Blanchard
Precious Metals
Fund, Inc.
[LOGO]
Annual Report
September 30, 1996
Managed by: Virtus Capital Management, Inc.
PRESIDENT'S MESSAGE
November 15, 1996
Dear Shareholder:
I'm pleased to present your Annual Report for the Blanchard Precious Metals
Fund, Inc. covering the 5-month period from May 1, 1996 through September 30,
1996. The report begins with commentary from Cavelti Capital Management, Ltd.,
the Fund's portfolio manager, followed by a complete listing of the Fund's
holdings and financial activity. Please note that the fiscal year-end of the
Fund has been changed from April 30 to September 30.
On your behalf, the Fund pursues a high level of growth through a
professionally managed portfolio of precious metals investments and securities
of mining companies involved in precious metals. During the 12-month period
ended September 30, 1996, the Fund produced a strong total return of 19.30%
through share price growth totaling $1.44 per share.* Assets in the Fund stood
at $88.1 million at the end of the period.
Thank you for selecting the Blanchard Precious Metals Fund to pursue your long-
term financial goals. If you have comments or questions, please call Investors'
Services at 1-800-829-3863.
Sincerely,
/s/ Edward C. Gonzales
Edward C. Gonzales
President
*Performance quoted reflects past performance. Investment return and principal
value will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
Dear Shareholders,
Enclosed please find the Annual Report for your Blanchard Precious Metals
Fund for the fiscal year ended September 30, 1996.
- -------------------------------------------------------------------------------
The Value of a $10,000 Investment in the
Blanchard Precious Metals Fund
from inception 6/23/88 through 9/30/96 as compared to the Toronto
Stock Exchange Gold & Silver Index for the same period
<TABLE>
<CAPTION>
Avg. Annual Returns through 9/30/96
Blanchard Precious Metals Fund*
<S> <C>
1 year 19.30%
5 year 13.29%
since inception (6/23/88) 3.47%
</TABLE>
[GRAPHIC REPRESENTATION OMITTED, SEE APPENDIX]
*The average annual returns quoted above do not reflect the deduction of the
one time account opening fee and assume reinvestment of distributions. If the
fee was reflected, the return would be lower. Total return includes changes in
principal value. Average annual return is total return annualized and
compounded. Past performance is no guarantee of future results.
Source: The Toronto Stock Exchange Gold & Silver Index is an unmanaged index of
the stock performance of companies engaged in gold and silver mining
activities. Investments cannot be made in an index.
Reflects the deduction of the one-time only $75 account opening fee.
This chart is for comparative purposes only and is not intended to reflect on
future performance of the Blanchard Precious Metals Fund or the index.
- -------------------------------------------------------------------------------
We ended last year's review of the Blanchard Precious Metals Fund with the
following:
"We have also increased our exposure to junior producers, favoring those
companies which are already in production, yet have a number of years of solid
growth ahead of them."
These junior holdings, in particular powered the Fund to a strong 19.30%
return in the last twelve months during a period where gold bullion remained
locked in a trading range. Unlike pure exploration plays, which generally
entail high risk, our junior holdings were either in production or in the
process of constructing their first mine. Most of them were utilizing the
simple process of heap leaching to recover gold from open pit deposits.
Our focus has been to invest in companies where the known gold resource under
their control amply supported the share price, while the geology at their
properties was highly prospective for expanding gold reserves. This allowed for
minimal downside risk while leaving the upside profit potential wide open. In
almost all cases, expanding production and gold reserves led to significant
share price appreciation.
Another way of looking at the junior versus senior mining company investment
decision is to consider what you are paying for every ounce of gold in the
ground. Typically, the junior shares are valued at $50 to $100 per ounce while
the senior shares are in the $200 to $300 per ounce range. It's not hard to see
that the likelihood of a smaller producer doubling in price is much greater
than that of a senior producer. Moreover, the senior producer has its work cut
out just trying to replace the million or two ounces which it mines every
year--let alone trying to expand reserves. For a 50,000 to 100,000 ounce
producer, reserve replacement is a much simpler task.
Looking at the global gold market, we see that gold production in the past
year declined slightly to 73 million ounces, as we expected, while fabrication
and investment demand rose by 7.8% to a record 116 million ounces. On the
surface, one would look at these numbers and expect that gold would be rising
sharply. However, a combination of scrap gold sales, producer hedging and
central bank sales added 43 million ounces to supply and kept the market in
balance. Of this, central banks sold 6.5 million ounces and producers sold 17.6
million ounces of future production. This latter figure matched the total
amount sold forward in the prior three years!
Central banks, on the other hand, are the hot topic at present. The market is
somewhat distressed by the prospect that government reserves of gold will be
readily sold into the market in response to any strength in gold. So far this
year, the Bank of Belgium has sold 6.5 million ounces and the Netherlands one
quarter of a million ounces. So last year's sales were surpassed in the opening
months of 1996. The historical evidence is that central banks sell at lows.
This pattern seems to be repeating. Even if central banks were to sell ten
million ounces of gold per year for the foreseeable future, this amount could
be readily absorbed with minimal price damage. Remember, the overall deficit
compared to mine production is in excess of 40 million ounces.
A LOOK AHEAD
During the Autumn of 1996, the gold market has labored under the burden of
potentially large sales of gold by the International Monetary Fund or IMF. Many
of our shareholders are unfamiliar with the connection between the IMF and the
gold market, so a little background may be of value.
. As of April 30, 1996, the IMF held 103.4 million fine ounces of gold at four
depositories. The market value of the gold is around US$40b.
. Any disposal of gold or purchase of gold requires 85% approval of the nation
members of the IMF and the IMF cannot engage in gold transactions such as
leases, loans, and swaps, and may not use gold as collateral.
. In 1995, the IMF reviewed the role of gold and set certain conditions. Two
key conditions are:
. The IMF should continue to hold a large amount of gold for prudential
reasons and to meet unforeseen contingencies,
. The IMF, as the second largest holder of gold in the world, has an
obligation to avoid disrupting markets.
After much deliberation, the IMF could not even agree to vote on the recent
proposal to sell five million ounces to IMF indebted countries. However,
Treasury Secretary Robert Rubin did say that he felt that gold sales totaling
five million ounces might be made starting no earlier than 1999 and parceled
out over a number of years. We feel that this represents no threat to the gold
market so it is likely in our view that the misplaced concern that came about
because of this issue has generated the low for the year in the gold price!
Our investment strategy for the year ahead remains unchanged. We will strive
to invest in gold mining companies whose internally generated growth is likely
to propel the share price higher, even if gold bullion does nothing. This
strategy should help us to generate attractive returns when gold is quiet, and
exceptional returns when the price is rising.
Thank you for your continued patronage. We look forward to serving you in the
months and years ahead.
Sincerely,
/s/ Peter C. Cavelti
Peter C. Cavelti
Chairman and CEO
Cavelti Capital Management Ltd.
Portfolio Manager of the
Blanchard Precious Metals Fund
BLANCHARD PRECIOUS METALS FUND, INC.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
IN U.S.
SHARES DOLLARS
--------- ---------------------------------- -----------
<C> <S> <C>
EQUITIES--78.3%
--------------------------------------------
METALS & MINING--78.3%
--------------------------------------------
AUSTRALIA--2.7%
----------------------------------
600,000 Croesus Mining NL $ 408,486
----------------------------------
500,000 (a)Laverton Gold NL 142,495
----------------------------------
798,000 (a)Lone Star Exploration NL 416,941
----------------------------------
1,760,000 (a)(b)Lone Star Exploration NL 1,033,698
----------------------------------
575,000 St. Barbara Mines Ltd. 345,947
---------------------------------- -----------
Total Australia 2,347,567
---------------------------------- -----------
CANADA--48.8%
----------------------------------
536,000 Cambior, Inc. 7,359,778
----------------------------------
488,000 (a)Dakota Mining Corp. 976,000
----------------------------------
706,600 (a)(b)Eldorado Gold Corp., Ltd. 4,279,752
----------------------------------
43,200 Franco-Nevada Mining Corp., Ltd. 1,619,088
----------------------------------
1,025,000 (a)(b) Geomaque Explorations, Ltd. 2,408,046
----------------------------------
2,816,400 (a)Great Lakes Minerals, Inc. 682,337
----------------------------------
325,000 (a)Kinross Gold Corp. 2,193,750
----------------------------------
420,000 (a)Meridian Gold, Inc. 1,732,500
----------------------------------
1,525,000 (a)Santa Cruz Gold, Inc. 1,847,331
----------------------------------
1,505,000 (a)TVX Gold, Inc. 10,329,722
----------------------------------
489,000 (a)Triton Mining Corp. 1,920,674
----------------------------------
6,567,722 (a)William Resources, Inc. 7,470,977
---------------------------------- -----------
Total Canada 42,819,955
---------------------------------- -----------
GHANA--4.2%
----------------------------------
220,000 (a)Ashanti Goldfields Co., ADR 3,685,000
---------------------------------- -----------
</TABLE>
BLANCHARD PRECIOUS METALS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/
TROY OUNCES/ VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
------------ ------------------------------------------------- -----------
<C> <S> <C>
EQUITIES--CONTINUED
--------------------------------------------------------------
METALS & MINING--CONTINUED
--------------------------------------------------------------
SOUTH AFRICA--3.3%
-------------------------------------------------
$ 216,700 East Rand Gold & Uranium Co., Ltd., ADR $ 423,242
-------------------------------------------------
180,000 Free State Consolidated Gold Mines Ltd., ADR 1,732,500
-------------------------------------------------
100,000 Vaal Reefs Explorations & Mining Co., Ltd., ADR 800,000
------------------------------------------------- -----------
Total South Africa 2,955,742
------------------------------------------------- -----------
UNITED STATES--19.3%
-------------------------------------------------
455,000 (a)(b)Atlas Corp. 341,250
-------------------------------------------------
1,285,000 (a)Canyon Resources Corp. 3,533,750
-------------------------------------------------
175,000 Coeur d'Alene Mines Corp. 2,515,625
-------------------------------------------------
250,000 Homestake Mining Co. 3,656,250
-------------------------------------------------
556,900 Santa Fe Pacific Gold 6,961,250
------------------------------------------------- -----------
Total United States 17,008,125
------------------------------------------------- -----------
TOTAL EQUITIES (IDENTIFIED COST $81,066,557) 68,816,389
------------------------------------------------- -----------
WARRANTS--0.0%
--------------------------------------------------------------
227,500 (a)(b)Atlas Corp., Warrants 4,550
-------------------------------------------------
75,000 (a)Canyon Resources Corp., Warrants --
-------------------------------------------------
629,000 (a)(b)Lone Star Exploration NL, Warrants, (expire
7/31/1997) --
------------------------------------------------- -----------
TOTAL WARRANTS (IDENTIFIED COST $102,375) 4,550
------------------------------------------------- -----------
PRECIOUS METAL--4.3%
--------------------------------------------------------------
10,034 (a)Gold Bullion (IDENTIFIED COST $3,868,954) 3,796,713
------------------------------------------------- -----------
U.S. TREASURY SECURITIES--14.7%
--------------------------------------------------------------
U.S. TREASURY BILLS--14.7%
-------------------------------------------------
13,000,000 11/14/1996 (IDENTIFIED COST $12,293,780) 12,923,780
------------------------------------------------- -----------
</TABLE>
BLANCHARD PRECIOUS METALS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
----------- -------------------------------------------------- -----------
<C> <S> <C>
(C) REPURCHASE AGREEMENT--3.4%
--------------------------------------------------------------
$ 2,964,416 CS First Boston Corp., 5.60%, dated 9/30/1996, due
10/1/1996
(AT AMORTIZED COST) $ 2,964,416
-------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $100,296,082)
(D) $88,505,848
-------------------------------------------------- -----------
</TABLE>
(a) Non-income producing security.
(b) Certain of these securities are subject to restrictions on resale under
Federal Securities laws. At September 30, 1996, these securities amounted
to $4,916,976 which represents 5.6% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(d) The cost of investments for federal tax purposes amounts to $101,294,231.
The unrealized depreciation of investments on a federal tax basis amounts
to $12,788,383 at September 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($87,887,889) at September 30, 1996.
The following acronym is used throughout this portfolio:
ADR--American Depositary Receipt
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------
Total investments in securities, at value
(identified cost $100,296,082, and tax cost
$101,294,231) $ 88,505,848
- ---------------------------------------------
Cash 13
- ---------------------------------------------
Income receivable 63,555
- ---------------------------------------------
Receivable for investments sold 186,674
- ---------------------------------------------
Receivable for shares sold 77,664
- --------------------------------------------- ------------
Total assets 88,833,754
- ---------------------------------------------
LIABILITIES:
- -----------------------------------
Payable for investments purchased $ 52,865
- -----------------------------------
Payable for shares redeemed 567,691
- -----------------------------------
Payable for taxes foreign withheld 752
- -----------------------------------
Accrued expenses 324,557
- -----------------------------------
---------
Total liabilities 945,865
- --------------------------------------------- ------------
NET ASSETS for 9,878,770 shares outstanding $ 87,887,889
- --------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ---------------------------------------------
Paid in capital $ 77,101,283
- ---------------------------------------------
Net unrealized depreciation of investments
and translation of assets
and liabilities in foreign currency (11,790,374)
- ---------------------------------------------
Accumulated net realized gain on investments
and foreign currency transactions 19,720,009
- ---------------------------------------------
Undistributed net investment income 2,856,971
- --------------------------------------------- ------------
Total Net Assets $ 87,887,889
- --------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------
$87,887,889 / 9,878,770 shares outstanding $8.90
- --------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
SEPTEMBER 30, APRIL 30,
1996 1996
- ------------------------------------------------- ------------- -----------
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------
Dividends (net of foreign taxes withheld of
$11,012 and $54,721 respectively) $ 259,244 $ 550,325
- -------------------------------------------------
Interest 267,930 362,660
- ------------------------------------------------- ------------ -----------
Total income 527,174 912,985
- ------------------------------------------------- ------------ -----------
EXPENSES:
- -------------------------------------------------
Management advisory fee 442,945 840,942
- -------------------------------------------------
Administrative personnel and services fee 42,307 73,038
- -------------------------------------------------
Custodian fees 30,929 44,922
- -------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 82,491 140,096
- -------------------------------------------------
Directors'/Trustees' fees 392 16,261
- -------------------------------------------------
Auditing fees 19,423 28,643
- -------------------------------------------------
Legal fees 3,052 32,861
- -------------------------------------------------
Portfolio accounting fees 23,450 50,824
- -------------------------------------------------
Distribution services fee 332,209 630,406
- -------------------------------------------------
Share registration costs 18,572 44,416
- -------------------------------------------------
Printing and postage 27,573 75,394
- -------------------------------------------------
Insurance premiums 1,482 373
- -------------------------------------------------
Taxes 704 --
- -------------------------------------------------
Miscellaneous 2,530 4,737
- ------------------------------------------------- ------------ -----------
Total expenses 1,028,059 1,982,913
- ------------------------------------------------- ------------ -----------
Net operating loss (500,885) (1,069,928)
- ------------------------------------------------- ------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY:
- -------------------------------------------------
Net realized gain on investments and foreign
currency transactions 10,615,594 13,950,013
- -------------------------------------------------
Net change in unrealized appreciation
(depreciation) of investments
and translation of assets and liabilities in
foreign currency (19,953,719) 13,616,081
- ------------------------------------------------- ------------ -----------
Net realized and unrealized loss on investments
and foreign currency (9,338,125) 27,566,094
- ------------------------------------------------- ------------ -----------
Change in net assets resulting from operations $ (9,839,010) $26,496,166
- ------------------------------------------------- ------------ -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED APRIL 30,
SEPTEMBER 30, --------------------------
1996 1996 1995
- ------------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------
OPERATIONS--
- -------------------------------------
Net operating loss $ (500,885) $ (1,069,928) $ (1,121,095)
- -------------------------------------
Net realized gain (loss) on
investments and foreign currency
transactions ($9,039,433 gain,
$12,174,374 gain and $1,633,234 gain
respectively, as computed for federal
tax purposes) 10,615,594 13,950,013 254,076
- -------------------------------------
Net change in unrealized appreciation
(depreciation)
of investments and translation of
assets and liabilities
in foreign currency (19,953,719) 13,616,081 (3,793,965)
- ------------------------------------- ------------ ------------ ------------
Change in net assets resulting from
operations (9,839,010) 26,496,166 (4,660,984)
- ------------------------------------- ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------
Distributions from net investment
income -- -- --
- -------------------------------------
Distributions in excess of net
investment income -- -- --
- -------------------------------------
Distributions from net realized gains
on investments
and foreign currency transactions -- -- (254,076)
- -------------------------------------
Distributions in excess of net
realized gains on
investments and foreign currency
transactions -- -- (9,876,340)
- -------------------------------------
Tax return of capital -- -- (894,701)
- ------------------------------------- ------------ ------------ ------------
Change in net assets resulting from
distributions to shareholders -- -- (11,025,117)
- ------------------------------------- ------------ ------------ ------------
SHARE TRANSACTIONS--
- -------------------------------------
Proceeds from sale of shares 35,684,735 103,376,874 81,070,800
- -------------------------------------
Net asset value of shares issued to
shareholders
in payment of distributions declared -- -- 10,092,477
- -------------------------------------
Cost of shares redeemed (67,247,212) (75,865,525) (68,288,186)
- ------------------------------------- ------------ ------------ ------------
Change in net assets resulting from
share transactions (31,562,477) 27,511,349 22,875,091
- ------------------------------------- ------------ ------------ ------------
Change in net assets (41,401,487) 54,007,515 7,188,990
- -------------------------------------
NET ASSETS:
- -------------------------------------
Beginning of period 129,289,376 75,281,861 68,092,871
- ------------------------------------- ------------ ------------ ------------
End of period (including
undistributed net investment
income of $2,856,971, $1,904,789 and
$0 respectively) $ 87,887,889 $129,289,376 $ 75,281,861
- ------------------------------------- ------------ ------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30,
1996(A)
- ------------------------ -------------
<S> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $ 9.77
- ------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------
Net investment income/
operating loss (0.10)
- ------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency (0.77)
- ------------------------ -------
Total from investment
operations (0.87)
- ------------------------ -------
LESS DISTRIBUTIONS
- ------------------------
Distributions from net
realized gain on
investments and foreign
currency transactions --
- ------------------------
Distributions in excess
of net realized gain on
investments and foreign
currency transactions --
- ------------------------
Tax return of capital --
- ------------------------ -------
Total distributions --
- ------------------------ -------
NET ASSET VALUE, END OF
PERIOD $ 8.90
- ------------------------ -------
TOTAL RETURN (E) (8.90%)
- ------------------------
RATIOS TO AVERAGE NET
ASSETS
- ------------------------
Expenses 2.32%*
- ------------------------
Net investment income/
operating loss (1.13%)*
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
Net assets, end of
period
(000 omitted) $87,888
- ------------------------
Average commissions
rate paid $0.0199
- ------------------------
Portfolio turnover 36%
- ------------------------
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989(B)
- ------------------------ ---------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $ 7.12 $ 8.73 $ 6.83 $ 5.04 $ 5.29 $ 6.30 $ 7.19 $ 8.00
- ------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------
Net investment income/
operating loss (0.10) (0.02) (0.11)(c) (0.08)(c) (0.09)(c) (0.08)(c) (0.03)(c) 0.02
- ------------------------
Net realized and
unrealized gain (loss)
on investments and
foreign currency 2.75 (0.41) 2.01(c) 1.87(c) (0.16)(c) (0.93)(c) (0.59)(c) (0.83)
- ------------------------ ---------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
Total from investment
operations 2.65 (0.43) 1.90 1.79 (0.25) (1.01) (0.62) (0.81)
- ------------------------ ---------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
LESS DISTRIBUTIONS
- ------------------------
Distributions from net
realized gain on
investments and foreign
currency transactions -- (0.03) -- -- -- -- (0.03) --
- ------------------------
Distributions in excess
of net realized gain on
investments and foreign
currency transactions -- (1.06)(d) -- -- -- -- (0.10)(d) --
- ------------------------
Tax return of capital -- (0.09) -- -- -- -- (0.14) --
- ------------------------ ---------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
Total distributions -- (1.18) -- -- -- -- (0.27) --
- ------------------------ ---------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
NET ASSET VALUE, END OF
PERIOD $ 9.77 $ 7.12 $ 8.73 $ 6.83 $ 5.04 $ 5.29 $ 6.30 $ 7.19
- ------------------------ ---------- ----------- ----------- ----------- ----------- ----------- ----------- --------------
TOTAL RETURN (E) 37.03% (4.39%) 27.80% 35.50% (4.70%) (16.00%) (10.90%) (10.20%)
- ------------------------
RATIOS TO AVERAGE NET
ASSETS
- ------------------------
Expenses 2.36% 2.49% 2.46% 3.24% 3.09% 3.05% 2.95% 3.99%*(f)(g)
- ------------------------
Net investment income/
operating loss (1.27%) (1.48%) (1.21%) (1.46%) (1.57%) (1.28%) (0.40%) 0.77%*(f)(h)
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
Net assets, end of
period
(000 omitted) $129,289 $75,282 $68,092 $32,636 $20,900 $24,924 $31,539 $25,837
- ------------------------
Average commissions
rate paid -- -- -- -- -- -- -- --
- ------------------------
Portfolio turnover 176% 116% 174% 66% 62% 57% 56% 21%
- ------------------------
</TABLE>
*Computed on an annualized basis.
(a) The Fund has changed its fiscal year end from April 30 to September 30.
Reflects operations for the period from May 1, 1996 to September 30, 1996.
(b) Reflects operations for the period from June 22, 1988 (date of initial
public investment) to April 30, 1989.
(c) Calculated based on average shares outstanding--prior years' amounts
restated for comparative purposes.
(d) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(e) Based on net asset value.
(f) Net of expense reimbursement.
(g) During the first year (1989), the net expense ratio to average net assets
would have been 4.03%, if a portion of the 12b-1 distribution and
management fees had not been waived by the prior distributor and prior
manager, respectively.
(h) The investment income net ratio to average net assets would have been
0.72%, if a portion of the 12b-1 distribution and management fees had not
been waived by the prior distributor and prior manager, respectively.
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
(1) ORGANIZATION
Blanchard Precious Metals Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a non-diversified,
open-end management investment company. The fund seeks to provide long-term
capital appreciation and preservation of purchasing power through investments
in physical precious metals, such as gold, silver, platinum and palladium, and
in securities of companies involved with precious metals. A secondary
objective of the fund is to reduce the risk of loss of capital and decrease
the volatility often associated with precious metals investments by changing
the allocation of its assets from precious metals securities to physical
precious metals and/or investing in short-term instruments and government
securities during periods when the fund's portfolio manager believes the
precious metals markets may experience declines.
(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--Listed foreign and domestic equity securities and
bullion are valued at the last sale price reported on a national securities
exchange. Short-term foreign and domestic securities are valued at the
prices provided by an independent pricing service. However, short-term
foreign and domestic securities with remaining maturities of sixty days or
less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are
recorded on the ex-dividend date. Certain dividends from foreign securities
may be recorded after the ex-dividend date based upon when information
becomes available to the Fund.
Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
mortgage-backed securities, market discount, foreign currency transactions,
partnerships, non-taxable dividends, net operating losses, expiring capital
loss carryforwards, wash sales, futures and options, and post-October
losses. The following reclassifications have been made to the financial
statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------------------------------------------------------------
UNDISTRIBUTED
NET INVESTMENT
ACCUMULATED INCOME/ACCUMULATED
NET REALIZED DISTRIBUTIONS IN EXCESS OF
PAID-IN CAPITAL GAIN/LOSS NET INVESTMENT INCOME
--------------- ------------ --------------------------
<S> <C> <C>
$(904,499) $(2,357,566) $1,453,067
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of 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.
However, federal taxes may be imposed on the Fund upon the disposition of
certain investments in passive foreign investment companies. Withholding
taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax
rules and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
FOREIGN EXCHANGE CONTRACTS--The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire exposure to
foreign currencies; whereas, contracts to sell are used to hedge the
securities against currency fluctuations. Risks may arise upon entering
these transactions from the potential inability of counter-parts to meet
the terms of their commitments and from unanticipated movements in security
prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying
currency and any gains or losses are recorded for financial statement
purpose as unrealized until the settlement date. At September 30, 1996, the
Fund had outstanding foreign currency commitments as set forth below:
<TABLE>
<CAPTION>
IN
SETTLEMENT CONTRACTS TO EXCHANGE CONTRACTS UNREALIZED
DATE DELIVER/RECEIVE FOR AT VALUE (DEPRECIATION)
---------- ------------------------- -------- --------- --------------
<S> <C> <C> <C> <C>
10/1/96 85,072 Australian Dollars $67,394 $67,346 $(48)
</TABLE>
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities
at fiscal year end, resulting from changes in the exchange rate.
RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at September 30,
1996 is as follows:
<TABLE>
<CAPTION>
FUND
SECURITY ACQUISITION DATE ACQUISITION COST
--------------------------- ---------------- ----------------
<S> <C> <C>
Lone Star Exploration NL 2/8/96-8/23/96 $1,015,772
Eldorado Gold Corp., Ltd. 8/15/95-4/22/96 $2,283,360
Geomaque Explorations, Ltd. 5/3/96-8/30/96 $1,379,615
Atlas Corp. 7/29/94-3/22/96 $1,863,269
Atlas Corp., Warrants 7/29/94 $ 102,375
Canyon Warrants 9/12/96 $ --
Lone Star Warrants 7/24/96 $ --
</TABLE>
CHANGE IN FISCAL YEAR--The Fund has changed its fiscal year-end from April
30, to September 30, beginning May 1, 1996.
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At September 30, 1996, there is an unlimited number of par value shares
($0.001 per share) authorized: Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
PERIOD ENDED ----------------------
SEPTEMBER 30, 1996 1996 1995
- --------------------------------- ------------------ ---------- ----------
<S> <C> <C> <C>
Shares sold 3,728,778 11,891,108 9,822,619
- ---------------------------------
Shares issued to shareholders in
payment of distributions declared -- -- 1,474,694
- ---------------------------------
Shares redeemed (7,081,402) (9,230,002) (8,527,815)
- --------------------------------- ---------- ---------- ----------
Net change resulting from share
transactions (3,352,624) 2,661,106 2,769,498
- --------------------------------- ---------- ---------- ----------
</TABLE>
(4) INVESTMENT MANAGEMENT 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 1.00%
of the Fund's average daily net assets.
The Manager became the Fund's Manager on July 12, 1995. Prior to July 12,
1995, Sheffield Management Company served as the Fund's Manager and received
for its services an annual management fee equal to 1.00% of the Fund's average
daily net assets.
BLANCHARD PRECIOUS METALS FUND, INC.
- -------------------------------------------------------------------------------
For the period ended April 30, 1996, the Manager earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF
MANAGER'S NAME FEE EARNED
- ------------------------------ ----------
<S> <C>
Sheffield Management Company $165,642
- ------------------------------
Virtus Capital Management Inc. $675,300
- ------------------------------
</TABLE>
For the period May 1, 1996 to September 30, 1996, the management fee was
earned by Virtus Capital Management.
Under the terms of a sub-advisory agreement between the Adviser and the Trust
Division of Cavelti Capital Management, Ltd., Cavelti Capital Management, Ltd.
receives an annual fee from the Adviser equal to .30% of the Fund's average
daily net assets. In addition, Cavelti Capital Management, Ltd. may
voluntarily choose to reduce its compensation.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Fund with certain administrative personnel and services. The fee paid to FAS
is based on the level of average combined aggregate net assets of the Fund,
Blanchard Funds and The Virtus Funds, all of which are advised by the Manager.
The administrative fee received during the period of the Administrative
Services Agreement shall be at least $75,000 per Portfolio.
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 Fund shares. The Plan provides that the Fund
may incur distribution expenses up to 0.75% of the average daily net assets of
the Fund shares, annually, to reimburse FSC.
For the year ended April 30, 1996, the distributors earned and waived fees as
follows:
<TABLE>
<CAPTION>
AMOUNT OF
DISTRIBUTOR FEE EARNED
- --------------------------- ----------
<S> <C>
Sheffield Investments, Inc. $114,517
- ---------------------------
Federated Securities Corp. $515,889
- ---------------------------
</TABLE>
For the period May 1, 1996 to September 30, 1996, the distribution fee was
earned by 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 AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of accounts
and transactions made by shareholders. FServ became the Fund's transfer agent
on October 15, 1995. Prior to October 15, 1995, United States Trust Company of
New York served as the Fund's transfer agent for which it received a fee. For
the year ended April 30, 1996, the transfer agents earned fees as follows:
BLANCHARD PRECIOUS METALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT OF
TRANSFER AGENT FEE EARNED
- --------------------------------------- ----------
<S> <C>
United States Trust Company of New York $100,939
- ---------------------------------------
Federated Services Company $ 39,157
- ---------------------------------------
</TABLE>
For the period May 1, 1996 to September 30, 1996, the transfer agent fee was
earned by FServ.
DIRECTORS'/TRUSTEES' FEES--Prior to the acquisition of Sheffield Management
Company by Virtus Capital Management, Inc., the former independent
directors/trustees for the Fund participated in an unfunded noncontributory
pension plan (the "Plan") covering all independent directors/trustees of the
Fund who served as an independent director for at least five years at the time
of retirement. Benefits under this plan were based on an amount equal to 75%
of the directors/trustees fees at the time of retirement, plus 5% for each
year of service in excess of five years of service but not in excess of ten
years of service. The net pension expense included in Directors'/Trustees'
Fees in the Statement of Operations for the year ended for the Fund April 30,
1996 was $3,886.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses. FServ became the
Fund's portfolio accountant on October 15, 1995. Prior to October 15, 1995,
Mutual Fund Services Company served as the Fund's portfolio accountant for
which it received a fee. For the year ended April 30, 1996, the portfolio
accountants earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF
PORTFOLIO ACCOUNTANT FEE EARNED
- ----------------------------- ----------
<S> <C>
Mutual Funds Services Company $32,328
- -----------------------------
Federated Services Company $18,496
- -----------------------------
</TABLE>
For the period May 1, 1996 to September 30, 1996, the portfolio accountant fee
was earned by FServ.
CUSTODIAN FEES--Signet Trust Company is the Fund's custodian. The fee is based
on the level of the Fund's average daily net assets for the period, plus out-
of-pocket expenses. Signet Trust Company became the Fund's custodian on
October 15, 1995. Prior to October 15, 1995, United States Trust Company of
New York served as the Fund's custodian for which it received a fee. For the
year ended April 30, 1996, the custodians earned fees as follows:
<TABLE>
<CAPTION>
AMOUNT OF
CUSTODIAN FEE EARNED
- --------------------------------------- ----------
<S> <C>
United States Trust Company of New York $12,779
- ---------------------------------------
Signet Trust Company $32,143
- ---------------------------------------
</TABLE>
For the period May 1, 1996 to September 30, 1996, the custodian fee was earned
by Signet Trust Company.
BLANCHARD PRECIOUS METALS FUND, INC.
- -------------------------------------------------------------------------------
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities (and in-
kind contributions), for the period ended September 30, 1996, were as follows:
<TABLE>
<S> <C>
- ---------
PURCHASES $33,921,210
- --------- -----------
SALES $59,760,653
- --------- -----------
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund
maintains a diversified investment portfolio, the political or economic
developments within a particular country or region may have an adverse effect
on the ability of domiciled issuers to meet their obligations. Additionally,
political or economic developments may have an effect on the liquidity and
volatility of portfolio securities and currency holdings.
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
BLANCHARD PRECIOUS METALS FUND, INC.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Blanchard Precious Metals Fund,
Inc. as of September 30, 1996, and the related statements of operations and
changes in net assets, and financial highlights for the five-month period
ended September 30, 1996 and the year ended April 30, 1996. 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 audits. The statement of
changes in net assets for the year ended April 30, 1995 and the financial
highlights for the seven years in the period ended April 30, 1995 were audited
by other auditors, whose reports thereon dated June 20, 1995, expressed an
unqualified opinion.
We conducted our audits 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. Our procedures included confirmation of the
securities owned as of September 30, 1996 by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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
audits provide 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 Blanchard Precious Metals Fund, Inc. as of September 30, 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
November 15, 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.
Portfolio Adviser
Cavelti Capital
Management, Ltd.
[LOGO]
Blanchard
Precious Metals
Fund, Inc.
The Blanchard Group of 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.
Federated Securities Corporation is the
distributor of the Fund.
(2194)
CUSIP 093254100
G01684-02 (11/96)
APPENDIX
BLANCHARD PRECIOUS METALS FUND, INC.
ANNUAL REPORT
DATED SEPTEMBER 30, 1996
A. The graphic presentation here displayed consists of a legend below the
graph indicating the components of the corresponding chart. The line graph
chart is a visual representation of the narrative text around it, which
shows that an initial investment of $10,000 in Precious Metals Fund, Inc.
on June 23, 1988, would have grown to $13,175 by September 30, 1996, as
compared to the Toronto Stock Exchange Gold & Silver Index, which would
have grown to $16,913. The "x" axis reflects the cost of investment, the
"y" axis reflects computation periods from 1988 to 1996, and the right
margin reflects a total investment range from $0 to $20,000. The chart
further indicates the ending market value attributable to principal, as
well as the ending market value attributable to capital gains and
reinvested dividends.
