President's Message
July 1, 1996
Dear Shareholder,
I'm pleased to present the Annual Report for the Blanchard Precious Metals
Fund, Inc. for the fiscal year ended April 30, 1996.
This report provides you with complete financial information for the Fund,
including a performance update from Cavelti Capital Management, Ltd., a list of
investments included in the Fund, and the Fund's financial statements.
If you would like the most recent performance update for your Fund, or if you
have other questions, please call Investors' Services at 1-800-829-3863.
Thank you for your confidence in the Blanchard Group of Funds as a way to put
your money to work for you.
We remain committed to delivering the highest level of personal service.
Sincerely,
/s/ Edward C. Gonzales
Edward C. Gonzales
President
Dear Shareholders,
Enclosed please find the Annual Report for your Blanchard Precious Metals Fund,
Inc. for the fiscal year ended April 30, 1996. Morningstar has ranked the Fund
6th out of the 28 funds in its precious metals category, based on total
reinvested performance, for the 5 years ended 4/30/96.**
Naturally, past performance is no guarantee of future performance. As with all
mutual funds, principal value and return will vary with market conditions, so
that shares, when redeemed, may be worth more or less than their original cost.
Heres a closer look at the past year's market conditions and the portfolio
strategies we employed to take advantage of them.
The Value of a $10,000 Investment in the
Blanchard Precious Metals Fund
from inception 6/23/88 through 4/30/96 as compared to the
Toronto Stock Exchange Gold & Silver Index for the same period
Avg. Annual Returns through 4/30/96
Blanchard Precious Metals Fund*
<TABLE>
<CAPTION>
<S> <C>
1 year 37.03%
5 year 16.71%
since inception (6/23/88) 4.90%
</TABLE>
[GRAPHIC APPENDIX OMITTED, SEE APPENDIX D
*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, returns 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.
**Based on total reinvested performance, the Fund ranked 8 out of 39 funds in
Morningstar's precious metals category for the 1-year period ended 3/31/96.
The Year In Review
We ended last year's review stating that ``We have ... increased our exposure
to junior producers, favoring those companies which are already in production,
yet have ... solid growth ahead of them.'' These junior holdings, in
particular, have powered the fund to a strong 37.03% return over the last
twelve months ending 4/30/96, during a period where gold 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 whose known gold reserves amply supported the share price
and whose properties bore the promise of substantial reserve exploration in the
future. This allowed for acceptable downside risk, while leaving the upside
profit potential wide open. In almost all cases, growth in production and
reserves led to significant share price appreciation.
Another way of looking at the choice between junior and senior mining companies
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 it mines every year let
-
alone trying to expand reserves. For a 50,000 - 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 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, producers sold 17.6 million ounces of future output, which, incidentally,
matches the total amount sold forward in the prior three years!
Central banks, which have become the hit topic in the gold investment
community, sold 6.5 million ounces. The market is somewhat spooked by the fact
that government reserves of gold are being so readily sold into the market in
response to any strength in gold. So far in 1996, last year's sales have
already been surpassed the Bank of Belgium has sold 6,500,000 ounces and the
-
Netherlands' central bank 250,000 ounces.
The historical evidence is that central banks sell at lows, a pattern which
seems to be repeating itself. Still, the question arises at which point
central bank liquidations become a problem for the bullion market. Our view is
that the market could readily absorb even larger sales with minimal price
damage. This is because overall consumption of gold is in excess of 40 million
ounces higher than mine production, leaving a huge deficit. Moreover, we
believe this shortfall will trend higher in current years!
A Look Ahead
For the moment, the fundamentals suggest that gold's secular bull market may
mark time before $400, as long as central banks are aggressive sellers. But it
seems unlikely that gold mining companies will be able to sustain the recent
rate of hedging and this should eventually leave a vacuum of supply which can
only be met at higher gold price levels. In fact, as we prepare this report
(June 7, 1996), Placer Dome has just announced a major repurchase of gold sold
forward by itself and one of its subsidiaries 2.4 million ounces in total!
-
This is an indication that producers recognize that gold is inexpensive and
that hedging is neither a terribly profitable strategy at present, nor one
which will benefit shareholders in a rising gold market.
Our investment strategy for the year ahead remains unchanged. We will strive
to find gold mining companies whose internally generated growth is likely to
propel their share price higher, even if gold does nothing. This strategy
should help us generate attractive returns when gold is quiet, and exceptional
returns when the price is rising.
Sincerely,
Peter C. Cavelti
President
Cavelti Capital Management
Portfolio Manager of the Blanchard
Preious Metals Fund, Inc.
BLANCHARD PRECIOUS METALS FUND, INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ---------------- ---------------------------------------------------------------------------- --------------
EQUITIES--85.9%
- ----------------------------------------------------------------------------------------------
METALS & MINING--85.9%
- ----------------------------------------------------------------------------------------------
AUSTRALIA--1.4%
----------------------------------------------------------------------------
400,000 (a)Croesus Mining NL $ 351,925
----------------------------------------------------------------------------
1,300,000 (a)Lone Star Exploration NL 1,072,270
----------------------------------------------------------------------------
575,000 (a)St. Barbara Mines, Ltd. 379,419
---------------------------------------------------------------------------- --------------
Total 1,803,614
---------------------------------------------------------------------------- --------------
CANADA--47.6%
----------------------------------------------------------------------------
75,000 Barrick Gold Corp. 2,299,853
----------------------------------------------------------------------------
1,161,600 (a)Bema Gold Corp. 4,210,800
----------------------------------------------------------------------------
802,100 Cambior, Inc. 11,252,376
----------------------------------------------------------------------------
600,000 (a)Dakota Mining Corp. 1,387,500
----------------------------------------------------------------------------
614,100 (a)Dayton Mining Corp. 4,298,700
----------------------------------------------------------------------------
100,000 (a)Dayton Mining Units 690,415
----------------------------------------------------------------------------
889,000 (a)Eldorado Corp., Ltd. 5,321,594
----------------------------------------------------------------------------
29,600 (b)Franco-Nevada Mining Corp., Ltd. 1,759,912
----------------------------------------------------------------------------
400,000 (a)Geomaque Explorations Ltd. 928,388
----------------------------------------------------------------------------
2,372,900 (a)Great Lakes Minerals, Inc. 871,429
----------------------------------------------------------------------------
65,000 Placer Dome, Inc. 1,809,401
----------------------------------------------------------------------------
1,870,000 (a)TVX Gold, Inc. 14,833,639
----------------------------------------------------------------------------
439,000 (a)Triton Mining Corp. 2,740,727
----------------------------------------------------------------------------
7,084,822 (a)William Resources, Inc. 9,106,455
---------------------------------------------------------------------------- --------------
Total 61,511,189
---------------------------------------------------------------------------- --------------
SOUTH AFRICA--7.1%
----------------------------------------------------------------------------
190,000 (b)Ashanti Goldfields Co., ADR 4,156,250
----------------------------------------------------------------------------
200,000 East Rand Gold & Uranium Co., Ltd., ADR 525,000
----------------------------------------------------------------------------
180,000 Free State Consolidated Gold Mines Ltd., ADR 1,968,750
----------------------------------------------------------------------------
</TABLE>
BLANCHARD PRECIOUS METALS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/
TROY OUNCES/
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ---------------- ---------------------------------------------------------------------------- --------------
EQUITIES--CONTINUED
- ----------------------------------------------------------------------------------------------
METALS & MINING--CONTINUED
- ----------------------------------------------------------------------------------------------
SOUTH AFRICA--CONTINUED
----------------------------------------------------------------------------
257,000 Vaal Reefs Explorations & Mining Co., Ltd., ADR $ 2,505,750
---------------------------------------------------------------------------- --------------
Total 9,155,750
---------------------------------------------------------------------------- --------------
UNITED STATES--29.8%
----------------------------------------------------------------------------
455,000 (a)Atlas Corp. 625,625
----------------------------------------------------------------------------
150,000 (b)Canton Township Equity Partners L.P. 501,562
----------------------------------------------------------------------------
1,075,000 (a)Canyon Resources Corp. 3,964,062
----------------------------------------------------------------------------
175,000 Coeur d'Alene Mines Corp. 3,478,125
----------------------------------------------------------------------------
350,000 FMC Gold Co. 2,231,250
----------------------------------------------------------------------------
573,700 (a)Greenstone Resources Ltd. 5,414,294
----------------------------------------------------------------------------
205,000 Homestake Mining Co. 4,125,625
----------------------------------------------------------------------------
475,500 Kinross Gold Corp. 4,101,187
----------------------------------------------------------------------------
56,000 Newmont Mining Corp. 3,241,000
----------------------------------------------------------------------------
731,900 Santa Fe Pacific Gold 10,887,013
---------------------------------------------------------------------------- --------------
Total 38,569,743
---------------------------------------------------------------------------- --------------
TOTAL EQUITIES (IDENTIFIED COST $103,986,581) 111,040,296
---------------------------------------------------------------------------- --------------
WARRANTS--4.9%
- ----------------------------------------------------------------------------------------------
227,500 (a)Atlas Corp., Warrants 6,825
----------------------------------------------------------------------------
80,000 (a)(b)Eldorado Corp., Ltd., Warrants 478,884
----------------------------------------------------------------------------
500,000 (a)(b)Greenstone Resources Ltd., Warrants 4,718,750
----------------------------------------------------------------------------
1,258,000 (a)(b)Lone Star Exploration NL, Warrants 1,099,537
---------------------------------------------------------------------------- --------------
TOTAL WARRANTS (IDENTIFIED COST $5,172,756) 6,303,996
---------------------------------------------------------------------------- --------------
PRECIOUS METAL--0.8%
- ----------------------------------------------------------------------------------------------
200,000 (a)Silver Bullion (IDENTIFIED COST $1,090,000) 1,068,000
---------------------------------------------------------------------------- --------------
U.S. GOVERNMENT OBLIGATION--8.2%
- ----------------------------------------------------------------------------------------------
$ 10,650,000 U.S. Treasury Bill, 6/27/1996 (IDENTIFIED COST $10,565,266) 10,566,515
---------------------------------------------------------------------------- --------------
</TABLE>
BLANCHARD PRECIOUS METALS FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ---------------- ---------------------------------------------------------------------------- --------------
(C) REPURCHASE AGREEMENT--2.8%
- ----------------------------------------------------------------------------------------------
$ 3,662,348 Merrill Lynch, Pierce, Fenner & Smith, Inc., 5.25%,
dated 4/30/1996, due 5/1/1996 (AT AMORTIZED COST) $ 3,662,348
---------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $124,476,951)(D) $ 132,641,155
---------------------------------------------------------------------------- --------------
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal and International Securities laws. At April 30, 1996, these
securities amounted to $12,714,895 which represents 9.8% 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 $128,333,948 .
The net unrealized appreciation of investments on a federal tax basis
amounts to $4,307,207 which is comprised of $11,492,285 appreciation and
$7,185,078 depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($129,289,376) at April 30, 1996.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
LP--Limited Partnership
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities and bullion, at value
(identified cost: $124,476,951; tax cost $128,333,948) $ 132,641,155
- -------------------------------------------------------------------------------------------------
Cash 2,813,046
- -------------------------------------------------------------------------------------------------
Income receivable 31,370
- -------------------------------------------------------------------------------------------------
Receivable for investments sold 1,736,034
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 1,552,902
- ------------------------------------------------------------------------------------------------- --------------
Total assets 138,774,507
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------
Payable for investments purchased $ 8,007,786
- ----------------------------------------------------------------------------------
Payable for shares redeemed 1,181,743
- ----------------------------------------------------------------------------------
Payable for taxes withheld 2,962
- ----------------------------------------------------------------------------------
Accrued expenses 292,640
- ---------------------------------------------------------------------------------- -------------
Total liabilities 9,485,131
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 13,231,394 shares outstanding $ 129,289,376
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid in capital $ 107,759,259
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation
of assets and liabilities in foreign currency 8,163,345
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 11,461,983
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 1,904,789
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 129,289,376
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
$129,289,376 / 13,231,394 shares outstanding $ 9.77
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BLANCHARD PRECIOUS METALS FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $54,721) $ 550,325
- ---------------------------------------------------------------------------------------------------
Interest 362,660
- --------------------------------------------------------------------------------------------------- -------------
Total income 912,985
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Management fee $ 840,942
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 73,038
- ---------------------------------------------------------------------------------------
Custodian fees 44,922
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 140,096
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 16,261
- ---------------------------------------------------------------------------------------
Auditing fees 28,643
- ---------------------------------------------------------------------------------------
Legal fees 32,861
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 50,824
- ---------------------------------------------------------------------------------------
Distribution services fee 630,406
- ---------------------------------------------------------------------------------------
Share registration costs 44,416
- ---------------------------------------------------------------------------------------
Printing and postage 75,394
- ---------------------------------------------------------------------------------------
Insurance premiums 373
- ---------------------------------------------------------------------------------------
Miscellaneous 4,737
- --------------------------------------------------------------------------------------- ----------
Total expenses 1,982,913
- --------------------------------------------------------------------------------------------------- -------------
Net operating loss (1,069,928)
- --------------------------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 13,950,013
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 13,616,081
- --------------------------------------------------------------------------------------------------- -------------
Net realized and unrealized gain on investments and foreign currency 27,566,094
- --------------------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ 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>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net operating loss $ (1,069,928) $ (1,121,095)
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
($12,174,374 and $1,633,234, respectively, as computed for federal tax purposes) 13,950,013 254,076
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and
translation of assets and liabilities in foreign currency 13,616,081 (3,793,965)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 26,496,166 (4,660,984)
- --------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------------
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 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 (75,865,525) (68,288,186)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions 27,511,349 22,875,091
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets 54,007,515 7,188,990
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 75,281,861 68,092,871
- --------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $1,904,789 and
$0, respectively) $ 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>
YEAR ENDED APRIL 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989(A)
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)(b) (0.02) (0.11)(b) (0.08)(b) (0.09)(b) (0.08)(b) (0.03)(b) 0.02
- -----------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 2.75(b) (0.41) 2.01(b) 1.87(b) (0.16 (b) (0.93)(b) (0.59)(b) (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)(c) -- -- -- -- (0.10)(c) --
- -----------------------------------
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 (D) 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%*(e)(f)
- -----------------------------------
Net investment income/
operating loss (1.27%) (1.48%) (1.21%) (1.46%) (1.57%) (1.28%) (0.40%) 0.77%*(e)(g)
- -----------------------------------
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
- -----------------------------------
Portfolio turnover 176% 116% 174% 66% 62% 57% 56% 21%
- -----------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 22, 1988 (commencement of the
Fund's operations) to April 30, 1989.
(b) Calculated based on average shares outstanding-prior years' amounts
restated for comparative purposes.
(c) 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.
(d) Based on net asset value.
(e) Net of expense reimbursement.
(f) 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.
(g) 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
APRIL 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
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.
(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
passive foreign investment company adjustments and foreign currency
transactions. The following reclassifications have been made to the
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
<S> <C> <C>
ACCUMULATED
NET REALIZED UNDISTRIBUTED NET
PAID IN CAPITAL GAIN/LOSS INVESTMENT INCOME
($3,055,804) (85,361) $3,141,165
</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.
CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. 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.
FOREIGN CURRENCY COMMITMENTS--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 fund's
securities against currency flucuations. 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 April 30, 1996, the Fund had no outstanding
foreign currency commitments.
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 and international 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 April 30, 1996 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Franco-Nevada Mining Corp., Ltd. 11/22/1994-4/17/1996 $ 1,702,069
Ashanti Goldfields Co., ADR 4/19/1994-3/26/1996 4,149,319
Canton Township Equity Partners L.P. 3/22/1996 450,000
Eldorado Corp., Ltd., Warrants 2/22/1996 428,560
Greenstone Resources Ltd., Warrants 4/8/1996 3,685,142
Lone Star Exploration NL, Warrants 3/19/1996 971,822
</TABLE>
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 April 30, 1996, there is an unlimited number of par value shares ($0.001 per
share) authorized: Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C>
1996 1995
Shares sold 11,891,108 9,822,619
- ----------------------------------------------------------------------------
Shares issued to shareholders in payment
of distributions declared 0 1,474,694
- ----------------------------------------------------------------------------
Shares redeemed (9,230,002) (8,527,815)
- ---------------------------------------------------------------------------- ---------------- ----------------
Net change resulting from share transactions 2,661,106 2,769,498
- ---------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(4) 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 first $150 million of the Fund's average daily net assets, 0.875% of the
Fund's average daily net assets in excess of $150 million but not exceeding $300
million and 0.75% of the Fund's average daily net assets in excess of $300
million.
Virtus Capital Management, Inc. 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. For the period ended April 30, 1996, the
advisers earned fees as follows:
<TABLE>
<CAPTION>
ADVISER NAME AMOUNT OF FEE EARNED
<S> <C>
Sheffield Management Company $ 165,642
Virtus Capital Management, Inc. 675,300
</TABLE>
Under the terms of a sub-management agreement between the Manager and Cavelti
Capital Management, Ltd., Cavelti Capital Management, Ltd. receives an annual
fee from the Manager equal to 0.30% of the Fund's average daily net assets on
the first $150 million, 0.2625% of the Fund's average daily net assets in excess
of $150 million but less than $300 million, and 0.225% of the Fund's average
daily net assets in excess of $300 million.
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 aggregate net assets of the Fund for the period.
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 0.75% of the average daily net assets of the Fund shares,
annually, to reimburse FSC.
FSC became the Fund's principal distributor on July 12, 1995. Prior to July 12,
1995, Sheffield Investments, Inc. served as the Fund's principal distributor and
received for its services an annual distribution fee equal to 0.75% of the
Fund's average daily net assets.
For the year ended April 30, 1996, the distributor earned fees as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR NAME AMOUNT OF FEE EARNED
<S> <C>
Sheffield Investments, Inc. $ 114,517
- -------------------------------------------------------------------------------------
Federated Securities Corp. $ 515,889
- -------------------------------------------------------------------------------------
</TABLE>
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company, serves as transfer and dividend disbursing agent for the Fund. The fee
paid to FServ 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 agent(s) earned fees as follows:
<TABLE>
<CAPTION>
TRANSFER AGENT AMOUNT OF FEE EARNED
<S> <C>
United States Trust Company of New York $ 100,939
- -------------------------------------------------------------------------------------
Federated Securities Corp. $ 39,157
- -------------------------------------------------------------------------------------
</TABLE>
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
accountant(s) earned fees as follows:
<TABLE>
<CAPTION>
PORTFOLIO ACCOUNTANT AMOUNT OF FEE EARNED
<S> <C>
Mutual Funds Services Company $ 32,328
- -------------------------------------------------------------------------------------
Federated Services Company $ 18,496
- -------------------------------------------------------------------------------------
</TABLE>
CUSTODIAN FEES--Signet Trust Co. 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
custodian(s) earned fees as follows:
<TABLE>
<CAPTION>
CUSTODIAN AMOUNT OF FEE EARNED
<S> <C>
United States Trust Company of New York $ 12,779
- -------------------------------------------------------------------------------------
Signet Trust Company 32,143
- -------------------------------------------------------------------------------------
</TABLE>
DIRECTORS/TRUSTEES FEES--Prior to the acquisition of Sheffield Management
Company by Virtus Capital Management, Inc., the 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/trustee for at least five years at the time of retirement.
Benefits under this plan were based on an annual 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 April 30, 1996 was $11,657.
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, for the
year ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
PURCHASES $ 168,943,512
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 131,196,371
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
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
April 30, 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 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 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. Our
procedures included confirmation of the securities owned as of April 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 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
Blanchard Precious Metals Fund, Inc. as of April 30, 1996, the results of its
operations, the changes in its net assets and its financial highlights for the
year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
June 19, 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 Secretary
Peter E. Madden Joseph S. Machi
Gregor F. Meyer Vice Pesident and Assistant Treasurer
John E. Murray, Jr. Richard B. Fisher
Wesley W. Posvar Vice President
Marjorie P. Smuts 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.
Blanchard
Precious Metals
Fund, Inc.
The Blanchard Group of Funds are available through Signet Financial Services,
Inc., and are advised by Virtus Capital Management, Inc., an affiliate of
Signet Financial Services, Inc.
Investment products available through Signet Financial Services, Inc., are not
deposits, obligations of, or guaranteed by Signet Bank, Signet Financial
Services, Inc., any bank or other financial institution, and are not insured by
the FDIC or any Federal Agency. In addition, they involve risk, including
possible loss of principal invested.
Federated Securities Corp. is the distributor of the Fund.
(2021)
CUSIP 093254100
G01684-02 (6/96)
Blanchard
Precious Metals
Fund, Inc.
Annual Report
April 30, 1996
Managed by: Virtus Capital Management
Blanchard Group of Funds
Annual Report Graphic Appendix
A. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Shares of the Blanchard Flexible Tax-Free Bond Fund are
represented by a broken line. The Lehman Brothers Current Municipal
Bond Index is represented by a solid line. The line graph is a visual
representation of a comparison of change in value of a hypothetical
investment of $10,000 in Shares of the Blanchard Flexible Tax-Free
Bond Fund and Lehman Brothers Current Municipal Bond Index for the
period from August 12, 1993 (dated of inception) to April 30, 1996.
The `y'' axis reflects the cost of investment. The ``x'' axis
reflects computation periods from August 12, 1993 (date of inception)
to April 30, 1994. The right margin of the chart reflects the ending
value of the hypothetical investment in the Shares of the Fund as
compared to Lehman Brothers Current Municipal Bond Index. The ending
values are $11,776 and $11,171, respectively.
B. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Shares of the Blanchard Worldwide Emerging Markets Fund are
represented by a broken line. The Morgan Stanley Emerging Markets
Index is represented by a solid line. The line graph is a visual
representation of a comparison of change in value of a hypothetical
investment of $10,000 in Shares of the Blanchard Worldwide Emerging
Markets Fund and Morgan Stanley Emerging Markets Index for the period
from March 1, 1994 (date of inception) to April 30, 1996. The `y''
axis reflects the cost of investment. The `x'' axis reflects
computation periods from March 1, 1994 (date of inception) to April
30, 1994. The right margin of the chart reflects the ending value of
the hypothetical investment in the Shares of the Fund as compared to
Morgan Stanley Emerging Markets Index. The ending values are $8,205
and $9,962, respectively.
C. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Shares of the Blanchard Flexible Income Fund are represented by a
broken line. The Merrill Lynch Aggregate Bond Index is represented by
a solid line. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000
in Shares of the Blanchard Flexible Income Fund and Merrill Lynch
Aggregate Bond Index for the period from November 2, 1992 (date of
inception) to April 30, 1996. The `y'' axis reflects the cost of
investment. The `x'' axis reflects computation periods from March 1,
1994 (date of inception) to April 30, 1994. The right margin of the
chart reflects the ending value of the hypothetical investment in the
Shares of the Fund as compared to Merrill Lynch Aggregate Bond Index.
The ending values are $12,298 and 12,561, respectively.
D. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Shares of the Blanchard Precious Metals Fund are represented by a
broken line. The Toronto Stock Exchange Gold & Silver Index is
represented by a solid line. The line graph is a visual
representation of a comparison of change in value of a hypothetical
investment of $10,000 in Shares of the Blanchard Precious Metals Fund
and Toronto Stock Exchange Gold & Silver Index for the period from
June 23, 1988 (date of inception) to April 30, 1996. The `y'' axis
reflects the cost of investment. The `x'' axis reflects computation
periods from June 23, 1988 (date of inception) to April 30, 1994. The
right margin of the chart reflects the ending value of the
hypothetical investment in the Shares of the Fund as compared to
Toronto Stock Exchange Gold & Silver Index. The ending values are
$14,462 and $18,838, respectively.
E. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Shares of the Blanchard Short-Term Flexible Income Fund are
represented by a broken line. The Merrill Lynch Short-Term Government
Corporate Index is represented by a solid line. The line graph is a
visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in Shares of the Blanchard Short-
Term Flexible Income Fund and Merrill Lynch Short-Term Government
Index for the period from April 16, 1993 (date of inception) to April
30, 1996. The `y'' axis reflects the cost of investment. The ``x''
axis reflects computation periods from April 16, 1993 (date of
inception) to April 30, 1994. The right margin of the chart reflects
the ending value of the hypothetical investment in the Shares of the
Fund as compared to Merrill Lynch Short-Term Government Corporate
Index. The ending values are $11,761 and $11,576, respectively.
F. The graphic representation here displayed consists of a line graph.
The corresponding components of the line graph are listed underneath.
The Shares of the Blanchard Global Growth Fund are represented by a
broken line. The Standard & Poor's 500 Index is represented by a
solid line. The line graph is a visual representation of a comparison
of change in value of a hypothetical investment of $10,000 in Shares
of the Blanchard Global Growth Fund and Standard & Poor's 500 Index
for the period from June 1, 1987 (date of inception) to April 30,
1996. The `y'' axis reflects the cost of investment. The ``x'' axis
reflects computation periods from June 1, 1987 (date of inception) to
April 30, 1994. The right margin of the chart reflects the ending
value of the hypothetical investment in the Shares of the Fund as
compared to Standard & Poor's 500 Index. The ending values are
$22,804 and $35,911, respectively.
