BLANCHARD CAPITAL GROWTH FUND
(A PORTFOLIO OF THE BLANCHARD GROUP OF FUNDS)
ADDENDUM TO THE ANNUAL REPORT DATED OCTOBER 31, 1996
BLANCHARD CAPITAL GROWTH FUND
Addendum to Annual Report for the period ended October 31, 1996
Omitted from the most recent Annual Report for Blanchard Capital Growth
Fund, were the results of the last Special Meeting of Shareholders of
Blanchard Capital Growth Fund.
The Shareholders of Blanchard Capital Growth Fund (`BCGF'') voted to
approve the following items:
AN INTERIM INVESTMENT ADVISORY AGREEMENT BETWEEN CAPITAL GROWTH
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.
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 107,860 shares having voted to approve
the proposed Agreement, 840 having voted negatively and 6,827 shares having
abstained from voting.
APPROVAL OF THE FOLLOWING PROPOSALS PERTAINING TO THE FUNDAMENTAL
INVESTMENT RESTRICTIONS OF THE MASTER PORTFOLIO AND OF BCGF:
A. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING BORROWING;
The motion was duly adopted with 98,094 shares having voted to approve the
proposed Agreement, 4,317 having voted negatively, 12,034 shares having
abstained from voting and 1,082 broker non-votes.
B. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING INVESTMENT FOR THE PURPOSE OF
EXERCISING CONTROL;
The motion was duly adopted with 100,467 shares having voted to approve the
proposed Agreement, 1,944 having voted negatively, 12,034 shares having
abstained from voting and 1,082 broker non-votes.
C. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING THE MAKING OF LOANS;
The motion was duly adopted with 97,535 shares having voted to approve the
proposed Agreement, 4,055 having voted negatively, 12,856 shares having
abstained from voting and 1,081 broker non-votes.
D. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING PURCHASES OF SECURITIES ON
MARGIN;
The motion was duly adopted with 98,807 shares having voted to approve the
proposed Agreement, 4,317 having voted negatively, 11,321 shares having
abstained from voting and 1,082 broker non-votes.
E. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING CONCENTRATION OF INVESTMENT;
The motion was duly adopted with 102,101 shares having voted to approve the
proposed Agreement, 1,595 having voted negatively, 139,948 shares having
abstained from voting and 1,082 broker non-votes.
F. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING COMMODITIES AND REAL ESTATE;
The motion was duly adopted with 100,786 shares having voted to approve the
proposed Agreement, 2,268 having voted negatively, 11,391 shares having
abstained from voting and 1,083 broker non-votes.
G. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION REGARDING INVESTMENTS IN RESTRICTED AND
ILLIQUID SECURITIES;
The motion was duly adopted with 97,526 shares having voted to approve the
proposed Agreement, 4,422 having voted negatively, 12,496 shares having
abstained from voting and 1,084 broker non-votes.
H. A RECLASSIFICATION, AS NON-FUNDAMENTAL, OF THE MASTER PORTFOLIO
AND BCGF'S FUNDAMENTAL RESTRICTION CONCERNING THE USE OF
OPTIONS;
The motion was duly adopted with 98,921 shares having voted to approve the
proposed Agreement, 4,704 having voted negatively, 10,819 shares having
abstained from voting and 1,084 broker non-votes.
I. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION CONCERNING SENIOR SECURITIES; AND
The motion was duly adopted with 98,548 shares having voted to approve the
proposed Agreement, 3,863 having voted negatively, 12,034 shares having
abstained from voting and 1,083 broker non-votes.
J. AN AMENDMENT TO THE MASTER PORTFOLIO AND BCGF'S FUNDAMENTAL
INVESTMENT RESTRICTION REGARDING SHORT SALES OF SECURITIES.
The motion was duly adopted with 98,737 shares having voted to approve the
proposed Agreement, 4,317 having voted negatively, 11,391 shares having
abstained from voting and 1,083 broker non-votes.
AN AMENDMENT TO BCGF'S FUNDAMENTAL INVESTMENT OBJECTIVE TO CONFORM
SUCH OBJECTIVE TO THE INVESTMENT OBJECTIVE AND POLICIES OF THE
MASTER PORTFOLIO IN WHICH BCGF INVESTS.
The motion was duly adopted with 102,011 shares having voted to approve the
proposed Agreement, 1,865 having voted negatively, 10,569 shares having
abstained from voting and 1,083 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 093265403
G01687-15 (3/97)
Portfolio Adviser
Chase Manhattan Bank, N.A.
Blanchard
Capital Growth 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(R) 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 093265403
G01684-11 (12/96)
Blanchard
Capital
Growth Fund
Annual Report
October 31, 1996
Managed by: Virtus Capital Management, Inc.
Blanchard
PRESIDENT'S MESSAGE
December 15, 1996
Dear Shareholder:
I'm pleased to present the Annual Report for the Blanchard Capital Growth 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 Capital
Growth Fund.
Sincerely,
Edward C. Gonzales
Edward C. Gonzales
President
Dear Shareholder,
Enclosed you will find the Annual Report for your Blanchard Capital Growth
Fund for the fiscal year ended October 31, 1996.
[GRAPH APPEARS HERE]
An opportunistic approach backed up by disciplined stock selection was a key
factor in the performance of the Blanchard Capital Growth Fund for the year
ended October 31, 1996. The Fund provided shareholders with a total return of
14.62%, as compared to the Russell 2000 Index** (16.61%) and the Lipper Mid Cap
Fund Index (18.47%).
The strong performance of the broad indexes masked a fair degree of
volatility and sector rotation throughout the reporting year. The Fund's
ability to turn in a strong performance despite maintaining broad
diversification, was largely due to the manager's stock selection and sector
allocation adjustments.
MARKET DIPS PROVIDE BUYING OPPORTUNITY
With its focus on small-and mid-capitalization stocks, the Fund was able to
post strong performance by taking advantage of market
** The Russell 2000 Index is an unmanaged index consisting of approximately
2000 small capitalization common stocks. Investments can not be made in an
index.
drops. Since such declines generally tend to be indiscriminate in cutting the
prices of all stocks within a given sector, they present excellent
opportunities to purchase high-quality stocks at relatively low prices. The
Fund's manager attempted to find such values following the major decline in
technology stocks in November, 1995.
In early 1996, the Fund began favoring cyclical companies that benefit in a
growing economy before turning a bit more defensive later in June and focusing
on other sectors, including financial companies. This proved beneficial during
July's sharp downturn, as did the Fund's relatively high cash position. Once
again, the manager was able to go bargain-hunting, buying the stocks of high-
quality companies in the technology, financial and other areas at very
attractive valuations.
A FOCUS ON VISIBLE EARNINGS GROWTH
Given the manager's view that the economy will slow during the remainder of
1996 and related concerns about corporate earnings, the Fund is focused on
buying the stocks of companies that can exhibit visible earnings growth.
Individual stock selection, not sector weightings, will drive decisions.
Despite the fact that the stock market indexes are currently at all-time highs,
Chase's stock management system continues to identify small- and mid-cap issues
with excellent characteristics.
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
Capital Growth Portfolio
BLANCHARD CAPITAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- ------------------------------------------------------------------
Investments in Portfolio, at value $1,531,400
- ------------------------------------------------------------------
Receivable for shares sold 95,754
- ------------------------------------------------------------------
Deferred organizational expense 53,406
- ------------------------------------------------------------------
Other assets 53,400
- ------------------------------------------------------------------ ----------
Total assets 1,733,960
- ------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Accrued expenses 28,112
- ------------------------------------------------------------------ ----------
NET ASSETS $1,705,848
- ------------------------------------------------------------------ ----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------
Paid in capital $1,243,554
- ------------------------------------------------------------------
Net unrealized appreciation of investments in Portfolio 309,293
- ------------------------------------------------------------------
Accumulated net realized gain on investments in Portfolio 153,001
- ------------------------------------------------------------------ ----------
Total Net Assets $1,705,848
- ------------------------------------------------------------------ ----------
SHARES OUTSTANDING 194,365
- ------------------------------------------------------------------ ----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
(Net assets / shares outstanding) $8.78
- ------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD CAPITAL GROWTH FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
- ---------------------------------------------------------------
Dividend $ 17,746
- ---------------------------------------------------------------
Interest 9,899
- --------------------------------------------------------------- --------
Expenses allocated from Portfolio (7,953)
- --------------------------------------------------------------- --------
Net investment income allocated from Portfolio 19,692
- --------------------------------------------------------------- --------
EXPENSES:
- ----------------------------------------------------
Management fee $ 12,080
- ----------------------------------------------------
Administrative personnel and services fee 75,000
- ----------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 38,847
- ----------------------------------------------------
Directors'/Trustees' fees 1,500
- ----------------------------------------------------
Auditing fees 16,921
- ----------------------------------------------------
Legal fees 9,000
- ----------------------------------------------------
Distribution services fee 8,629
- ----------------------------------------------------
Share registration costs 22,698
- ----------------------------------------------------
Printing and postage 34,653
- ----------------------------------------------------
Amortization of organizational costs 17,772
- ----------------------------------------------------
Miscellaneous 4,059
- ---------------------------------------------------- ---------
Total expenses 241,159
- ---------------------------------------------------- ---------
Waivers and Reimbursements--
- ------------------------------------------
Waiver of Management fee $(12,080)
- ------------------------------------------
Waiver of Distribution services fee (8,629)
- ------------------------------------------
Waiver of Administrative personnel and
services fee (62,466)
- ------------------------------------------
Reimbursement of other operating expenses (53,400)
- ------------------------------------------ --------
Total waivers and reimbursements (136,575)
- ---------------------------------------------------- ---------
Net expenses 104,584
- --------------------------------------------------------------- --------
Net operating loss (84,892)
- --------------------------------------------------------------- --------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS ALLOCATED FROM
PORTFOLIO:
- ---------------------------------------------------------------
Net realized gain on investment transactions 211,230
- ---------------------------------------------------------------
Net change in unrealized appreciation of investments in
Portfolio 117,142
- --------------------------------------------------------------- --------
Net realized and unrealized gain on investments in
Portfolio 328,372
- --------------------------------------------------------------- --------
Change in net assets resulting from operations $243,480
- --------------------------------------------------------------- --------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD CAPITAL GROWTH 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 operating loss $ (84,892) $ (58,626)
- ----------------------------------------------------
Net realized gain on investments in Portfolio 211,230 54,854
- ----------------------------------------------------
Net change in unrealized appreciation of investments
in Portfolio 117,142 192,151
- ---------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 243,480 188,379
- ---------------------------------------------------- ----------- -----------
SHARE TRANSACTIONS--
- ----------------------------------------------------
Proceeds from sale of shares 2,237,018 6,052,689
- ----------------------------------------------------
Cost of shares redeemed (2,485,655) (4,530,063)
- ---------------------------------------------------- ----------- -----------
Change in net assets resulting from share
transactions (248,637) 1,522,626
- ---------------------------------------------------- ----------- -----------
Change in net assets (5,157) 1,711,005
- ---------------------------------------------------- ----------- -----------
NET ASSETS:
- ----------------------------------------------------
Beginning of period 1,711,005 --
- ---------------------------------------------------- ----------- -----------
End of period $ 1,705,848 $ 1,711,005
- ---------------------------------------------------- ----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD CAPITAL GROWTH 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 $ 7.66 $ 7.00
- ------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------
Net operating loss (0.44) (0.26)
- ------------------------------------------------
Net realized and unrealized gain on investments 1.56 0.92
- ------------------------------------------------ ------ ------
Total from investment operations 1.12 0.66
- ------------------------------------------------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.78 $ 7.66
- ------------------------------------------------ ------ ------
TOTAL RETURN (A) 14.62% 9.43%
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------
Expenses (b) 6.53% 6.19%
- ------------------------------------------------
Net operating loss (4.93%) (4.20%)
- ------------------------------------------------
Expense waiver/reimbursement (c) 7.93% 1.97%
- ------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------
Net assets, end of period (000 omitted)
- ------------------------------------------------ $1,706 $1,711
</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 CAPITAL GROWTH 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 Capital Growth Fund (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 growth. The
Fund seeks to achieve its investment objective by investing all of its
investable assets in Capital Growth 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 0.14% 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. These differences primarily are due to differing treatments for
net operating losses. Amounts as of October 31, 1996 have been reclassified
to reflect the following:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------------------------------------------------------
ACCUMULATED DISTRIBUTIONS ACCUMULATED NET REALIZED
IN EXCESS OF NET GAIN ON INVESTMENTS IN
PAID-IN-CAPITAL INVESTMENT INCOME PORTFOLIO
--------------- ------------------------- ------------------------
<S> <C> <C>
$(26,663) $84,892 $(58,229)
</TABLE>
BLANCHARD CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------
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.
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 its
organization, including 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 277,867 808,463
- ----------------------------------------------
Shares redeemed (306,772) (585,193)
- ---------------------------------------------- -------- --------
Net change resulting from share transactions (28,905) 223,270
- ---------------------------------------------- -------- --------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT 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. These services include management of
the Fund, certain administrative services and selecting, monitoring, and
evaluating the Portfolio's manager. The Manager may voluntarily choose to
waive any portion of its fee and/or reimburse certain operating expenses of
the Fund. The Manager can modify or terminate this voluntary waiver and/or
reimbursement at any time at its sole discretion.
BLANCHARD CAPITAL GROWTH FUND
- -------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Fund with certain administrative personnel and services. This 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.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") 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.
5. SUBSEQUENT EVENT
Effective December 20, 1996, the Fund has filed with the Securities and
Exchange Commission a Prospectus/Proxy statement pertaining to the acquisition
of its assets by, and in a tax-free exchange for Investment Shares of The
Style Manager: Large Cap Fund, a portfolio of the Virtus Funds. The Virtus
Funds and Blanchard Funds are managed by the Virtus Capital Management, Inc.
This transaction is subject to the approval of shareholders.
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Board of Trustees of BLANCHARD FUNDS and Shareholders of BLANCHARD
CAPITAL GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of
Blanchard Capital Growth 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.
As discussed in Note 5 to the financial statements, the Fund has filed with
the Securities and Exchange Commission a prospectus/proxy statement that
describes a proposed Agreement and Plan of Reorganization of the Fund.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
December 20, 1996
BLANCHARD CAPITAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ----------------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--93.2%
----------------------------------------------------------
COMMON STOCK--92.1%
----------------------------------------------------------
AEROSPACE--2.0%
-----------------------------------------------
87,503 Precision Castparts Corp. $ 4,090,625
-----------------------------------------------
216,100 Rohr Industries, Inc.* 3,997,850
-----------------------------------------------
325,000 Sundstrand Corp. 13,081,250
----------------------------------------------- --------------
21,169,725
----------------------------------------------- --------------
AGRICULTURAL PRODUCTION/SERVICES--1.6%
-----------------------------------------------
410,000 AGCO Corp. 10,403,750
-----------------------------------------------
153,500 Case Corp. 7,137,750
----------------------------------------------- --------------
17,541,500
----------------------------------------------- --------------
AIRLINES--1.2%
-----------------------------------------------
500,000 Continental Airlines, Inc., Class B* 12,562,500
----------------------------------------------- --------------
AUTOMOTIVE--1.2%
-----------------------------------------------
350,000 Lear Corp.* 12,950,000
----------------------------------------------- --------------
BANKING--4.4%
-----------------------------------------------
220,000 Bank of Boston Corp. 14,080,000
-----------------------------------------------
300,000 Southtrust Corp. 9,937,500
-----------------------------------------------
200,000 Standard Federal Bancorp. 10,700,000
-----------------------------------------------
150,000 Zions Bancorporation 13,575,000
----------------------------------------------- --------------
48,292,500
----------------------------------------------- --------------
BROADCASTING--0.5%
-----------------------------------------------
Tele-Communications, Inc., Liberty Media Group, 5,150,000
200,000 Class A*
----------------------------------------------- --------------
BUSINESS SERVICES--2.6%
-----------------------------------------------
425,000 Equifax, Inc. 12,643,750
-----------------------------------------------
200,000 PHH Corp. 5,950,000
-----------------------------------------------
385,000 Primark Corp.* 9,576,875
----------------------------------------------- --------------
28,170,625
----------------------------------------------- --------------
</TABLE>
BLANCHARD CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ---------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
---------------------------------------------
COMMON STOCK--CONTINUED
---------------------------------------------
CHEMICALS--2.8%
----------------------------------
825,000 Agrium, Inc. $ 11,034,375
----------------------------------
200,000 Cabot Corp. 4,825,000
----------------------------------
135,000 Cytec Industries, Inc.* 4,826,250
----------------------------------
250,000 IMC Global, Inc. 9,375,000
---------------------------------- --------------
30,060,625
---------------------------------- --------------
COMPUTER SOFTWARE--5.0%
----------------------------------
160,000 American Management Systems, Inc.* 5,060,000
----------------------------------
241,000 Computervision Corp.* 2,169,000
----------------------------------
214,500 DST Systems, Inc.* 6,595,875
----------------------------------
600,000 Reynolds & Reynolds, Inc., Class A 15,825,000
----------------------------------
238,890 Sterling Commerce, Inc.* 6,718,781
----------------------------------
150,000 Sterling Software, Inc. 4,875,000
----------------------------------
550,000 Vanstar Corp.* 13,062,500
---------------------------------- --------------
54,306,156
---------------------------------- --------------
COMPUTERS/COMPUTER HARDWARE--5.5%
----------------------------------
500,000 EMC Corp.* 13,125,000
----------------------------------
100,000 Gateway 2000 Inc.* 4,706,250
----------------------------------
200,000 SCI Systems, Inc.* 9,950,000
----------------------------------
120,000 Seagate Technology, Inc.* 8,010,000
----------------------------------
200,000 Solectron Corp.* 10,700,000
----------------------------------
300,000 Storage Technology Corp.* 12,787,500
----------------------------------
17,500 U.S. Robotics Corp.* 1,100,313
---------------------------------- --------------
60,379,063
---------------------------------- --------------
CONSUMER PRODUCTS--4.8%
----------------------------------
250,000 Black & Decker Corp. 9,343,750
----------------------------------
550,000 First Brands Corp. 15,606,250
----------------------------------
450,000 Fruit of the Loom, Inc., Class A* 16,368,750
----------------------------------
200,000 Jones Apparel Group, Inc.* 6,250,000
----------------------------------
</TABLE>
BLANCHARD CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- -------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
-------------------------------------------------
COMMON STOCK--CONTINUED
-------------------------------------------------
CONSUMER PRODUCTS--CONTINUED
--------------------------------------
125,000 Liz Claiborne, Inc. $ 5,281,250
-------------------------------------- --------------
52,850,000
-------------------------------------- --------------
DIVERSIFIED--0.6%
--------------------------------------
150,000 Harnischfeger Industries, Inc. 6,000,000
-------------------------------------- --------------
ELECTRONICS/ELECTRICAL EQUIPMENT--5.8%
--------------------------------------
285,000 Adaptec, Inc.* 17,349,375
--------------------------------------
350,000 ADT Ltd.* 6,912,500
--------------------------------------
275,000 Atmel Corp.* 6,978,125
--------------------------------------
77,500 Harman International Industries, Inc. 3,981,563
--------------------------------------
120,000 Teleflex, Inc. 5,775,000
--------------------------------------
250,000 Teradyne Inc.* 3,968,750
--------------------------------------
349,500 UCAR International, Inc.* 13,674,188
--------------------------------------
150,000 Xilinx, Inc.* 4,912,500
-------------------------------------- --------------
63,552,001
-------------------------------------- --------------
ENTERTAINMENT/LEISURE--4.3%
--------------------------------------
500,000 Aztar Corp.* 4,062,500
--------------------------------------
600,000 Carnival Corp., Class A 18,075,000
--------------------------------------
175,000 Circus Circus Enterprises Inc.* 6,037,500
--------------------------------------
400,000 International Game Technology 8,450,000
--------------------------------------
400,000 Mirage Resorts, Inc.* 8,800,000
-------------------------------------- --------------
45,425,000
-------------------------------------- --------------
FINANCIAL SERVICES--5.6%
--------------------------------------
75,000 Aames Financial Corp. 3,346,875
--------------------------------------
100,000 Advanta Corp., Class A 4,831,250
--------------------------------------
400,000 Countrywide Credit Industries, Inc. 11,400,000
--------------------------------------
100,000 Finova Group, Inc. 6,175,000
--------------------------------------
200,000 First USA, Inc. 11,500,000
--------------------------------------
300,000 Green Tree Financial Corp. 11,887,500
--------------------------------------
</TABLE>
BLANCHARD CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ----------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
----------------------------------------------------
COMMON STOCK--CONTINUED
----------------------------------------------------
FINANCIAL SERVICES--CONTINUED
-----------------------------------------
260,000 The Money Store, Inc. $ 6,695,000
-----------------------------------------
100,000 The PMI Group, Inc. 5,712,500
----------------------------------------- --------------
61,548,125
----------------------------------------- --------------
FOOD/BEVERAGE PRODUCTS--0.4%
-----------------------------------------
100,000 Coca-Cola Enterprises, Inc. 4,262,500
----------------------------------------- --------------
HEALTH CARE--11.6%
-----------------------------------------
300,000 Beckman Instruments, Inc. 11,025,000
-----------------------------------------
1,000,000 Beverly Enterprises* 12,375,000
-----------------------------------------
100,000 Foundation Health Corp.* 2,987,500
-----------------------------------------
100,000 HBO & Co. 5,967,000
-----------------------------------------
300,000 HEALTHSOUTH Corp. 11,250,000
-----------------------------------------
135,000 Lincare Holdings, Inc.* 5,062,500
-----------------------------------------
220,000 Omnicare, Inc. 5,995,000
-----------------------------------------
550,000 OrNda Healthcorp* 14,987,500
-----------------------------------------
300,000 PhyCor, Inc. 9,300,000
-----------------------------------------
250,000 Steris Corp.* 9,437,500
-----------------------------------------
175,000 Sybron International Corp.* 5,096,875
-----------------------------------------
500,000 Tenet Healthcare Corp.* 10,437,500
-----------------------------------------
419,000 Universal Health Services, Inc., Class B* 10,475,000
-----------------------------------------
300,000 US Surgical Corp. 12,562,500
----------------------------------------- --------------
126,958,875
----------------------------------------- --------------
HOME BUILDING CONSTRUCTION--1.0%
-----------------------------------------
400,000 Oakwood Homes Corp. 10,600,000
----------------------------------------- --------------
INSURANCE--8.2%
-----------------------------------------
240,000 ACE, Ltd. # 13,140,000
-----------------------------------------
200,000 AFLAC, Inc. 8,025,000
-----------------------------------------
125,000 American Bankers Insurance Group, Inc. 6,000,000
-----------------------------------------
100,000 Conseco Inc. 5,350,000
-----------------------------------------
</TABLE>
BLANCHARD CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ---------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
---------------------------------------
COMMON STOCK--CONTINUED
---------------------------------------
INSURANCE--CONTINUED
----------------------------
200,000 MGIC Investment Corp. $ 13,725,000
----------------------------
265,000 Mid Ocean, Ltd. (Bermuda) 12,455,000
----------------------------
200,000 Reliastar Financial Corp. 10,600,000
----------------------------
200,000 SunAmerica, Inc. 7,500,000
----------------------------
170,000 Transatlantic Holdings, Inc. 12,240,000
---------------------------- --------------
89,035,000
---------------------------- --------------
MANUFACTURING--2.8%
----------------------------
85,000 Johnson Controls 6,205,000
----------------------------
310,000 Kennametal Inc. 10,540,000
----------------------------
157,500 Mark IV Industries 3,405,938
----------------------------
150,000 Parker Hannifin Corp. 5,681,250
----------------------------
200,000 Pentair, Inc. 5,050,000
---------------------------- --------------
30,882,188
---------------------------- --------------
METAL/MINING--0.5%
----------------------------
150,000 Trinity Industries, Inc. 5,193,750
---------------------------- --------------
OFFICE SUPPLIES--0.9%
----------------------------
150,000 Avery Dennison Corp. 9,881,250
---------------------------- --------------
OIL & GAS--3.7%
----------------------------
300,000 Coflexip SA, ADR (France) 6,750,000
----------------------------
400,000 Noble Drilling Corp.* 7,450,006
----------------------------
200,000 PanEnergy Corp. 7,700,000
----------------------------
150,000 Smith International* 5,700,000
----------------------------
300,000 Tidewater, Inc. 13,125,000
---------------------------- --------------
40,725,006
---------------------------- --------------
PAPER/FOREST PRODUCTS--0.4%
----------------------------
150,000 Boise Cascade Corp. 4,650,000
---------------------------- --------------
PIPELINES--0.8%
----------------------------
150,000 Columbia Gas System, Inc. 9,112,500
---------------------------- --------------
</TABLE>
BLANCHARD CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES ISSUER VALUE
---------- ---------------------------------------- --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
---------------------------------------------------
COMMON STOCK--CONTINUED
---------------------------------------------------
REAL ESTATE INVESTMENT TRUST--2.1%
----------------------------------------
200,000 Equity Residential Properties Trust $ 7,350,000
----------------------------------------
175,000 FelCor Suite Hotels, Inc. 5,731,250
----------------------------------------
222,400 Home Properties of New York, Inc. 4,448,000
----------------------------------------
200,000 Liberty Property Trust 4,325,000
----------------------------------------
100,000 ROC Communities, Inc. 2,437,500
---------------------------------------- --------------
24,291,750
---------------------------------------- --------------
RESTAURANTS/FOOD SERVICE--0.7%
----------------------------------------
375,000 Wendy's International, Inc. 7,734,375
---------------------------------------- --------------
RETAILING--3.8%
----------------------------------------
825,000 Eckerd Corp.* 22,893,750
----------------------------------------
150,000 Ethan Allen Interiors, Inc.* 5,362,500
----------------------------------------
150,000 Kroger Co.* 6,693,750
----------------------------------------
150,000 Proffitt's, Inc.* 6,056,250
---------------------------------------- --------------
41,006,250
---------------------------------------- --------------
STEEL--1.2%
----------------------------------------
50,000 AK Steel Holding Corp. 1,775,000
----------------------------------------
700,000 Birmingham Steel Corp. 11,200,000
---------------------------------------- --------------
12,975,000
---------------------------------------- --------------
TELECOMMUNICATIONS--2.7%
----------------------------------------
311,200 Aspect Telecommunications Corp.* 18,516,400
----------------------------------------
90,000 CPT Telefonica del Peru S.A., ADR (Peru) 1,856,250
----------------------------------------
300,000 Nextel Communications Inc., Class A* 4,800,000
----------------------------------------
250,000 Octel Communications Corp.* 3,968,750
---------------------------------------- --------------
29,141,400
---------------------------------------- --------------
TEXTILES--0.7%
----------------------------------------
256,600 Unifi, Inc. 7,986,675
---------------------------------------- --------------
</TABLE>
BLANCHARD CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT ISSUER VALUE
----------- ------------------------------------------------ --------------
<C> <S> <C>
LONG-TERM INVESTMENTS--CONTINUED
------------------------------------------------------------
COMMON STOCK--CONTINUED
------------------------------------------------------------
UTILITIES--2.7%
------------------------------------------------
400,000 American Power Conversion Corp.* $ 8,550,000
------------------------------------------------
200,000 CINergy Corp. 6,625,000
------------------------------------------------
220,000 DPL, Inc. 5,252,500
------------------------------------------------
300,000 Pinnacle West Capital Corp. 9,262,500
------------------------------------------------ --------------
29,690,000
------------------------------------------------ --------------
TOTAL COMMON STOCK (COST $826,576,579) 1,004,084,339
------------------------------------------------ --------------
CONVERTIBLE PREFERRED STOCK--0.3%
------------------------------------------------------------
BROADCASTING--0.3%
------------------------------------------------
American Radio Systems, 7.00%, # (COST 2,940,000
60,000 $3,000,000)
------------------------------------------------ --------------
CONVERTIBLE CORPORATE BONDS & NOTES--0.7%
------------------------------------------------------------
ELECTRONICS--0.4%
------------------------------------------------
$ 5,000,000 Xilinx Inc., 5.25%, 11/01/02 # 4,714,500
------------------------------------------------ --------------
PHARMACEUTICALS--0.3%
------------------------------------------------
3,000,000 ICN Pharmaceuticals, 8.50%, 11/15/99 3,231,570
------------------------------------------------ --------------
TOTAL CONVERTIBLE CORPORATE BONDS & NOTES (COST 7,946,070
$8,000,000)
------------------------------------------------ --------------
U.S. GOVERNMENT OBLIGATION--0.1%
------------------------------------------------------------
U.S. Treasury Note, 6.87%, 05/15/06 (COST 585,304
565,000 $570,385)
------------------------------------------------ --------------
TOTAL LONG-TERM INVESTMENTS (COST $838,146,964) 1,015,555,713
------------------------------------------------ --------------
SHORT-TERM INVESTMENTS--8.0%
------------------------------------------------------------
U.S. GOVERNMENT SPONSORED OBLIGATION--1.8%
------------------------------------------------
20,000,000 Federal Home Loan Mortgage Corp., Discount Note,
5.18%, 12/31/96 19,827,333
------------------------------------------------ --------------
</TABLE>
BLANCHARD CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ISSUER VALUE
----------- ------------------------------------------------ --------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--CONTINUED
------------------------------------------------------------
COMMERCIAL PAPER--6.2%
------------------------------------------------
$27,789,000 Household Finance Corp., 5.40%, 11/01/96 $ 27,789,000
------------------------------------------------
20,000,000 Nestle Capital Corp., 5.18%, 11/13/96 19,965,467
------------------------------------------------
20,000,000 SmithKline Beecham PLC, 5.24%, 11/13/96 19,965,067
------------------------------------------------ --------------
67,719,534
------------------------------------------------ --------------
TOTAL SHORT-TERM INVESTMENTS (COST $87,546,867) 87,546,867
------------------------------------------------ --------------
101.2% TOTAL INVESTMENTS (COST $925,693,831) $1,103,102,580
------------------------------------------------ --------------
</TABLE>
#Security may only be sold to qualified institutional buyers.
*Non income producing security.
tAll or a portion of this security is pledged to cover financial futures
contracts.
ACES--Automatic Common Exchange Securities.
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 Portfolio
Capital 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.
