a total return of 18.77% for the year
ended October 31, 1996. This compares with a return of 21.21% for the Lipper
Growth & Income Average and 24.08% for the S&P 500.**
Despite two distinct market selloffs during the reporting year, the Fund
benefited from the management team's disciplined, value-oriented approach to
sector allocation and individual stock selection.
ECONOMY'S STRENGTH SURPRISES MANY
1996 began with many investors expecting that slow economic growth would lead
the Federal Reserve Board to cut short-term interest rates. When unanticipated
signs of strength were revealed, the stock market continued its advance while
bonds fell sharply. The Fund took on a slight cyclical bias throughout most of
the first half of 1996, favoring companies that do well in a growing economy.
** The S&P 500 is an unmanaged index of common stocks in industry,
transportation, and financial and public utility companies. Investments may
not be made in an index.
A FOCUS ON QUALITY COMPANIES & REASONABLE VALUATIONS
By June, based on the management team's expectation that the economy had
slowed in the second quarter, the Fund's cyclical exposure was cut, which
proved to be highly beneficial during the brief mid-summer market correction.
The Fund took advantage of July's steep decline in technology stock prices to
buy companies the manager believed offered visible earnings growth at
attractive prices. This strategy helped the Fund end the reporting year on a
very positive note, as the technology sector again assumed a market leadership
role.
As the reporting year ended, the Portfolio had an overweight position in
technology and financial stocks and only a market weighting in cyclical stocks.
Like all Chase managed equity portfolios, the Fund has a strong value
orientation, which has been generally out of favor for much of the past two
years, particularly among large cap stocks. In this environment, the Fund's
manager has adhered closely to Chase's stock management and selection process,
confident that the market will reward quality companies trading at reasonable
valuations.
Thank you for your continued patronage. We look forward to serving you in the
months and years ahead.
Sincerely,
The Investment Management Team
at Chase Manhattan Bank
Portfolio Advisers to the
Growth & Income Portfolio
BLANCHARD GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------
Investments in Portfolio, at value $15,578,013
- -------------------------------------
Receivable for shares sold 7,768
- -------------------------------------
Deferred organizational expense 55,386
- ------------------------------------- -----------
Total assets 15,641,167
- -------------------------------------
LIABILITIES:
- ----------------------------
Payable for shares redeemed $ 33,286
- ----------------------------
Accrued expenses 58,697
- ---------------------------- --------
Total liabilities 91,983
- ------------------------------------- -----------
NET ASSETS $15,549,184
- ------------------------------------- -----------
NET ASSETS CONSIST OF:
- -------------------------------------
Paid in capital $13,168,507
- -------------------------------------
Net unrealized appreciation of
investments in Portfolio 1,336,233
- -------------------------------------
Accumulated net realized gain on
investments in Portfolio 943,533
- -------------------------------------
Undistributed net investment income 100,911
- ------------------------------------- -----------
Total Net Assets $15,549,184
- ------------------------------------- -----------
SHARES OUTSTANDING 1,645,267
- ------------------------------------- -----------
NET ASSET VALUE, Offering Price and
Redemption Proceeds Per Share:
(net assets / shares outstanding) $9.45
- ------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
- ------------------------------------------------------------
Dividend $ 240,132
- ------------------------------------------------------------
Interest 90,687
- ------------------------------------------------------------ ----------
Expenses allocated from Portfolio (56,643)
- ------------------------------------------------------------ ----------
Net investment income allocated from Portfolio 274,176
- ------------------------------------------------------------ ----------
EXPENSES:
- ------------------------------------------------
Management fee $ 85,166
- ------------------------------------------------
Administrative personnel and services fee 75,000
- ------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 46,000
- ------------------------------------------------
Directors'/Trustees' fees 1,158
- ------------------------------------------------
Auditing fees 16,921
- ------------------------------------------------
Legal fees 9,000
- ------------------------------------------------
Distribution services fee 60,833
- ------------------------------------------------
Share registration costs 19,698
- ------------------------------------------------
Printing and postage 47,573
- ------------------------------------------------
Amortization of organizational costs 18,163
- ------------------------------------------------
Miscellaneous 2,214
- ------------------------------------------------ ----------
Total expenses 381,726
- ------------------------------------------------ ----------
Waivers--
- -----------------------------------
Waiver of Management fee $(85,166)
- -----------------------------------
Waiver of Distribution services
fee (60,833)
- -----------------------------------
Waiver of Administrative personnel
and services fee (62,462)
- ----------------------------------- -----------
Total waivers (208,461)
- ------------------------------------------------ ----------
Net expenses 173,265
- ------------------------------------------------------------ ----------
Net investment income 100,911
- ------------------------------------------------------------ ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM
PORTFOLIO:
- ------------------------------------------------------------
Net realized gain on investment transactions 931,403
- ------------------------------------------------------------
Net realized gain on financial futures contracts
transactions 25,334
- ------------------------------------------------------------ ----------
Net realized gain from Portfolio 956,737
- ------------------------------------------------------------
Net change in unrealized appreciation of investments in
Portfolio 849,993
- ------------------------------------------------------------ ----------
Net realized and unrealized gain on investments in
Portfolio 1,806,730
- ------------------------------------------------------------ ----------
Change in net assets resulting from operations $1,907,641
- ------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------
OPERATIONS--
- ----------------------------------------------------
Net investment income/(operating loss) $ 100,911 $ (23,610)
- ----------------------------------------------------
Net realized gain on investments in Portfolio 956,737 170,017
- ----------------------------------------------------
Net change in unrealized appreciation of investments
in Portfolio 849,993 486,240
- ---------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 1,907,641 632,647
- ---------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ----------------------------------------------------
Distributions in excess of net investment income -- (2,119)
- ----------------------------------------------------
Distributions from net realized gains (153,889) --
- ---------------------------------------------------- ----------- -----------
Change in net assets resulting from distributions to
shareholders (153,889) (2,119)
- ---------------------------------------------------- ----------- -----------
SHARE TRANSACTIONS--
- ----------------------------------------------------
Proceeds from sale of shares 12,224,700 11,752,782
- ----------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 143,325 2,024
- ----------------------------------------------------
Cost of shares redeemed (5,015,878) (5,942,049)
- ---------------------------------------------------- ----------- -----------
Change in net assets resulting from share
transactions 7,352,147 5,812,757
- ---------------------------------------------------- ----------- -----------
Change in net assets 9,105,899 6,443,285
- ----------------------------------------------------
NET ASSETS:
- ----------------------------------------------------
Beginning of period 6,443,285 --
- ---------------------------------------------------- ----------- -----------
End of period (including undistributed net
investment income of
$100,911 and $0, respectively) $15,549,184 $ 6,443,285
- ---------------------------------------------------- ----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
---------------
1996 1995
- ---------------------------------------------------- ------- ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.11 $ 7.00
- ----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------
Net investment income/(loss) 0.06 (0.03)
- ----------------------------------------------------
Net realized and unrealized gain on investments 1.44 1.15
- ---------------------------------------------------- ------- ------
Total from investment operations 1.50 1.12
- ---------------------------------------------------- ------- ------
LESS DISTRIBUTIONS
- ----------------------------------------------------
Distributions in excess of net investment income -- (0.01)
- ----------------------------------------------------
Distributions from net realized gain on investments (0.16) --
- ---------------------------------------------------- ------- ------
Total distributions (0.16) (0.01)
- ---------------------------------------------------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 9.45 $ 8.11
- ---------------------------------------------------- ------- ------
TOTAL RETURN (A) 18.77% 16.03%
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------
Expenses (b) 1.90% 3.81%
- ----------------------------------------------------
Net investment income (loss) 0.83% (0.64%)
- ----------------------------------------------------
Expense waiver/reimbursement (c) 1.71% 0.77%
- ----------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------
Net assets, end of period (000 omitted) $15,549 $6,443
- ----------------------------------------------------
</TABLE>
(a) Based on net asset value.
(b) Reflects the Fund's proportionate share of the respective Portfolio's
expenses and the Fund's fee waivers and expense reimbursements by the
Funds' Manager, Distributor and Administrator.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
BLANCHARD GROWTH & INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- -------------------------------------------------------------------------------
1. ORGANIZATION
Blanchard Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act") as an open-end management investment company.
The Trust consists of seven funds. The financial statements included herein
are only those of Blanchard Growth & Income (the "Fund"). The financial
statements of the other funds are presented separately. The assets of each
fund are segregated and a shareholder's interest is limited to the fund in
which shares are held.
The Fund's investment objective is to provide long-term capital appreciation
and dividend income. The Fund seeks to achieve its investment objective by
investing all of its investable assets in Growth & Income Portfolio (the
"Portfolio") which is an open-end management investment company having the
same investment objective as the Fund. The Portfolio is advised by Chase
Manhattan Corporation N.A., its Portfolio Adviser. At October 31, 1996, the
Fund owned 0.74% of the Portfolio.
These financial statements should be read together with the accompanying
portfolio of investments and financial statements of the Portfolio.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund records its investment in the Portfolio at
value. Securities of the Portfolio are recorded at value as more fully
discussed in the Notes to those accompanying Financial Statements.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--The Fund records daily its
pro-rata share of the Portfolio's income, expenses, and realized and
unrealized gains and losses. In addition, the Fund accrues its own expenses
daily as incurred. Expenses directly attributable to the Fund are charged
to the Fund. Certain expenses for the Trust are allocated among all the
Funds in the Trust based upon their relative average net assets.
Distributions to shareholders are recorded on the ex-dividend date. The
amount of dividends and distributions from net investment income and net
realized capital gains is determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting
principles. Dividends and distributions which exceed net investment income
or net realized capital gains for financial reporting purposes, but not for
tax purposes, are reported as distributions in excess of net investment
income or 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 capital. The Fund has changed its dividend
distribution period from semi-annual distribution to an annual
distribution.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code (the "Code") applicable to regulated investment
companies and to distribute to shareholders each year substantially all of
its income. Accordingly, no provisions for federal tax are necessary.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
organizational expenses and registration of its shares in its first fiscal
year, excluding the initial expense of registering its shares, have been
deferred and are being amortized over a period not to exceed five years
from the Fund's commencement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest. Transactions in shares were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
--------------------
1996 1995
- ---------------------------------------------- --------- ---------
<S> <C> <C>
Shares sold 1,400,562 1,584,617
- ----------------------------------------------
Shares issued to shareholders in payment of
distributions declared 17,436 298
- ----------------------------------------------
Shares redeemed (567,216) (790,430)
- ---------------------------------------------- --------- ---------
Net change resulting from share transactions 850,782 794,485
- ---------------------------------------------- --------- ---------
</TABLE>
4. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANGEMENT FEE--Virtus Capital Management, Inc., the Fund's manager, (the
"Manager"), receives for its services an annual management fee equal to 0.70%
of the Fund's average daily net assets. The Manager may voluntarily choose to
waive any portion of its fee. The Manager can modify or terminate this
voluntary waiver at any time at its sole discretion
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Fund with certain administrative personnel and services. The fee is based on
the level of average aggregate net assets of the Trust for the period. The
administrative fee received during any fiscal year for the Fund shall be at
least $75,000. The administrator may voluntarily choose to waive any portion
of its fee. The administrator can modify or terminate this voluntary waiver at
any time at its sole discretion.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will reimburse Federated Securities Corp., ("FSC") the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur distribution expenses up to 0.50% of the average daily net assets of the
Fund, annually, to reimburse FSC. The distributor may voluntarily choose to
waive any portion of its fee. The distributor can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AGENT FEES--Federated Services Company ("FServ"), through its
subsidiary Federated Shareholder Services Company, serves as transfer and
dividend disbursing agent for the Fund for which it receives a fee. This fee
is based on the size, type, and number of accounts and transactions made by
shareholders.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors of FServ, FAS and FSC.
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Board of Trustees of BLANCHARD FUNDS
and Shareholders of BLANCHARD GROWTH & INCOME FUND:
We have audited the accompanying statement of assets and liabilities of
Blanchard Growth & Income Fund (the "Fund") as of October 31, 1996 and the
related statements of operations and changes in net assets, and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audit. The statement of changes in net assets and
financial highlights for the year ended October 31, 1995 were audited by other
auditors, whose report thereon dated December 22, 1995, expressed an
unqualified opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of October 31, 1996, the results of its operations,
the changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
December 20, 1996
BLANCHARD GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ------------------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--94.0%
------------------------------------------------------------
COMMON STOCK--86.0%
------------------------------------------------------------
AEROSPACE--1.9%
-------------------------------------------------
300,000 Allied-Signal, Inc. $ 19,650,000
-------------------------------------------------
115,600 General Motors, Class H 6,170,150
-------------------------------------------------
110,000 United Technologies, Corp. 14,162,500
------------------------------------------------- --------------
39,982,650
------------------------------------------------- --------------
AGRICULTURAL PRODUCTION/SERVICES--2.0%
-------------------------------------------------
350,000 AGCO Corp. 8,881,250
-------------------------------------------------
355,000 Case Corp. 16,507,500
-------------------------------------------------
400,000 Deere & Co. 16,700,000
------------------------------------------------- --------------
42,088,750
------------------------------------------------- --------------
AIRLINES--0.5%
-------------------------------------------------
126,590 AMR Corp.* 10,633,560
------------------------------------------------- --------------
AUTOMOTIVE--1.4%
-------------------------------------------------
300,000 Chrysler Corp. 10,087,500
-------------------------------------------------
200,000 General Motors 10,775,000
-------------------------------------------------
250,000 Lear Corp.* 9,250,000
------------------------------------------------- --------------
30,112,500
------------------------------------------------- --------------
BANKING--5.8%
-------------------------------------------------
400,000 Bank of Boston Corp. 25,600,000
-------------------------------------------------
145,000 BankAmerica Corp. 13,267,500
-------------------------------------------------
175,000 Citicorp 17,325,000
-------------------------------------------------
204,333 Commonwealth Bank of Australia, ADR (Australia) #
(Preference Stock) 3,677,994
-------------------------------------------------
220,000 First Union Corp. 16,005,000
-------------------------------------------------
425,000 National City Corp. 18,434,375
-------------------------------------------------
135,000 NationsBank Corp. 12,723,750
-------------------------------------------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
------------------------------------------------
COMMON STOCK--CONTINUED
------------------------------------------------
BANKING--CONTINUED
-------------------------------------
350,000 Norwest Corp. $ 15,356,250
------------------------------------- --------------
122,389,869
------------------------------------- --------------
BIOTECHNOLOGY--0.5%
-------------------------------------
160,000 Amgen, Inc. 9,810,000
------------------------------------- --------------
CHEMICALS--3.0%
-------------------------------------
110,000 Dow Chemical Co. 8,552,500
-------------------------------------
245,000 duPont (EI) deNemours & Co. 22,723,750
-------------------------------------
340,000 IMC Global, Inc. 12,750,000
-------------------------------------
225,000 Praxair, Inc. 9,956,250
-------------------------------------
200,000 Union Carbide Corp. 8,525,000
------------------------------------- --------------
62,507,500
------------------------------------- --------------
COMPUTER SOFTWARE--3.0%
-------------------------------------
350,000 Cisco Systems, Inc.* 21,656,250
-------------------------------------
300,000 Computer Associates International 17,737,500
-------------------------------------
90,000 Microsoft Corp.* 12,352,500
-------------------------------------
446,000 Reynolds & Reynolds, Inc., Class A 11,763,250
------------------------------------- --------------
63,509,500
------------------------------------- --------------
COMPUTERS/COMPUTER HARDWARE--6.4%
-------------------------------------
300,000 Analog Devices, Inc.* 7,800,000
-------------------------------------
350,000 Compaq Computer Corp.* 24,368,750
-------------------------------------
400,000 EMC Corp.* 10,500,000
-------------------------------------
230,000 Intel Corp. 25,271,250
-------------------------------------
145,000 International Business Machines Corp. 18,705,000
-------------------------------------
100,000 SCI Systems, Inc.* 4,975,000
-------------------------------------
100,000 Seagate Technology, Inc.* 6,675,000
-------------------------------------
250,000 Storage Technology Corp.* 10,656,250
-------------------------------------
220,000 Sun Microsystems, Inc.* 13,420,000
-------------------------------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- -------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
-------------------------------------------------
COMMON STOCK--CONTINUED
-------------------------------------------------
COMPUTERS/COMPUTER HARDWARE--CONTINUED
--------------------------------------
275,000 Texas Instruments $ 13,234,375
-------------------------------------- --------------
135,605,625
-------------------------------------- --------------
CONSTRUCTION MACHINERY--0.5%
--------------------------------------
160,000 Caterpillar Inc. 10,980,000
-------------------------------------- --------------
CONSUMER PRODUCTS--6.4%
--------------------------------------
450,000 Avon Products, Inc. 24,412,500
--------------------------------------
375,000 Black & Decker Corp. 14,015,625
--------------------------------------
185,000 Colgate-Palmolive Co. 17,020,000
--------------------------------------
350,000 Fruit of the Loom, Inc., Class A* 12,731,250
--------------------------------------
200,000 Liz Claiborne, Inc. 8,450,000
--------------------------------------
270,000 Nike, Inc., Class B 15,896,250
--------------------------------------
185,000 Philip Morris Companies, Inc. 17,135,625
--------------------------------------
250,000 Procter & Gamble Co. 24,750,000
-------------------------------------- --------------
134,411,250
-------------------------------------- --------------
DIVERSIFIED--0.5%
--------------------------------------
115,000 Textron, Inc. 10,206,250
-------------------------------------- --------------
ELECTRONICS/ELECTRICAL EQUIPMENT--0.5%
--------------------------------------
115,000 General Electric Co. 11,126,250
-------------------------------------- --------------
ENTERTAINMENT/LEISURE--1.8%
--------------------------------------
700,000 Carnival Corp., Class A 21,087,500
--------------------------------------
330,000 Circus Circus Enterprises Inc.* 11,385,000
--------------------------------------
325,000 Trump Hotels & Casino Resorts, Inc.* 5,159,375
-------------------------------------- --------------
37,631,875
-------------------------------------- --------------
FINANCIAL SERVICES--3.3%
--------------------------------------
574,500 Countrywide Credit Industries, Inc. 16,373,250
--------------------------------------
175,000 Federal Home Loan Mortgage Corp. 17,675,000
--------------------------------------
360,000 Federal National Mortgage Assoc. 14,085,000
--------------------------------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ---------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
---------------------------------------------
COMMON STOCK--CONTINUED
---------------------------------------------
FINANCIAL SERVICES--CONTINUED
----------------------------------
505,000 Green Tree Financial Corp. $ 20,010,625
---------------------------------- --------------
68,143,875
---------------------------------- --------------
FOOD/BEVERAGE PRODUCTS--4.4%
----------------------------------
540,000 Coca-Cola Enterprises, Inc. 23,017,500
----------------------------------
460,000 ConAgra, Inc. 22,942,500
----------------------------------
535,000 PepsiCo., Inc. 15,849,375
----------------------------------
430,000 Sara Lee Corp. 15,265,000
----------------------------------
100,000 Unilever NV, ADR (Netherlands) 15,287,500
---------------------------------- --------------
92,361,875
---------------------------------- --------------
HEALTH CARE--2.9%
----------------------------------
571,000 Columbia/HCA Healthcare Corp. 20,413,250
----------------------------------
495,000 HEALTHSOUTH Corp.* 18,562,500
----------------------------------
180,000 Medtronic, Inc. 11,587,500
----------------------------------
500,000 Tenet Healthcare Corp.* 10,437,500
---------------------------------- --------------
61,000,750
---------------------------------- --------------
INSURANCE--4.3%
----------------------------------
150,000 Aetna Inc. 10,031,250
----------------------------------
335,000 AFLAC, Inc. 13,441,875
----------------------------------
455,110 Allstate Corp. 25,543,049
----------------------------------
110,500 American International Group 12,003,063
----------------------------------
125,000 Loews Corp. 10,328,125
----------------------------------
220,000 Mid Ocean, Ltd. (Bermuda) 10,340,000
----------------------------------
140,000 Reliastar Financial Corp. 7,420,000
----------------------------------
750 Transport Holdings, Inc., Class A* 57,000
---------------------------------- --------------
89,164,362
---------------------------------- --------------
MANUFACTURING--3.4%
----------------------------------
350,000 Ingersoll-Rand Co. 14,568,750
----------------------------------
225,000 Johnson Controls 16,425,000
----------------------------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ------------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
------------------------------------------------------
COMMON STOCK--CONTINUED
------------------------------------------------------
MANUFACTURING--CONTINUED
-------------------------------------------
175,000 Kennametal Inc. $ 5,950,000
-------------------------------------------
370,000 Parker Hannifin Corp. 14,013,750
-------------------------------------------
400,000 Tyco International Ltd. 19,850,000
------------------------------------------- --------------
70,807,500
------------------------------------------- --------------
METALS/MINING--1.4%
-------------------------------------------
310,000 Aluminum Co. of America (ALCOA) 18,173,750
-------------------------------------------
335,000 Inco, Ltd. 10,636,250
------------------------------------------- --------------
28,810,000
------------------------------------------- --------------
OFFICE/BUSINESS EQUIPMENT--0.7%
-------------------------------------------
310,000 Xerox Corp. 14,376,250
------------------------------------------- --------------
OIL & GAS--8.2%
-------------------------------------------
150,000 Amoco Corp. 11,362,500
-------------------------------------------
125,000 British Petroleum PLC, ADR (United Kingdom) 16,078,125
-------------------------------------------
300,000 Halliburton Company 16,987,500
-------------------------------------------
195,000 Mobil Corp. 22,766,250
-------------------------------------------
601,500 PanEnergy Corp. 23,157,750
-------------------------------------------
355,000 Phillips Petroleum Co. 14,555,000
-------------------------------------------
224,200 Smith International* 8,519,600
-------------------------------------------
190,000 Texaco, Inc. 19,308,750
-------------------------------------------
140,000 Tidewater, Inc. 6,125,000
-------------------------------------------
250,000 Unocal Corp. 9,156,250
-------------------------------------------
445,000 Williams Companies, Inc. 23,251,250
------------------------------------------- --------------
171,267,975
------------------------------------------- --------------
PAPER/FOREST PRODUCTS--1.1%
-------------------------------------------
325,000 Fort Howard Corp.* 8,328,125
-------------------------------------------
220,000 Willamette Industries 14,850,000
------------------------------------------- --------------
23,178,125
------------------------------------------- --------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- -------------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
-------------------------------------------------------
COMMON STOCK--CONTINUED
-------------------------------------------------------
PHARMACEUTICALS--4.2%
--------------------------------------------
420,000 American Home Products Corp. $ 25,725,000
--------------------------------------------
90,000 Bristol-Myers Squibb Co. 9,517,500
--------------------------------------------
340,000 Johnson & Johnson 16,745,000
--------------------------------------------
200,000 Schering-Plough Corp. 12,800,000
--------------------------------------------
361,300 SmithKline Beecham PLC, ADR (United Kingdom) 22,626,413
-------------------------------------------- --------------
87,413,913
-------------------------------------------- --------------
PHOTOGRAPHIC EQUIPMENT--0.5%
--------------------------------------------
135,000 Eastman Kodak Co. 10,766,250
-------------------------------------------- --------------
PRINTING & PUBLISHING--1.5%
--------------------------------------------
100,000 Harcourt General, Inc. 4,975,000
--------------------------------------------
370,000 New York Times Company, Class A 13,366,250
--------------------------------------------
150,000 Tribune Co. 12,262,500
-------------------------------------------- --------------
30,603,750
-------------------------------------------- --------------
REAL ESTATE INVESTMENT TRUST--1.3%
--------------------------------------------
283,500 Beacon Properties Corp. 8,327,813
--------------------------------------------
170,000 Equity Residential Properties Trust 6,247,500
--------------------------------------------
280,000 Hospitality Properties Trust 7,280,000
--------------------------------------------
210,000 Security Capital Industrial Trust 3,806,250
-------------------------------------------- --------------
25,661,563
-------------------------------------------- --------------
RESTAURANTS/FOOD SERVICE--0.4%
--------------------------------------------
400,000 Wendy's International, Inc. 8,250,000
-------------------------------------------- --------------
RETAILING--4.2%
--------------------------------------------
320,000 American Stores Co. 13,240,000
--------------------------------------------
420,000 Dayton-Hudson Corp. 14,542,500
--------------------------------------------
350,000 Federated Department Stores* 11,550,000
--------------------------------------------
470,000 Gap, Inc. 13,630,000
--------------------------------------------
542,500 Kroger Co.* 24,209,063
--------------------------------------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ------------------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
------------------------------------------------------------
COMMON STOCK--CONTINUED
------------------------------------------------------------
RETAILING--CONTINUED
-------------------------------------------------
225,000 Sears Roebuck & Co. $ 10,884,375
------------------------------------------------- --------------
88,055,938
------------------------------------------------- --------------
SHIPPING/TRANSPORTATION--1.3%
-------------------------------------------------
150,000 Burlington Northern, Inc. 12,356,250
-------------------------------------------------
130,000 Federal Express Corp.* 10,465,000
-------------------------------------------------
130,000 Ryder System 3,867,500
------------------------------------------------- --------------
26,688,750
------------------------------------------------- --------------
TELECOMMUNICATIONS--5.4%
-------------------------------------------------
500,000 BellSouth Corp. 20,375,000
-------------------------------------------------
183,000 CPT Telefonica del Peru S.A., ADR (Peru) 3,774,375
-------------------------------------------------
300,000 Frontier Corp. 8,700,000
-------------------------------------------------
300,000 GTE Corp. 12,637,500
-------------------------------------------------
72,918 Lucent Technologies, Inc. 3,427,146
-------------------------------------------------
400,000 Sprint Corp. 15,700,000
-------------------------------------------------
800,000 Telefonaktiebolaget LM Ericsson, Sp, ADR (Sweden) 22,100,000
-------------------------------------------------
150,000 Telefonica de Espana, ADR (Spain) 9,037,500
-------------------------------------------------
270,000 U S West, Inc. 8,201,250
-------------------------------------------------
350,000 WorldCom, Inc. 8,531,250
------------------------------------------------- --------------
112,484,021
------------------------------------------------- --------------
UTILITIES--3.3%
-------------------------------------------------
200,000 CINergy Corp. 6,625,000
-------------------------------------------------
370,000 FPL Group Inc. 17,020,000
-------------------------------------------------
350,000 GPU, Inc. 11,506,250
-------------------------------------------------
120,000 Northern States Power Co. 5,640,000
-------------------------------------------------
500,000 Pinnacle West Capital Corp. 15,437,500
-------------------------------------------------
280,000 Texas Utilities Co. 11,340,000
------------------------------------------------- --------------
67,568,750
------------------------------------------------- --------------
TOTAL COMMON STOCK (COST $1,437,565,995) 1,797,599,226
------------------------------------------------- --------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ------------------------------------------------ --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
-----------------------------------------------------------
CONVERTIBLE PREFERRED STOCK--4.6%
-----------------------------------------------------------
AIRLINES--0.3%
------------------------------------------------
90,000 Continental Air Finance Trust, 8.50%, 12/01/20 # $ 5,535,000
------------------------------------------------ --------------
AUTOMOTIVE--0.2%
------------------------------------------------
45,000 Ford Motor Co., Ser. A, 8.4% 4,601,250
------------------------------------------------ --------------
BROADCASTING--0.2%
------------------------------------------------
100,000 American Radio Systems, 7.00%, # 4,900,000
------------------------------------------------ --------------
COMPUTERS/COMPUTER HARDWARE--0.3%
------------------------------------------------
50,000 Ceridian Corp., 5.5% 5,450,000
------------------------------------------------ --------------
CONSUMER PRODUCTS--0.9%
------------------------------------------------
700,000 RJR Nabisco Holdings Corp., 9.25%, Ser. C 3,937,500
------------------------------------------------
960,000 Westinghouse Electric, $1.30, Ser. C # 15,255,360
------------------------------------------------ --------------
19,192,860
------------------------------------------------ --------------
ENTERTAINMENT/LEISURE--0.4%
------------------------------------------------
200,000 Time Warner Financing Trust, $1.24 7,750,000
------------------------------------------------ --------------
FINANCIAL SERVICES--0.6%
------------------------------------------------
100,000 American General Delaware, $3.00, Ser. A 5,225,000
------------------------------------------------
91,000 SunAmerica Inc., $3.188, 10/31/99 Ser. 3,412,500
------------------------------------------------
148,000 The Money Store, $1.720, 12/01/99 Ser. 3,848,000
------------------------------------------------ --------------
12,485,500
------------------------------------------------ --------------
HEALTH CARE--0.3%
------------------------------------------------
225,000 FHP International Corp., Ser. A, 5.0% 6,468,750
------------------------------------------------ --------------
INSURANCE--0.2%
------------------------------------------------
67,000 American Bankers Insurance Group, 6.25%, Ser. B 3,844,125
------------------------------------------------ --------------
OIL & GAS--0.7%
------------------------------------------------
90,000 Diamond Shamrock, 5% # 5,190,120
------------------------------------------------
140,000 Occidental Petroleum, $3.00 8,995,000
------------------------------------------------ --------------
14,185,120
------------------------------------------------ --------------
PAPER/FOREST PRODUCTS--0.4%
------------------------------------------------
175,000 International Paper Capital Corp., 5.25% # 8,461,075
------------------------------------------------ --------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT ISSUER VALUE
----------- ------------------------------------------------ --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK--CONTINUED
------------------------------------------------------------
TELECOMMUNICATIONS--0.1%
------------------------------------------------
40,000 Viacom International, 5.0%, 7/31/06 Ser. $ 3,320,000
------------------------------------------------ --------------
TOTAL CONVERTIBLE PREFERRED STOCK (COST 96,193,680
$88,416,322)
------------------------------------------------ --------------
CORPORATE BONDS & NOTES--1.4%
------------------------------------------------------------
AUTOMOTIVE--0.2%
------------------------------------------------
$ 4,500,000 Magna International Inc., 5.00%, 10/15/02 4,910,355
------------------------------------------------ --------------
COMPUTER HARDWARE--0.2%
------------------------------------------------
4,000,000 Quantum Corp., 5.00%, 03/01/03 # 4,360,000
------------------------------------------------ --------------
ELECTRONICS/ELECTRICAL EQUIPMENT--0.3%
------------------------------------------------
7,000,000 Xilinx Inc., 5.25%, 11/01/02 # 6,600,300
------------------------------------------------ --------------
FINANCIAL SERVICES--0.5%
------------------------------------------------
1,500,000 Aames Financial Corp., 5.50%, 03/15/06 # 2,444,985
------------------------------------------------
6,600,000 South African Pulp & Paper Industries, BVI
Finance Ltd., 7.50%, 06/30/06 6,121,500
------------------------------------------------
2,000,000 UBS Finance of Delaware, 2.00%, 12/15/00 1,870,000
------------------------------------------------ --------------
10,436,485
------------------------------------------------ --------------
HEALTH CARE--0.2%
------------------------------------------------
4,000,000 Tenet Healthcare Corp., 6.00%, 12/01/05 4,095,000
------------------------------------------------ --------------
TOTAL CORPORATE BONDS & NOTES (COST $29,600,000) 30,402,140
------------------------------------------------ --------------
CONVERTIBLE CORPORATE BONDS & NOTES--2.0%
------------------------------------------------------------
COMPUTERS/COMPUTER HARDWARE--0.2%
------------------------------------------------
4,000,000 Applied Magnetics Corp., 7.00%, 3/15/06 # 5,166,000
------------------------------------------------ --------------
ELECTRONICS/ELECTRICAL EQUIPMENT--0.2%
------------------------------------------------
3,850,000 SCI Systems Inc., 5.00%, 05/01/06 # 4,706,625
------------------------------------------------ --------------
FINANCIAL SERVICES--0.2%
------------------------------------------------
2,300,000 First Financial Management, 5.00%, 12/15/99 4,315,306
------------------------------------------------ --------------
HEALTH CARE--0.1%
------------------------------------------------
1,200,000 Sterling House, 6.75%, 06/30/06 # 984,000
------------------------------------------------ --------------
</TABLE>
BLANCHARD GROWTH & INCOME PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUER VALUE
----------- ------------------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
-------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS & NOTES--CONTINUED
-------------------------------------------------------------
HOTELS/OTHER LODGING--0.4%
-------------------------------------------------
$ 6,885,000 Hilton Hotels Corp., 5.00%, 05/15/06 $ 7,625,138
------------------------------------------------- --------------
MANUFACTURING--0.4%
-------------------------------------------------
4,000,000 3 Com Corp., 10.25%, 11/01/01 # 8,265,640
-------------------------------------------------
1,000,000 Waban Inc., 6.50%, 07/01/02 1,093,750
------------------------------------------------- --------------
9,359,390
------------------------------------------------- --------------
PHARMACEUTICALS--0.3%
-------------------------------------------------
5,000,000 ICN Pharmaceuticals, 8.50%, 11/15/99 5,385,950
------------------------------------------------- --------------
RETAILING--0.2%
-------------------------------------------------
4,000,000 Federated Department Stores *, 5.00%, 10/01/03 4,612,520
------------------------------------------------- --------------
TOTAL CONVERTIBLE CORPORATE BONDS & NOTES (COST 42,154,929
$32,207,500)
------------------------------------------------- --------------
TOTAL LONG-TERM INVESTMENTS (COST $1,587,789,817) 1,966,349,975
------------------------------------------------- --------------
SHORT-TERM INVESTMENTS--6.4%
-------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS--1.0%
-------------------------------------------------
20,000,000 Federal Home Loan Mortgage Corp., Discount Notes,
5.12%, 11/13/96 19,965,867
------------------------------------------------- --------------
COMMERCIAL PAPER--5.4%
-------------------------------------------------
20,000,000 Cargill Inc., 5.27%, 11/22/96 19,938,517
-------------------------------------------------
20,000,000 Commerzbank US Finance Inc., 5.24%, 11/20/96 19,944,689
-------------------------------------------------
33,716,000 Household Finance Corp., 5.40%, 11/01/96 33,716,000
-------------------------------------------------
20,000,000 Lucent Technologies, Inc., 5.21%, 11/22/96 19,939,217
-------------------------------------------------
20,000,000 Merrill Lynch & Co., Inc., 5.25%, 11/13/96 19,965,000
------------------------------------------------- --------------
113,503,423
------------------------------------------------- --------------
TOTAL SHORT-TERM INVESTMENTS (COST $133,469,290) 133,469,290
------------------------------------------------- --------------
100.4% TOTAL INVESTMENTS (COST $1,721,259,107) $2,099,819,265
------------------------------------------------- --------------
</TABLE>
#Security may only be sold to qualified institutional buyers.
*Non income producing security.
ADR--American Depositary Receipt
See notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & CAPITAL
INCOME GROWTH
PORTFOLIO PORTFOLIO
-------------- --------------
<S> <C> <C>
ASSETS:
- ----------------------------------------------
Investment securities, at value (Note 1) $2,099,819,265 $1,103,102,580
- ----------------------------------------------
Cash 956 941
- ----------------------------------------------
Receivables:
- ----------------------------------------------
Investment securities sold 20,216,167 8,824,987
- ----------------------------------------------
Interest and dividends 4,587,325 750,403
- ----------------------------------------------
Other assets 94,485 78,120
- ---------------------------------------------- -------------- --------------
Total Assets 2,124,718,198 1,112,757,031
- ---------------------------------------------- -------------- --------------
LIABILITIES:
- ----------------------------------------------
Payable for investment securities purchased 31,402,747 22,079,842
- ----------------------------------------------
Accrued Liabilities: (Note 2)
- ----------------------------------------------
Administration fees 88,975 47,321
- ----------------------------------------------
Investment advisory fees 710,802 378,562
- ----------------------------------------------
Custodian 35,044 6,110
- ----------------------------------------------
Other 132,689 112,863
- ---------------------------------------------- -------------- --------------
Total Liabilities 32,370,257 22,624,698
- ---------------------------------------------- -------------- --------------
NET ASSETS Applicable to Investors' Beneficial
Interests $2,092,347,941 $1,090,132,333
- ---------------------------------------------- -------------- --------------
Cost of Investments $1,721,063,078 $ 925,693,831
- ---------------------------------------------- -------------- --------------
</TABLE>
See Notes to financial statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & CAPITAL
INCOME GROWTH
PORTFOLIO PORTFOLIO
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------
Dividend $ 40,163,037 $ 11,147,019
- --------------------------------------------------
Interest 15,979,731 6,376,287
- -------------------------------------------------- ------------ ------------
Total investment income 56,142,768 17,523,306
- -------------------------------------------------- ------------ ------------
EXPENSES: (NOTE 2)
- --------------------------------------------------
Investment Advisory fees 8,101,188 4,226,466
- --------------------------------------------------
Administration fees 1,012,648 528,308
- --------------------------------------------------
Custodian fees 141,771 81,603
- --------------------------------------------------
Amortization of organization costs (Note 1) 8,012 8,012
- --------------------------------------------------
Professional fees 62,232 66,809
- --------------------------------------------------
Trustees fees and expenses 88,590 51,050
- --------------------------------------------------
Other 104,455 109,511
- -------------------------------------------------- ------------ ------------
Total expenses 9,518,896 5,071,759
- -------------------------------------------------- ------------ ------------
Net investment income 46,623,872 12,451,547
- --------------------------------------------------
------------------------------------------------- ------------ ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
- --------------------------------------------------
Net realized gain on:
- --------------------------------------------------
Investments 155,750,263 132,963,967
- --------------------------------------------------
Futures and written option transactions 7,927,539 --
- --------------------------------------------------
Change in net unrealized appreciation/depreciation
on:
- --------------------------------------------------
Investments 164,599,862 71,608,504
- --------------------------------------------------
Futures and written option transactions (1,362,579) --
- -------------------------------------------------- ------------ ------------
Net realized and unrealized gain on investments 326,915,085 204,572,471
- -------------------------------------------------- ------------ ------------
Net increase in net assets from operations $373,538,957 $217,024,018
- -------------------------------------------------- ------------ ------------
</TABLE>
See Notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO CAPITAL GROWTH PORTFOLIO
------------------------------ --------------------------------
YEAR ENDED YEAR ENDED
------------------------------ --------------------------------
10/31/96 10/31/95 10/31/96 10/31/95
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS:
- ------------------------
FROM OPERATIONS--
- ------------------------
Net investment income $ 46,623,872 $ 49,161,074 $ 12,451,547 $ 14,034,371
- ------------------------
Net realized gain on
investments and futures
transactions 163,677,802 95,276,889 132,963,967 38,313,408
- ------------------------
Change in net unrealized
appreciation on
investments
and futures 163,237,283 154,841,478 71,608,504 83,513,979
- ------------------------ -------------- -------------- --------------- ---------------
Increase in net assets
from operations 373,538,957 299,279,441 217,024,018 135,861,758
- ------------------------ -------------- -------------- --------------- ---------------
TRANSACTIONS IN
INVESTORS'
BENEFICIAL INTEREST:
- ------------------------
Contributions 470,616,913 511,820,403 1,114,082,444 1,403,653,138
- ------------------------
Withdrawals (605,973,572) (542,453,501) (1,260,399,848) (1,217,251,104)
- ------------------------ -------------- -------------- --------------- ---------------
Net increase (decrease)
from transactions in
investors'
beneficial interests (135,356,659) (30,633,098) (146,317,404) 186,402,034
- ------------------------ -------------- -------------- --------------- ---------------
Net increase in net
assets 238,182,298 268,646,343 70,706,614 322,263,792
- ------------------------
NET ASSETS:
- ------------------------
Beginning of period 1,854,165,643 1,585,519,300 1,019,425,719 697,161,927
- ------------------------ -------------- -------------- --------------- ---------------
End of period $2,092,347,941 $1,854,165,643 $ 1,090,132,333 $ 1,019,425,719
- ------------------------ -------------- -------------- --------------- ---------------
</TABLE>
See Notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
- -------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Growth and Income Portfolio ("GIP") and Capital Growth Portfolio ("CGP"), (the
"Portfolios") are separately registered under the Investment Company Act of
1940, as amended, as non-diversified, open end management investment companies
organized as trusts under the laws of the State of New York. Each declaration
of trust permits the Trustees to issue beneficial interests in the respective
Portfolios. The GIP and the CGP commenced operations on November 29, 1993.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Portfolios:
A.VALUATION OF INVESTMENTS--Equity securities, purchased options and futures
are valued at the last sale price on the exchange on which they are
primarily traded, including the NASDAQ National Market. Securities for
which sale prices are not available and other over-the-counter securities
are valued at the last quoted bid price. Bonds and other fixed income
securities (other than short-term obligations), including listed issues,
are valued on the basis of valuations supplied by pricing services or by
matrix pricing systems of a major dealer in bonds. Short-term debt
securities with 61 days or more to maturity at time of purchase are valued,
through the 61st day prior to maturity, at market value based on quotations
obtained from market makers or other appropriate sources; thereafter, the
value on the 61st day is amortized on a straight-line basis over the
remaining number of days to maturity. Short-term investments with 60 days
or less to maturity at time of purchase are valued at amortized cost, which
approximates market. Portfolio securities for which there are no such
quotations or valuations are valued at fair value as determined in good
faith by or at the direction of the Trustees.
B.REPURCHASE AGREEMENTS--It is the Trusts' policy that repurchase agreements
are fully collateralized by U.S. Treasury and Government Agency securities.
All collateral is held by the Trusts' custodian bank, subcustodian, or a
bank with which the custodian bank has entered into a subcustodian
agreement, or is segregated in the Federal Reserve Book Entry System. In
connection with transactions in repurchase agreements, if the seller
defaults and the value of the collateral declines, or if the seller enters
an insolvency proceeding, realization of the collateral by the Trusts may
be delayed or limited.
C.FUTURES CONTRACTS--When a portfolio enters into a futures contract, it
makes an initial margin deposit in a segregated account, either in cash or
liquid securities. Thereafter, the futures contract is marked to market and
the portfolio makes (or receives) additional cash payments daily to the
broker. Changes in the value of the contract are recorded as unrealized
appreciation/depreciation until the contract is closed or settled.
The GIP invested a portion of its liquid assets in long stock index futures
contracts to more fully participate in the market. Use of futures contracts
subject the Portfolio to risk of loss up to the amount of the value of the
contract.
The Portfolio may enter into futures contracts only on exchanges or boards
of trade. The exchange or board of trade acts as the counterparty to each
futures transaction, therefore, the Portfolio's credit risk is limited to
failure of the exchange or board of trade.
As of October 31, 1996, the Portfolios had no outstanding futures
contracts.
D.WRITTEN OPTIONS--When a portfolio writes an option on a futures contract,
an amount equal to the premium received by the portfolio is included in the
portfolio's Statement of Assets and Liabilities as an asset and
corresponding liability. The amount of the liability is adjusted daily to
reflect the current market value of the written options and the change is
recorded in a corresponding unrealized gain or loss account. When a written
option expires on its stipulated expiration date, or when a closing
transaction is entered into, the related liability is extinguished and the
portfolio realizes a gain (or loss if the cost of the closing transaction
exceeds the premium received when the option was written).
The GIP writes options on stock index securities futures. These options are
settled for cash and subject the Portfolio to market risk in excess of the
amounts that are reflected in the Statement of Assets and Liabilities. The
Portfolio, however, is not subject to credit risk on written options as the
counterparty has already performed its obligation by paying a premium at
the inception of the contract.
As of October 31, 1996 the Portfolios had no outstanding written options.
E.SECURITY TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
accounted for on the trade date (the date the order to buy or sell is
executed). Securities gains and losses are calculated on the identified
cost basis. Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date.
F.ORGANIZATION COSTS--Organization and initial registration costs incurred in
connection with establishing the Portfolios have been deferred and are
being amortized on a straight-line basis over a sixty month period
beginning at the commencement of operations of each Portfolio.
G.FEDERAL INCOME TAXES--The Portfolios intend to continue to qualify as
partnerships and therefore net income and net realized gains are taxed to
the partners. Accordingly, no tax provisions are recorded by the
Portfolios. The investors in the Portfolios must take into account their
proportionate share of the Portfolios' income, gains, losses, deductions,
credits and tax preference items in computing their federal income tax
liability, without regard to whether they have received any cash
distributions from the Portfolio. The Portfolios do not intend to
distribute to investors their net investment income or their net realized
gains, if any. It is intended that the Portfolios will be managed in such a
way that investors in the portfolio will be able to satisfy the
requirements of subchapter M of the Internal Revenue Code to be taxed as
regulated investment companies.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
A.INVESTMENT ADVISORY FEE--Pursuant to separate Investment Advisory
Agreements, The Chase Manhattan Bank ("Chase" or the "Adviser") acts as the
Investment Adviser to the Portfolios. Chase is a direct wholly-owned
subsidiary of The Chase Manhattan Corporation. As Investment Adviser, Chase
supervises the investments of the Portfolios and for such services is paid
a fee.
The fee is computed daily and paid monthly at an annual rate equal to 0.40%
of the Portfolios' average daily net assets.
Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is
the sub-investment adviser to each of the Portfolios pursuant to a Sub-
Investment Advisory Agreement between CAM and Chase. CAM is a wholly owned
subsidiary of Chase and is entitled to receive a fee, payable by Chase from
its advisory fee, at an annual rate equal to 0.20% of each Portfolio's
average daily net assets.
B.CUSTODIAL FEES--Chase, as Custodian provides safekeeping services for the
Portfolios' securities. Compensation for such services are presented in the
Statement of Operations as custodian fees.
C.ADMINISTRATION FEE--Pursuant to an Administration Agreement, Chase (the
"Administrator") provides certain administration services to the Trusts.
For these services and facilities, the Administrator receives from each
Portfolio a fee computed at the annual rate equal to 0.05% of the
respective Portfolio's average daily net assets.
3. INVESTMENT TRANSACTIONS
For the year ended October 31, 1996, purchases and sales of investments
(excluding short-term investments) were as follows:
<TABLE>
<CAPTION>
GIP CGP
- ------------------------------------- -------------- ------------
<S> <C> <C>
Purchases (excluding U.S. Government) $1,187,045,632 $865,730,088
- -------------------------------------
Sales (excluding U.S. Government) 1,135,951,143 953,423,528
- -------------------------------------
Purchases of U.S. Government 20,197,299 570,385
- -------------------------------------
Sales of U.S. Government 25,429,221 --
- -------------------------------------
</TABLE>
The portfolio turnover rates of GIP and CGP for the year end ended were 62%
and 90%, respectively. The average commission rates paid per share were
$0.05949 and $0.05843 for GIP and CGP, respectively.
4. RETIREMENT PLAN
The Portfolios have adopted an unfunded noncontributory defined benefit
pension plan covering all independent trustees of the Portfolios who will have
served as an independent trustee for at least five years at the time of
retirement. Benefits under this plan are based on compensation and years of
service. Pension expenses for the year ended October 31, 1996, included in
Trustees Fees and Expenses in the Statement of Operations, prepaid pension
costs and accrued pension liability included in other assets, and other
accrued liabilities, respectively, in the Statement of Assets and Liabilities
were as follows:
<TABLE>
<CAPTION>
PREPAID ACCRUED
PENSION PENSION PENSION
EXPENSES ASSETS LIABILITY
- --- -------- ------- ---------
<S> <C> <C> <C>
GIP $19,631 $60,845 $80,476
- ---
CGP 9,910 30,717 40,627
- ---
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Trustees and Beneficial Interest Holders of
Growth and Income PortfolioCapital Growth Portfolio
In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets present fairly, in all material
respects, the financial position of Vista Growth and Income Portfolio and
Vista Capital Growth Portfolio (the "Portfolios") at October 31, 1996, the
results of each of their operations for the year then ended, and the changes
in their net assets for each of the two years in the period then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Portfolios' management; our
responsibility is to express an opinion on these financial statements 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 October 31, 1996 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
December 10, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Edward C. Gonzales
William J. Copeland President and Treasurer
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. John W. McGonigle
Edward C. Gonzales Executive Vice President and
Peter E. Madden Secretary
Gregor F. Meyer Joseph S. Machi
John E. Murray, Jr. Vice President and Assistant
Wesley W. Posvar Treasurer
Marjorie P. Smuts Richard B. Fisher
Vice President
C. Grant Anderson
Assistant Secretary
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectus which
contain facts concerning its objective and policies, management fees,
expenses and other information.
