LOGO
BLANCHARD GROUP OF FUNDS
VERY IMPORTANT
Enclosed is an important proxy statement and proxy vote card.
They concern the pending merger
of the Blanchard American Equity Fund
into the Virtus Style Manager: Large Cap Fund.
PLEASE REVIEW AND CAST YOUR VOTE TODAY!
Dear Valued Shareholder,
As you may be aware, there have been a number of exciting developments in
regards to the Blanchard Group of Funds in recent months. One of the benefits
has been that the management and Trustees have identified a number of changes
which they feel will either enhance performance, reduce expenses or expand the
services offered to Blanchard mutual fund shareholders.
We're writing you today to inform you of a recommended change which affects
your Blanchard American Equity Fund.
.Namely, the Board of Trustees has unanimously recommended a tax-free
merger of the BLANCHARD AMERICAN EQUITY FUND into the VIRTUS STYLE
MANAGER: LARGE CAP FUND.
SIMILAR INVESTMENT OBJECTIVE
In recommending this merger, the Board of Trustees considered the fact that
the Virtus Style Manager: Large Cap Fund has a similar investment objective as
the Blanchard American Equity Fund.
The Virtus Style Manager: Large Cap Fund seeks to provide long-term growth
and income by investing primarily in the stocks of large capitalization
companies (capitalization of at least $1 billion) according to the stock
selection style (value or growth) which, in the opinion of the portfolio
manager, is favored by prevailing market conditions.
.The value style seeks stocks that, in the opinion of the portfolio
manager, are undervalued and are (or will be) worth more than their
current price.
.The growth style seeks stocks with higher earnings growth which, in
the opinion of the portfolio manager, are likely to lead to
appreciation in stock price over time.
In short, as market trends change, so does the portfolio of the Virtus Style
Manager: Large Cap Fund in an attempt to benefit from either the growth or
value styles. This is in sharp contrast to the Blanchard American Equity Fund
which limits its investments to growth stocks regardless of prevailing market
conditions.
POTENTIAL ECONOMIES OF SCALE AND LOWER EXPENSE RATIOS
The Board of Trustees has concluded that economies of scale and potentially
lower expense ratios are likely to be realized by merging the assets of the
Blanchard American Equity Fund into the Virtus Style Manager: Large Cap Fund.
Instead of using a sub-advisor to manage the portfolio as is the case with
Provident Investment Counsel for the Blanchard American Equity Fund, the
Virtus Style Manager: Large Cap Fund is managed by an in-house team of equity
specialists from Virtus Capital Management, Inc., the investment advisor to
the Blanchard and Virtus families of mutual funds.
The projected annual expenses of the Virtus Style Manager: Large Cap Fund
are at 1.32%, which is lower than the 3.05% assessed by the Blanchard American
Equity Fund.
NO TAXABLE CONSEQUENCES--SAME SHAREHOLDER PRIVILEGES
Because this merger of assets is tax-free, there are no taxable consequences
for you. And you'll continue to enjoy all of the same shareholder privileges
that you do now. These include free telephone switches between any Blanchard
and Virtus mutual fund, as well as free telephone redemptions.
PLEASE VOTE TODAY!
It is for all of the reasons cited in this letter that the Board of Trustees
has unanimously voted to recommend that you vote "FOR" this merger.
Because shareholder approval is required for this Fund merger, your
individual vote is of critical importance. This gives you an important say in
the management of your investment.
.A voting card is enclosed. It is essential that you mark your card in
the appropriate space and return it in the postage-paid envelope
provided.
If the proxy is approved, the merger of the Blanchard American Equity Fund
into the Virtus Style Manager: Large Cap Fund is scheduled to be completed
June 21, 1996.
If a majority of shareholders do not return their votes, additional proxy
statements must be sent out, costing money, as well as valuable time. So
please, take a few moments now to fill out and return the enclosed proxy
voting card, while the material is at hand.
Before voting, please refer to the enclosed prospectus for the Virtus Style
Manager: Large Cap Fund for more complete details on investment objectives,
management fees, risks and expenses.
If you have additional questions on the voting process, or on the Fund,
please call 1-800-829-3863. A friendly and experienced shareholders' service
representative will be standing by between 8:30 a.m. and 5:30 p.m., EDT.
Thank you for your continued confidence in the Blanchard Group of Funds.
Sincerely,
The Blanchard Group of Funds
The Blanchard Group of Funds and the Virtus Funds are distributed by Federated
Securities Corp. and are advised by Virtus Capital Management, Inc.
THE BLANCHARD GROUP OF FUNDS AND THE VIRTUS FUNDS ARE NOT DEPOSITS,
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK OR OTHER FINANCIAL INSTITUTION,
AND ARE NOT INSURED BY THE FDIC OR ANY FEDERAL AGENCY. IN ADDITION, THEY
INVOLVE RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
LOGO
LOGO
BLANCHARD FUNDS
FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS TO SHAREHOLDERS OF BLANCHARD
AMERICAN EQUITY FUND:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Blanchard
American Equity Fund ("American Equity"), a portfolio of Blanchard Funds, will
be held at 2:00 p.m. on June 21, 1996 at Federated Investors Tower, 19th
Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed agreement pursuant to which
The Style Manager: Large Cap Fund ("Large Cap"), a portfolio of
The Virtus Funds, would acquire all of American Equity's assets
in exchange for Investment Shares of Large Cap. American Equity
would then distribute the shares of Large Cap so received pro
rata to its shareholders and would liquidate and terminate its
existence; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: May 23, 1996 John W. McGonigle
Secretary
Shareholders of record at the close of business on May 13, 1996 are entitled
to vote at the meeting. Whether or not you plan to attend the meeting, please
sign and return the enclosed proxy card or call 1-800-829-3863. YOUR VOTE IS
IMPORTANT.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF
FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR
VOTE IN PERSON IF YOU ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
MAY 16, 1996
ACQUISITION OF THE ASSETS OF BLANCHARD AMERICAN EQUITY FUND ("AMERICAN
EQUITY"), A PORTFOLIO OF BLANCHARD FUNDS FEDERATED INVESTORS TOWER PITTSBURGH,
PENNSYLVANIA 15222-3779 TELEPHONE NUMBER: 1-800-829-3863
BY AND IN EXCHANGE FOR INVESTMENT SHARES OF THE STYLE MANAGER: LARGE CAP FUND
("LARGE CAP"), A PORTFOLIO OF THE VIRTUS FUNDS FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779 TELEPHONE NUMBER: 1-800-829-3863
This Prospectus/Proxy Statement describes the proposed Agreement and Plan of
Reorganization (the "Plan") whereby Large Cap would acquire all of the assets
of American Equity, in exchange for Investment Shares of Large Cap. These
shares would then be distributed pro rata by American Equity to its
shareholders, and, as a result, each American Equity shareholder will own
Investment Shares of Large Cap having a total net asset value equal to the
total net asset value of his or her holdings in American Equity. The Plan
would result in the complete liquidation and the termination of American
Equity.
Blanchard Funds is an open-end management investment company which currently
includes nine portfolios, each of which has a distinct investment objective.
The investment objective of American Equity is long term growth of capital.
The Virtus Funds is an open-end management investment company which currently
includes eight portfolios, each of which has a distinct investment objective.
The investment objective of Large Cap is to provide growth of capital and
income. For a comparison of the investment policies of the Funds, see
"Summary--Investment Objectives, Policies, and Limitations."
This Prospectus/Proxy Statement should be retained for future reference. It
sets forth concisely the information about The Virtus Funds and Large Cap that
a prospective investor should know before investing in Large Cap. This
Prospectus/Proxy Statement is accompanied by the Prospectus of Large Cap dated
November 30, 1995 (revised December 29, 1995 and March 15, 1996), which is
incorporated herein by reference. The Prospectus of American Equity dated
August 7, 1995, and the Statements of Additional Information for Large Cap and
American Equity, dated November 30, 1995 and August 7, 1995, respectively
(relating to the Prospectuses of Large Cap and American Equity, respectively,
of the same date) and May 16, 1996 (relating to this Prospectus/Proxy
Statement), and the Annual Report of Large Cap for the fiscal year ended April
30, 1995, all containing additional information, have been
filed with the Securities and Exchange Commission and are incorporated herein
by reference. Copies of the Prospectus, Statements of Additional Information
and Annual Report may be obtained without charge by calling Signet Financial
Services at 1-800-829-3863.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF SIGNET BANK OR ANY OF ITS AFFILIATES, OR OF ANY BANK, ARE NOT
ENDORSED OR GUARANTEED BY SIGNET BANK OR ANY OF ITS AFFILIATES, OR BY ANY
BANK, AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED BY THE U.S. GOVERN-
MENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary.................................................................... 1
Risk Factors............................................................... 8
Management's Discussion of Fund Performance The Style Manager: Large Cap
Fund-Investment Shares.................................................... 8
Information About the Reorganization....................................... 8
Information About the Blanchard Group of Funds, The Virtus Funds,
American Equity, and Large Cap............................................ 11
Voting Information......................................................... 12
Exhibit A--Agreement and Plan of Reorganization............................ A-1
</TABLE>
SUMMARY
ABOUT THE PROPOSED REORGANIZATION
The Board of Trustees of Blanchard Funds has voted to recommend to
shareholders of American Equity the approval of a Plan whereby Large Cap would
acquire all of the assets of American Equity in exchange for Investment Shares
of Large Cap. These shares would thereupon be distributed pro rata by American
Equity to its shareholders and, as a result, each shareholder of American
Equity will become the owner of Investment Shares of Large Cap having a total
net asset value equal to the total net asset value of his or her holdings in
American Equity. These transactions (referred to as the "Reorganization")
would result in the complete liquidation and the termination of American
Equity.
As a condition to the Reorganization transactions, The Virtus Funds and
Blanchard Funds will receive an opinion of counsel that the Reorganization
will be considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by either
Large Cap or American Equity or their shareholders. The tax basis of the
Investment Shares of Large Cap received by American Equity shareholders will
be the same as the tax basis of their shares in American Equity.
In recommending the Reorganization, the Blanchard Funds' and The Virtus
Funds' investment adviser, Virtus Capital Management, Inc., and the Board of
Trustees of Blanchard Funds and The Virtus Funds, considered the fact that,
because of the low asset and high expense levels of American Equity, American
Equity's long-term viability is questionable, and have concluded that
economies of scale, and potentially lower expense ratios, could be realized by
transferring the assets of American Equity into Large Cap.
The following discussion compares certain key aspects of American Equity and
Large Cap (collectively, the "Funds").
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
COMBINED
AMERICAN LARGE AMERICAN EQUITY/
EQUITY CAP LARGE CAP
----------------------------------------- ---
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed
on Purchases (as a
percentage of offering
price)................... None None None
Maximum Sales Load Imposed
on Reinvested Dividends
(as a percentage of
offering price).......... None None None
Contingent Deferred Sales
Charge (as a percentage
of amount redeemed, if
applicable).............. None 2.00%(1) 2.00%(1)
Redemption Fees (as a
percentage of amount
redeemed, if applicable). None None None
Exchange Fee.............. None None None
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C> <C> <C> <C>
Management Fee (after
waivers)................. 0.00%(2) 0.75%(3) 0.75%
12b-1 Fee................. 0.50% 0.25% 0.25%
Total Other Expenses...... 2.55%(2) 0.32% 0.32%(3)(4)
Total Operating
Expenses................. 3.05%(2) 1.32%(3) 1.32%(3)(4)
</TABLE>
(1) A contingent deferred sales charge will not be imposed on the redemption
of Large Cap shares held by current shareholders of American Equity. See
"Summary--Purchase and Redemption Procedures."
(2) The management fee has been reduced to reflect a voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 1.10%. The
investment adviser may voluntarily waive a portion of its fee and may
voluntarily reimburse certain operating expenses. This voluntary waiver
and reimbursement may be modified or terminated at any time. Absent such
fee waivers and/or expense reimbursements, it is estimated that the Total
Operating Expenses for the Blanchard American Equity Fund would be 4.46%.
(3) It is currently proposed that (subject to shareholder approval) the
maximum management fee be increased to 1.00% from .75% commencing in the
fourth quarter of 1996.
(4) The Total Operating Expenses in the table above are based on expenses
expected during the fiscal year ending September 30, 1996. The Total
Operating Expenses were 1.21% for the fiscal year ended September 30,
1995.
<TABLE>
<CAPTION>
COMBINED
AMERICAN
AMERICAN LARGE EQUITY/
EXAMPLE EQUITY CAP LARGE CAP
- ------- -------- ----- ---------
<S> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period
1 Year............................................... $ 31 $ 34 $ 34
1 Year(+)............................................ $ 31 $ 13 $ 13
3 Years.............................................. $ 94 $ 64 $ 64
3 Years(+)........................................... $ 94 $ 42 $ 42
5 Years.............................................. $160 $ 72 $ 72
10 Years............................................. $336 $159 $159
</TABLE>
+Reflects expenses on the same investment, assuming no redemption.
The purpose of the foregoing Example is to assist an investor in
understanding the various costs and expenses that a shareholder of the Funds
will bear, either directly or indirectly.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
INVESTMENT OBJECTIVES, POLICIES, AND LIMITATIONS
The investment objectives of American Equity and Large Cap are similar.
American Equity seeks to provide long term growth of capital. Large Cap seeks
to provide growth of capital and income.
Large Cap pursues its investment objective by investing primarily (i.e., at
least 65% of its assets under normal conditions) in common stocks, and may
also invest in preferred stocks, corporate bonds, notes, warrants, rights and
convertible securities. American Equity pursues its investment objective by
investing at least 80% of its assets under normal market conditions in common
stocks, convertible preferred stocks, convertible debt securities and
warrants. The debt securities in which Large Cap and American Equity may
invest must be rated, at the time of purchase, BBB or higher by Standard &
Poor's Ratings Group ("S&P") or Fitch Investor Services ("Fitch") or Baa or
higher by Moody's Investor's Service Inc. ("Moody's") or, if unrated, be of
comparable quality as determined by the Fund's adviser. (If a securities
rating is reduced below the required minimum after the Fund has purchased it,
the Fund is not required to sell the securities but may consider doing so.
Bonds rated BBB by S&P or Fitch or Baa by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances are
more likely to lead to weakened capacity to make principal and interest
payments than higher rated bonds.) Prior to the date of the Reorganization,
American Equity will restructure its portfolio so that its investments will
conform at the effective time of the Reorganization to those permitted to be
held by Large Cap.
Large Cap will invest in securities of large capitalization companies, with
a market capitalization of at least $1 billion at the time of investment, and
which are listed either on the New York or American Stock Exchange or trade in
the over-the-counter markets. American Equity will invest in securities of
companies of various sizes, approximately one-half of which will be traded on
the New York Stock Exchange and the remainder of which will be traded over-
the-counter. American Equity has no investment policy with respect to a
company's minimum capitalization.
Large Cap is managed to take advantage of trends in the stock market that
favor different styles of stock selection (value or growth). The value style
seeks stocks that, in the opinion of the adviser, are undervalued and are or
will be worth more than their current price. The growth style seeks stocks
with higher earnings growth which, in the opinion of the adviser, will lead to
appreciation in stock price. American Equity selects stocks of companies which
are currently experiencing a rate of earnings growth greater than the average
of such rate for all companies included in Standard & Poor's 500 Index.
Neither Fund may purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed
5% of the market value of the Fund's total assets.
Large Cap may invest in American Depository Receipts, which are typically
issued by an American bank or trust company and evidence ownership of
underlying securities issued by a foreign issuer. Both Funds may enter into
repurchase agreements and futures contracts.
Large Cap and American Equity are subject to certain investment limitations.
The investment limitations of the two Funds are substantially identical. These
limitations include provisions that, in effect, prohibit either Fund from:
selling any securities short (except, with respect to Large Cap, in certain
limited circumstances) or purchasing securities on margin; issuing senior
securities, except that American Equity may borrow up to 20%, and Large Cap
may borrow up to one-third, of the value of
their total assets; mortgaging, pledging, or hypothecating any assets except
to secure permitted borrowings; lending any of their respective assets, except
portfolio securities up to one-third of the value of their total assets; or
investing more than a stated percentage (10% in the case of American Equity
and 15% in the case of Large Cap) of their respective assets in illiquid
securities.
Reference is hereby made to the Prospectus and Statement of Additional
Information of American Equity, dated August 7, 1995, and the Prospectus of
Large Cap, dated November 30, 1995 (revised December 29, 1995 and March 15,
1996), and Statement of Additional Information of Large Cap, dated November
30, 1995, which set forth in full the investment objectives, policies and
investment limitations of both funds and which are incorporated by reference
herein.
DISTRIBUTION ARRANGEMENTS
Federated Securities Corp. is the principal distributor for shares of
Blanchard Funds and The Virtus Funds. Under distribution plans adopted in
accordance with Investment Company Act Rule 12b-1 (the "12b-1 Plan"), Large
Cap (with respect to Investment Shares), and American Equity may pay to
Federated Securities Corp. an amount computed at an annual rate of 0.25 of 1%
and 0.50 of 1% of each respective Fund's average daily net assets to finance
any activity which is principally intended to result in the sale of shares
subject to the 12b-1 Plan. Currently, Large Cap (with respect to Investment
Shares) and American Equity incur fees under the 12b-1 Plan at an annual rate
of 0.25 of 1% and 0.50 of 1% of each respective Fund's average daily net
assets. Large Cap will not, as a result of the Reorganization, assume any
liabilities or make any voluntary reimbursements on account of American
Equity's 12b-1 Plan.
ADVISORY AND OTHER FEES
Virtus Capital Management, Inc. ("VCM"), a Maryland corporation and a
wholly-owned subsidiary of Signet Banking Corporation, provides overall
management services for Blanchard Funds and The Virtus Funds. VCM is currently
entitled to receive an annual investment advisory fee equal to 0.75% of Large
Cap's average daily net assets and it is currently proposed that (subject to
shareholder approval) VCM would be entitled to receive an annual management
fee equal to 1% of Large Cap's average daily net assets commencing in the
fourth quarter of 1996. VCM is entitled to receive an annual management fee
equal to 1.10 of 1% of American Equity's average daily net assets, of which
such Fund's portfolio adviser, Provident Investment Counsel, is entitled to
receive from VCM an annual subadvisory fee of 0.50% of the first $150 million
of such Fund's average daily net assets; 0.45% of the next $100 million of
average daily net assets; 0.40% of the next $150 million of average daily net
assets; and 0.35% of average daily net assets in excess of $400 million. See
also the "Summary of Fund Expenses." VCM has undertaken to reimburse each
Fund, up to the amount of its management fee, for operating expenses in excess
of limitations established by certain states. VCM may further voluntarily
waive a portion of its fee or reimburse either Fund for certain operating
expenses. This agreement to waive fees or reimburse expenses may be terminated
by VCM at any time in its discretion.
Federated Administrative Services, a subsidiary of Federated Investors,
provides the Funds with certain administrative personnel and services
necessary to operate the Funds. The rate charged for such administrative
services is 0.15 of 1% of the first $250 million of average aggregate daily
net assets
of The Virtus Funds and Blanchard Funds combined, 0.125 of 1% on the next $250
million, 0.10 of 1% on the next $250 million and 0.075 of 1% of assets in
excess of $750 million. The administrative fee received during any fiscal year
shall be at least $75,000 per Fund. American Equity estimates that its
administrative fee expense for the current fiscal year will be 0.60 of 1% of
its average aggregate daily net assets. The administrative fee for Large Cap's
most recent fiscal year was 0.11 of 1% of its average aggregate daily net
assets. Large Cap estimates that its administrative fee expense for the
current fiscal year will be 0.10 of 1% of its average aggregate daily net
assets.
The total annual operating expenses for American Equity are expected to be
3.05% of average daily net assets, and would be 4.46% of average daily net
assets absent the voluntary waiver of the management fee and expense
reimbursements by the Adviser. The total annual operating expenses for Large
Cap are expected to be 1.32% of average daily net assets.
PURCHASE AND REDEMPTION PROCEDURES
Procedures for the purchase and redemption of Investment Shares of Large Cap
are similar to procedures applicable to the purchase and redemption of
American Equity shares. For a complete description of the purchase and
redemption procedures applicable to purchases and redemptions of shares, refer
to the Prospectus of Blanchard Funds dated August 7, 1995, and the Prospectus
of The Virtus Funds dated November 30, 1995 (revised December 29, 1995 and
March 15, 1996), which are incorporated herein by reference. Any questions
about such procedures may be directed to, and assistance in effecting
purchases, redemptions, or exchanges of shares may be obtained by calling 1-
800-829-3863.
Investment Shares of Large Cap are sold on all business days except on days
on which the New York Stock Exchange is closed. Shares are sold at their net
asset value next determined after an order is received. There is no sales
charge at the time of purchase. The net asset value is calculated as of the
close of the New York Stock Exchange (normally 4:00 p.m., Eastern time) on
days shares are sold. Purchases of shares of either Fund may be made by wire,
by ACH or by check. Orders are considered received after payment is converted
into federal funds. The minimum initial investment in Large Cap is $1,000.
Redemption requests cannot be executed on days which the New York Stock
Exchange is closed and federal or state holidays restricting wire transfers.
Shares of American Equity are redeemed at their net asset value next
determined after the redemption request is received. Shares of Large Cap are
redeemed at their net asset value next determined after the redemption request
is received, except that a contingent deferred sales charge ("CDSC") will be
imposed in certain instances. A CDSC will not be charged on the redemption of
shares of Large Cap (i) to be received by current shareholders of American
Equity pursuant to the Reorganization (the "Reorganization Shares"); (ii) to
be received by current shareholders of American Equity pursuant to
reinvestment of dividends or capital gains distributions made in respect of
Reorganization Shares or (iii) purchased by current shareholders of American
Equity at any time after the date of the Reorganization. Proceeds will be
distributed by wire or check. Requests for redemption can be made by telephone
or by mail as more particularly described in the above-referenced
Prospectuses.
EXCHANGE PRIVILEGES
Shareholders of Investment Shares of Large Cap may exchange Investment
Shares of Large Cap for shares of another Virtus Fund at net asset value. The
dollar amount of an exchange must be at least $1,000. In addition, holders of
Large Cap may exchange such Large Cap shares for shares of any Blanchard Fund
at net asset value. The dollar amount of an exchange into a Blanchard Fund
must meet the initial investment requirement of the Blanchard Fund into which
the exchange is being made. No fees are charged in connection with any such
exchange.
Shareholders of American Equity may exchange shares of American Equity for
shares of another Blanchard Fund or for Investment Shares of any Virtus Fund
at net asset value. No fees are charged in connection with any such exchange.
The dollar amount of an exchange into a Blanchard Fund must meet the initial
investment requirement of the Fund into which the exchange is being made. All
subsequent exchanges into that Fund must be at least $1,000. The dollar amount
of any exchanges into a Virtus fund must be at least $1,000.
TAX CONSEQUENCES
As a condition to the Reorganization transactions, Blanchard Funds and The
Virtus Funds will receive an opinion of counsel that the Reorganization will
be considered a tax-free "reorganization" under applicable provisions of the
Internal Revenue Code so that no gain or loss will be recognized by either
Large Cap or American Equity or their respective shareholders. The tax basis
of Large Cap shares received by American Equity shareholders will be the same
as the tax basis of their shares in American Equity.
RISK FACTORS
Investment in Large Cap is subject to certain risks that are set forth in
its Prospectus dated November 30, 1995 (revised December 29, 1995 and March
15, 1996) and its Statement of Additional Information, dated November 30, 1995
which are incorporated herein by reference thereto. Briefly, these risks
include, but are not limited to, fluctuation of the value of shares of Large
Cap, uncertainty that a secondary market for options or for positions in
futures contracts will exist at all times, and imperfect correlation between
the prices of financial futures and options on financial futures, on the one
hand, and prices of the securities subject to the options and futures
contracts, on the other hand, which could cause a futures contract and any
related options to react differently than the underlying portfolio securities
to market changes. Investment in American Equity carries risks of a
substantially similar nature, as more fully described in its Prospectus and
its Statement of Additional Information dated August 7, 1995.
* * *
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
THE STYLE MANAGER: LARGE CAP FUND--INVESTMENT SHARES
The following information was included in Large Cap's Annual Report for the
fiscal year ended September 30, 1995. (At the date of the Annual Report, Large
Cap was known as The Stock Fund.) The Management's Discussion contained in the
Annual Report in its entirety, is as follows:
GROWTH OF $10,000 INVESTED IN THE FUND--INVESTMENT SHARES
The graph below illustrates the hypothetical investment of $10,000 in The
Stock Fund (the "Fund") from October 16, 1990 (start of performance) to
September 30, 1995, compared to the Standard & Poor's 500 Index ("S&P 500"). +
LOGO
A. The graphic presentation here displayed consists of a legend in the
upper left quadrant of the chart indicating the components of the
corresponding line graph. The Stock Fund (the "Fund") is represented by a
broken line. The S&P 500 is represented by a solid line.. The
line graph is a visual representation of a comparison of change in value of
a hypothetical $10,000 purchase in the Fund and the S&P 500.
The "y" axis reflects the cost of the investment. The "x" axis reflects
computation periods from the Fund's start of performance, 10-16
through 09-30-95. The right margin of the chart reflects the ending value of
the hypothetical investment in the Fund as compared to the
500; the ending values are $16,069 and $22,119, respectively. There is also a
legend below the graphic presentation which indicates the
Average Annual Total Return for the period ended September 30, 1995,
beginning with the start of performance of the Fund (10/16/90), and
one-year period; the Average Annual Total Returns are 10.43% and 17.91%,
respectively.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY
BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of performance 10/16/90
through 9/30/95, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
*** Total return quoted reflects all applicable contingent deferred sales
charges.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The S&P
500 has been adjusted to reflect reinvestment of dividends on securities in
the index. This index is unmanaged.
For the year ended September 30, 1995, The Stock Fund (the "Fund") had a
return of 20.33% for Trust Shares* and 17.91% for Investment Shares* (taking
into account the contingent deferred sales charge), which compares to the
Standard and Poor's 500 Index ** (S&P 500) at 29.81%.
The Stock Fund is managed utilizing a cash flow return on investment
framework coupled with traditional fundamental analysis. In addition, the Fund
attempts to incorporate into the portfolio the dominant equity style, growth
or value, which Virtus believes will show superior performance. Style is
incorporated into The Stock Fund by overweighting or underweighting specific
S&P 500 market sectors.
Year to date through September 30, 1995, The Stock Fund has been managed
with emphasis on growth equities. Accordingly, the consumer staples and
technology sectors have been overweighted while the energy and financial
sectors have been underweighted. The companies in the portfolio are
predominantly larger capitalized and the overall dividend yield has been
comparable to that of the S&P 500.
* * *
INFORMATION ABOUT THE REORGANIZATION
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
On July 12, 1995, VCM acquired the assets and business of Sheffield
Management Co. ("Sheffield"), which was, until that time, manager of the
Blanchard Funds. Upon succeeding Sheffield
as manager, VCM conducted a review and evaluation of the investment objectives
and strategies of the Funds. As a result of this review, VCM determined that,
because of the low asset and high expense levels of American Equity, American
Equity's long-term viability is questionable, and that both Funds would
potentially benefit from economies of scale, and potentially lower expense
ratios, that could (but will not necessarily) be realized by transferring the
assets of American Equity into Large Cap.
The Trustees of Blanchard Funds and The Virtus Funds, including the
independent Trustees, have unanimously concluded that consummation of the
Reorganization is in the best interests of Blanchard Funds and The Virtus
Funds and the shareholders of American Equity and Large Cap and that the
interests of American Equity and Large Cap shareholders would not be diluted
as a result of effecting the Reorganization and have unanimously approved the
Plan. The Trustees also noted that the shareholders of American Equity would
continue to receive the same quality investment management services from VCM
as shareholders of Large Cap.
- --------
* Performance quoted represents 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.
** The Standard and Poor's 500 Index is a composite of 500 stocks. The index
is unmanaged.
DESCRIPTION OF THE PLAN OF REORGANIZATION
The Plan provides that on or about June 21, 1996 (the "Closing Date") Large
Cap will acquire all of the assets of American Equity in exchange for
Investment Shares of Large Cap to be distributed pro rata by American Equity
to its shareholders in complete liquidation and termination of American
Equity. Shareholders of American Equity will become shareholders of Large Cap
as of 4:00 p.m. (Eastern time) on the Closing Date and will begin accruing
dividends on the next day. Shares of Large Cap received by American Equity
shareholders in connection with the acquisition of the assets of American
Equity will not be subject to a sales load. Shareholders of American Equity
will earn their last dividend from American Equity on the Closing Date.
Consummation of the Reorganization is subject to the conditions set forth in
the Plan, including receipt of an opinion in form and substance satisfactory
to Blanchard Funds and The Virtus Funds, as described under the caption
"Federal Income Tax Consequences" below. The Plan may be terminated and the
Reorganization may be abandoned at any time before or after approval by
shareholders of American Equity prior to the Closing Date by Blanchard Funds
or The Virtus Funds if it believes that consummation of the Reorganization
would not be in the best interests of the shareholders of either American
Equity or Large Cap.
VCM is responsible for the payment of all expenses of the Reorganization
incurred by either Fund, whether or not the Reorganization is consummated.
Such expenses include, but are not limited to, legal fees, registration fees,
transfer taxes (if any), the fees of banks and transfer agents and the costs
of preparing, printing, copying and mailing proxy solicitation materials to
shareholders of American Equity and the costs of holding the Special Meeting
of Shareholders.
The foregoing brief summary of the Plan entered into between American Equity
and Large Cap is qualified in its entirety by the terms and provisions of the
Plan, a copy of which is attached hereto as Exhibit A and incorporated herein
by reference.
DESCRIPTION OF INVESTMENT SHARES OF LARGE CAP
Investment Shares of Large Cap to be issued to shareholders of American
Equity under the Plan will be fully paid and non assessable when issued and
transferable without restriction and will have no preemptive or conversion
rights. Large Cap offers two classes of shares. Trust Shares, the other class
offered by Large Cap, are sold to trusts, fiduciaries and institutions at net
asset value at a minimum investment of $10,000. Trust Shares are not sold
pursuant to a Rule 12b-1 Plan. The amount of dividends payable to Trust Shares
will exceed those payable to Investment Shares by the difference between class
expenses and distribution expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares. Reference is
hereby made to the Prospectus of Large Cap dated November 30, 1995 (revised
December 29, 1995 and March 15, 1996) provided herewith for additional
information about Investment Shares of Large Cap.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to the Reorganization, Blanchard Funds and The Virtus Funds
will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel to
Blanchard Funds and The Virtus Funds, to the effect that, on the basis of the
existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), current administrative rules and court decisions, for
federal income tax purposes: (1) the Reorganization as set forth in the Plan
will constitute a tax-free reorganization under section 368(a)(1)(C) of the
Code; (2) no gain or loss will be recognized by Large Cap upon its receipt of
American Equity's assets solely in exchange for Investment Shares of Large
Cap; (3) no gain or loss will be recognized by American Equity upon the
transfer of its assets to Large Cap solely in exchange for Investment Shares
of Large Cap or upon the distribution (whether actual or constructive) of
Investment Shares of Large Cap to American Equity shareholders solely in
exchange for their shares of American Equity; (4) no gain or loss will be
recognized by shareholders of American Equity upon the exchange of their
American Equity shares for Investment Shares of Large Cap; (5) the tax basis
of American Equity's assets acquired by Large Cap will be the same as the tax
basis of such assets to American Equity immediately prior to the
Reorganization; (6) the tax basis of Investment Shares of Large Cap received
by each shareholder of American Equity pursuant to the Plan will be the same
as the tax basis of American Equity shares held by such shareholder
immediately prior to the Reorganization; (7) the holding period of the assets
of American Equity in the hands of Large Cap will include the period during
which those assets were held by American Equity; and (8) the holding period of
Investment Shares of Large Cap received by each shareholder of American Equity
will include the period during which the American Equity shares exchanged
therefor were held by such shareholder, provided the American Equity shares
were held as capital assets on the date of the Reorganization.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
Blanchard Funds and The Virtus Funds are organized as business trusts
pursuant to Declarations of Trust under the laws of the Commonwealth of
Massachusetts. The rights of shareholders of American Equity and Large Cap as
set forth in their respective Declarations of Trust are substantially
identical. Set forth below is a brief summary of the significant rights of
shareholders of American Equity and Large Cap.
Neither Fund is required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations or
the election of trustees under certain circumstances. A special meeting of
shareholders of either Fund for any permissible purpose is required to be
called by the Trustees upon the written request of the holders of at least 10%
of the outstanding shares of the relevant Fund.
Under certain circumstances, shareholders of American Equity, Large Cap, or
any other portfolio of Blanchard Funds or The Virtus Funds may be held
personally liable as partners under Massachusetts law for obligations of
Blanchard Funds or The Virtus Funds, as the case may be. To protect
shareholders of all portfolios of Blanchard Funds and The Virtus Funds,
Blanchard Funds and The Virtus Funds have filed legal documents with the
Commonwealth of Massachusetts that expressly disclaim the liability of
shareholders of portfolios of Blanchard Funds and The Virtus Funds for such
acts or obligations of Blanchard Funds and The Virtus Funds. These documents
require that notice of this disclaimer be given in each agreement, obligation
or instrument that Blanchard Funds and The Virtus Funds or their trustees
enter into or sign on behalf of Blanchard Funds and The Virtus Funds.
In the unlikely event a shareholder of a portfolio of Blanchard Funds or The
Virtus Funds is held personally liable for obligations of Blanchard Funds or
The Virtus Funds, Blanchard Funds and The
Virtus Funds are required to use their property to protect or compensate the
shareholder. On request, Blanchard Funds and The Virtus Funds will defend any
claims made and pay any judgment against a shareholder of a portfolio of
Blanchard Funds and The Virtus Funds for any act or obligation of Blanchard
Funds and The Virtus Funds. Therefore, financial loss resulting from liability
as a shareholder of a portfolio of Blanchard Funds and The Virtus Funds will
occur only if Blanchard Funds or The Virtus Funds cannot meet their obligation
to indemnify shareholders and pay judgments against them from the assets of
Blanchard Funds or The Virtus Funds.
CAPITALIZATION
The following table sets forth the capitalization of American Equity and
Large Cap as of March 31, 1996 and on a pro forma basis as of that date:
<TABLE>
<CAPTION>
AMERICAN LARGE PRO FORMA PRO FORMA
EQUITY CAP ADJUSTMENT COMBINED
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net Assets....................... $9,579,375 $95,063,101 (43,359) $104,599,117
Shares Outstanding............... 815,497 7,093,486 (103,932) 7,805,051
Price Per Share.................. $ 11.75 $ 13.40 -- $ 13.40
</TABLE>
INFORMATION ABOUT BLANCHARD FUNDS, THE VIRTUS FUNDS, AMERICAN EQUITY, AND
LARGE CAP
Information about Blanchard Funds, The Virtus Funds, American Equity, and
Large Cap is contained in their respective Prospectuses dated (in the case of
Blanchard Funds and American Equity) August 7, 1995 and (in the case of The
Virtus Funds and Large Cap) November 30, 1995 (revised December 29, 1995 and
March 15, 1996), which are incorporated by reference herein. A copy of the
Prospectus for Large Cap is included herewith. Additional information about
The Virtus Funds and Large Cap is included in the Statement of Additional
Information of Large Cap dated November 30, 1995 (relating to the Prospectus
of Large Cap of the same date), and May 16, 1996 (relating to this
Prospectus/Proxy Statement) and Large Cap's Annual Report to Shareholders
dated September 30, 1995, which are incorporated herein by reference.
Additional information about American Equity is included in the Statement of
Additional Information of American Equity dated August 7, 1995, and May 16,
1996 (relating to this Prospectus/Proxy Statement) and American Equity's
Annual Report dated April 30, 1995, which are incorporated herein by
reference. Copies of the Statements of Additional Information of American
Equity and Large Cap, which have been filed with the Securities and Exchange
Commission (the "SEC"), may be obtained without charge by contacting Blanchard
Group of Funds at 1-800-829-3863 or by writing to Signet Financial Services,
Inc., 41 Madison Avenue, 24th Floor, New York, NY 10010.
Blanchard Funds and The Virtus Funds, on behalf of the Funds, are subject to
the informational requirements of the Securities Act of 1933 (the "1933 Act"),
the Securities Exchange Act of 1934 (the "1934 Act") and the Investment
Company Act of 1940 (the "1940 Act") and in accordance therewith file reports
and other information with the SEC. Reports, proxy and information statements
and other information filed by Blanchard Funds and The Virtus Funds, on behalf
of the Funds, can be obtained
by calling or writing to Blanchard Funds or The Virtus Funds and can also be
inspected and copied by the public at the public reference facilities
maintained by the SEC in Washington, D.C. located at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at certain of its regional offices
located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, IL 60621 and 13th Floor, Seven World Trade Center, New York, NY
10048. Copies of such material also may be obtained at prescribed rates from
the Public Reference Branch, Office of Consumer Affairs and Information
Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus/Proxy Statement and the related Statement of Additional
Information do not contain all of the information set forth in the
registration statement that The Virtus Funds have filed with the SEC under the
1933 Act to which reference is hereby made. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference
to the copy of the applicable documents filed with the SEC. The SEC file
number for Blanchard Funds' prospectuses and related Statements of Additional
Information which are incorporated by reference herein is Registration No. 33-
3165. The SEC file number for The Virtus Funds' prospectuses and related
Statements of Additional Information which are incorporated by reference
herein is Registration No. 33-36451.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of American Equity of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on June 21,
1996 and at any adjournment thereof. The proxy confers discretionary authority
on the persons designated therein to vote on other business not currently
contemplated which may properly come before the Meeting. A proxy, if properly
executed, duly returned and not revoked, will be voted in accordance with the
specifications thereon; if no instructions are given, such proxy will be voted
in favor of the Plan. A shareholder may revoke a proxy at any time prior to
use by filing with the Secretary of Blanchard Funds an instrument revoking the
proxy, by submitting a proxy bearing a later date or by attending and voting
at the Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by VCM. In addition to solicitations through the
mails, proxies may be solicited by officers, employees and agents of Blanchard
Funds and VCM at no additional cost to Blanchard Funds. Such solicitations may
be made by telephone. VCM will reimburse custodians, nominees and fiduciaries
for the reasonable costs incurred by them in connection with forwarding
solicitation materials to the beneficial owners of shares held of record by
such persons.
OUTSTANDING SHARES AND VOTING REQUIREMENTS
The Board of Trustees has fixed the close of business on May 13, 1996 as the
record date for the determination of shareholders entitled to notice of, and
to vote at, the Special Meeting of Shareholders and any adjournment thereof.
As of the record date, there were 773,288 shares of American Equity
outstanding. Each American Equity share is entitled to one vote and fractional
shares have proportionate voting rights. On the record date, no shareholder or
other person owned of record, or to
the knowledge of VCM, beneficially owned, 5% or more of American Equity's
outstanding shares. On the record date, the trustees and officers of Blanchard
Funds as a group owned less than 1% of the outstanding shares of American
Equity.
The votes of the shareholders of Large Cap are not being solicited, since
their approval or consent is not necessary for approval of the Reorganization.
As of the record date, there were 3,791,755 Investment Shares and 3,259,194
Trust Shares of Large Cap outstanding. On the record date, Stephens Inc.,
owned of record approximately 1,483,996 (39.14%) of the outstanding Investment
Shares of Large Cap, and BOVA & CO. owned of record approximately 3,176,714
(97.47%) of the outstanding Trust Shares of Large Cap. On such date, no other
person owned of record, or to the knowledge of VCM, beneficially owned, 5% or
more of Large Cap's outstanding Trust or Investment Shares.
Approval of the Plan requires the affirmative vote of the majority of
American Equity's outstanding shares. The votes of shareholders of Large Cap
are not being solicited since their approval is not required in order to
effect the Reorganization.
A majority of the outstanding shares of American Equity, represented in
person or by proxy, will be required to constitute a quorum at the Special
Meeting for the purpose of voting on the proposed Reorganization. For purposes
of determining the presence of a quorum, shares represented by abstentions and
"broker non-votes" will be counted as present, but not as votes cast, at the
Special Meeting. Under the Declaration of Trust, the approval of any action
submitted to shareholders is determined on the basis of a majority of votes
entitled to be cast at the Special Meeting.
If at the time any session of the Special Meeting is called to order, a
quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Special Meeting to
a later date. In the event that a quorum is present but sufficient votes in
favor of one or more of the proposals have not been received, the persons
named as proxies may propose one or more adjournments of the Special Meeting
to permit further solicitation of proxies with respect to any such proposal.
All such adjournments will require the affirmative vote of a majority of the
shares present in person or by proxy at the session of the Special Meeting to
be adjourned. The persons named as proxies will vote those proxies which they
are entitled to vote in favor of the proposal, in favor of such an
adjournment, and will vote those proxies required to be voted against the
proposal, against any such adjournment. A vote may be taken on one or more of
the proposals in this proxy statement prior to any such adjournment if
sufficient votes for its approval have been received and it is otherwise
appropriate.
DISSENTER'S RIGHT OF APPRAISAL
Shareholders of American Equity objecting to the Reorganization have no
appraisal or dissenter's rights under the Declaration of Trust or
Massachusetts law. Under the Plan, if approved by American Equity
shareholders, each American Equity shareholder will become the owner of
Investment Shares of Large Cap having a total net asset value equal to the
total net asset value of his or her holdings in American Equity at the Closing
Date.
OTHER MATTERS
Management of American Equity knows of no other matters that may properly
be, or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named in
the proxy intend to vote thereon in accordance with their best judgment.
So far as management is presently informed, there is no litigation pending
or threatened against Blanchard Funds or The Virtus Funds.
Whether or not shareholders expect to attend the meeting, all shareholders
are urged to sign, fill in and return the enclosed proxy form promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated April 12, 1996 (the "Agreement"),
between THE VIRTUS FUNDS, a Massachusetts business trust ("Virtus"), on behalf
of its portfolio, The Style Manager: Large Cap Fund (hereinafter called the
"Acquiring Fund"), and BLANCHARD FUNDS, a Massachusetts business trust
("Blanchard"), on behalf of its portfolio, Blanchard American Equity Fund
(hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of
the assets of the Acquired Fund in exchange solely for Investment Shares of
the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement.
WHEREAS, Virtus and Blanchard are registered open-end management investment
companies and the Acquired Fund owns securities in which the Acquiring Fund is
permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue their shares of beneficial interest;
WHEREAS, the Board of Trustees, including a majority of the Trustees who are
not "interested persons" (as defined under the Investment Company Act of 1940,
as amended (the "1940 Act")), of Virtus has determined that the exchange of
all of the assets of the Acquired Fund for Acquiring Fund Shares is in the
best interests of the Acquiring Fund shareholders and that the interests of
the existing shareholders of the Acquiring Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the Trustees who are
not "interested persons" (as defined under the 1940 Act), of Blanchard has
determined that the exchange of all of the assets of the Acquired Fund for
Acquiring Fund Shares is in the best interests of the Acquired Fund
shareholders and that the interests of the existing shareholders of the
Acquired Fund would not be diluted as a result of this transaction;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the Acquired
Fund agrees to assign, transfer and convey to the Acquiring Fund all of the
assets of the Acquired Fund, including all securities and cash other than
cash in an amount necessary to pay any unpaid dividends and distributions
as provided in paragraph 1.5, and the Acquiring Fund agrees in exchange
therefor (i) to deliver to the Acquired Fund the number of Acquiring Fund
Shares, including fractional
Acquiring Fund Shares, determined as set forth in paragraph 2.3. Such
transaction shall take place at the closing (the "Closing") on the closing
date (the "Closing Date") provided for in paragraph 3.1. In lieu of
delivering certificates for the Acquiring Fund Shares, the Acquiring Fund
shall credit the Acquiring Fund Shares to the Acquired Fund's account on
the stock record books of the Acquiring Fund and shall deliver a
confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred shall
be made on the Closing Date and shall be delivered to Signet Trust Company,
Richmond, Virginia, the Acquiring Fund's custodian (the "Custodian"), for
the account of the Acquiring Fund, together with proper instructions and
all necessary documents to transfer to the account of the Acquiring Fund,
free and clear of all liens, encumbrances, rights, restrictions and claims.
All cash delivered shall be in the form of currency and immediately
available funds payable to the order of the Custodian for the account of
the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund hereunder. The Acquired
Fund will transfer to the Acquiring Fund any distributions, rights or other
assets received by the Acquired Fund after the Closing Date as
distributions on or with respect to the securities transferred. Such assets
shall be deemed included in assets transferred to the Acquiring Fund on the
Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to the Acquired Fund's shareholders of record, determined as of the
close of business on the Closing Date (the "Acquired Fund Shareholders"),
the Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1. In addition, each shareholder of record of the Acquired Fund
shall have the right to receive any unpaid dividends or other distributions
which were declared before the Valuation Date with respect to the shares of
the Acquired Fund that are held by the shareholder on the Valuation Date.
Such liquidation and distribution will be accomplished by the transfer of
the Acquiring Fund Shares then credited to the account of the Acquired Fund
on the books of the Acquiring Fund to open accounts on the share record
books of the Acquiring Fund in the names of the Acquired Fund Shareholders
and representing the respective pro rata number of the Acquiring Fund
Shares due such shareholders. All issued and outstanding shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with Section 2.3. The Acquiring Fund shall not
issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's current prospectus
and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on
the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such Acquiring
Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund up to and including the Closing
Date and such later dates, with respect to liquidation and termination of
the Acquired Fund, on which the Acquired Fund is liquidated and terminated.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of
the close of the New York Stock Exchange (normally 4:00 p.m., Eastern time)
on the Closing Date (such time and date being hereinafter called the
"Valuation Date"), using the valuation procedures set forth in the
Acquiring Fund's then-current prospectus or statement of additional
information.
2.2 The net asset value of an Acquiring Fund Share shall be the net asset
value per share computed as of the close of the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on the Valuation Date, using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the Acquired
Fund determined using the same valuation procedures referred to in
paragraph 2.1 by the net asset value of one Acquiring Fund Share determined
in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be June 21, 1996 or such later date as the
parties may mutually agree. All acts taking place at the Closing Date shall
be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held at 4:00
p.m. (Eastern time) at the offices of the Acquiring Fund, Federated
Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place
as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for portfolio
securities of the Acquiring Fund or the Acquired Fund shall be closed to
trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading shall be disrupted so that accurate appraisal of the
value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the
Closing Date shall be postponed until the first business day after the day
when trading shall have been fully resumed and reporting shall have been
restored.
3.3 Federated Shareholder Services Company, as transfer agent for each of
the Acquired Fund and Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the
names and addresses of the Acquired Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be credited
on the Closing Date to the Secretary of the Acquired Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, assumption agreements, share
certificates, if any, receipts or other documents as such other party or
its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Blanchard represents and warrants to Virtus as follows:
(a) Blanchard is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and has power to own all of its properties and assets and
to carry out this Agreement.
(b) Blanchard is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) Blanchard is not, and the execution, delivery and performance of
this Agreement will not result, in material violation of its
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired
Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other commitments
outstanding (other than this Agreement) which will result in liability
to it after the Closing Date.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquired Fund or any of its properties
or assets which, if adversely determined, would materially and
adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its
business or its ability to consummate the transactions herein
contemplated.
(f) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Securities
and Exchange Commission (the "Commission") thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Statements of Assets and Liabilities of the Acquired Fund at
April 30, 1994 and 1995 have been audited by Price Waterhouse LLP,
independent accountants, and have been prepared in accordance with
generally accepted accounting principles, consistently applied, and
such statements (copies of which have been furnished to the Acquiring
Fund) fairly reflect the financial condition of the Acquired Fund as of
such dates, and there are no known contingent liabilities of the
Acquired Fund as of such date not disclosed therein.
(h) The unaudited Statement of Assets and Liabilities of the Acquired
Fund at October 31, 1995 has been prepared in accordance with generally
accepted accounting principles, consistently applied, and such
statement (copies of which have been supplied to the Acquiring Fund)
fairly reflect the financial condition of the Acquired Fund as of such
date.
(i) Since October 31, 1995, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund.
(j) At the Closing Date, all Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by such
date shall have been filed, and all Federal and other taxes shall have
been paid so far as due, or provision shall have been made for the
payment thereof, and to the best of the Acquired Fund's knowledge no
such return is currently under audit and no assessment has been
asserted with respect to such returns.
(k) For each fiscal year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(l) All issued and outstanding shares of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. All of the issued and outstanding shares
of the Acquired Fund will, at the time of the Closing, be held by the
persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
(m) On the Closing Date, the Acquired Fund will have full right,
power and authority to sell, assign, transfer and deliver the assets to
be transferred by it hereunder.
(n) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action on the part of Blanchard's
Trustees and, subject to the approval of the Acquired Fund
Shareholders, this Agreement constitutes the valid and legally binding
obligation of the Acquired Fund enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and court decisions with respect
thereto, and to general principles of equity and the discretion of the
court (regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(o) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.5 (other than information therein
that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
(p) Virtus Capital Management, Inc. has agreed to assume the expense
of the reorganization including accountants' fees, legal fees,
registration fees, transfer taxes (if any), the fees of banks and
transfer agents and the costs of preparing, printing, copying and
mailing proxy solicitation materials to the Acquiring Fund's
shareholders and the costs of holding the Special Meeting of
Shareholders.
4.2 Virtus represents and warrants to Blanchard as follows:
(a) Virtus is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts
and has the power to carry on its business as it is now being conducted
and to carry out this Agreement.
(b) Virtus is registered under the 1940 Act as an open-end,
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(d) Virtus is not, and the execution, delivery and performance of
this Agreement will not result, in material violation of its
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquiring
Fund is a party or by which it is bound.
(e) No litigation or administrative proceeding or investigation of or
before any court or governmental body is currently pending or to its
knowledge threatened against the Acquiring Fund or any of its
properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquiring Fund knows of no facts which might form the
basis for the institution of such proceedings, and is not a party to or
subject to the provisions of any order, decree or judgment of any court
or governmental body which materially and adversely affects its
business or its ability to consummate the transactions contemplated
herein.
(f) The Statements of Assets and Liabilities of the Acquiring Fund at
September 30, 1994 and 1995, have been audited by Deloitte & Touche
LLP, independent auditors, and have been prepared in accordance with
generally accepted accounting principles, consistently applied, and
such statements (copies of which have been furnished to the Acquired
Fund) fairly reflect the financial condition of the Acquiring Fund as
of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since September 30, 1995, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of any indebtedness,
except as otherwise disclosed to and accepted by the Acquired Fund.
(h) At the Closing Date, all Federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed shall
have been filed, and all Federal and other taxes shown as due on said
returns and reports shall have been paid or provision shall have been
made for the payment thereof.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company.
(j) All issued and outstanding shares of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares.
(k) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary action, if any, on the part of
Virtus' Trustees, and this Agreement constitutes the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with
its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability
is considered in a proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) will, on
the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement under which
Virtus Capital Management, Inc. will assume the expenses of the
reorganization including accountants' fees, legal fees, registration
fees, transfer taxes (if any), the fees of banks and transfer agents
and the costs of preparing, printing, copying and mailing proxy
solicitation materials to the Acquired Fund's shareholders and the
costs of holding the Special Meeting of Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated
herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund and
the Acquired Fund will each take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or advisable
to consummate and make effective the transactions contemplated by this
Agreement.
5.4 As promptly as practicable, but in any case within sixty days after
the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in
such form as is reasonably satisfactory to the Acquiring Fund, a statement
of the earnings and profits of the Acquired Fund for Federal income tax
purposes which will be carried over to the Acquiring Fund as a result of
Section 381 of the Code and which will be certified by the Acquired Fund's
President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement, referred to in paragraph 4.1(o),
all to be included in a Registration Statement on Form N-14 of the
Acquiring Fund (the "Registration Statement"), in compliance with the 1933
Act, the Securities Exchange Act of 1934, as amended, and the 1940 Act in
connection with the meeting of the Acquired Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have declared a
dividend or dividends, with a record date and ex-dividend date prior to the
Valuation Date, which, together with all previous dividends, shall have the
effect of distributing to its shareholders all of its investment company
taxable income, if any, plus the excess of its interest income, if any,
excludable from gross income under Code section 103 (a) over its deductions
disallowed under Code sections 265 and 171 (a)(2) for the taxable periods
or years ended on or before April 30, 1996 and for the period from said
date to and including the Closing Date (computed without regard to any
deduction for dividends paid), and all of its net capital gain, if any,
realized in taxable periods or years ended on or before April 30, 1996 and
in the period from said date to and including the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquired Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of Blanchard contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of Blanchard.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund, to the effect that the representations
and warranties of Blanchard made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters
as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of Virtus contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Acquired Fund, to the effect that the
representations and warranties of Virtus made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING FUND
AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the Boards of Trustees of the Acquired Fund and the
Acquiring Fund and by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the
Acquired Fund's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Acquired
Fund, provided that either party hereto may for itself waive any of such
conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 Blanchard and Virtus shall have received an opinion of Dickstein,
Shapiro & Morin, L.L.P. substantially to the effect that for Federal income
tax purposes:
(a) The transfer of all of the Acquired Fund assets in exchange for
the Acquiring Fund Shares and the distribution of the Acquiring Fund
Shares to the Acquired Fund Shareholders in liquidation of the Acquired
Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(C) of the Code; (b) No gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the
Acquired Fund solely in exchange for the Acquiring Fund Shares; (c) No
gain or loss will be recognized by the Acquired Fund upon the transfer
of the Acquired Fund assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to Acquired Fund
Shareholders in exchange for their shares of the Acquired Fund; (d) No
gain or loss will be recognized by the Acquired Fund Shareholders upon
the exchange of their Acquired Fund shares for the Acquiring Fund
Shares; (e) The tax basis of the Acquired Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization; (f) The tax
basis of the Acquiring Fund Shares received by each of the Acquired
Fund Shareholders pursuant to the Reorganization will be the same as
the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will
include the period during which those assets were held by the Acquired
Fund; and (h) The holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Shareholder will include the period
during which the Acquired Fund shares exchanged therefor were held by
such shareholder (provided the Acquired Fund shares were held as
capital assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of
Blanchard or Virtus at any time prior to the Closing Date (and
notwithstanding any vote of the Board of Trustees of Blanchard) if
circumstances should develop that, in the opinion of either of the parties'
Board of Trustees, make proceeding with the Agreement inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated hereby
is abandoned pursuant to the provisions of this Section 9, this Agreement
shall become void and have no effect, without any liability on the part of
any party hereto or the trustees, officers or shareholders of Virtus or of
Blanchard, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of Trustees of the Acquiring Fund or of the
Acquired Fund, if, in the judgment of either, such waiver will not have a
material adverse effect on the benefits intended under this Agreement to
the shareholders of the Acquiring Fund or of the Acquired Fund, as the case
may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided for
herein shall survive consummation of the transactions contemplated hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements, and understandings
of every kind and nature between them relating to the subject matter
hereof. Neither party shall be bound by any condition, definition, warranty
or representation, other than as set forth or provided in this Agreement or
as may be set forth in a later writing signed by the party to be bound
thereby.
11.3 This Agreement shall be governed and construed in accordance with
the internal laws of the Commonwealth of Massachusetts, without giving
effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of counterparts, each
of which, when executed and delivered, shall be deemed to be an original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquiring Fund and agrees that the obligations assumed by the
Acquiring Fund pursuant to this Agreement shall be limited in any case to
the Acquiring Fund and its assets and the Acquired Fund shall not seek
satisfaction of any such obligation from the shareholders of the Acquiring
Fund, the trustees, officers, employees or agents of the Acquiring Fund or
any of them.
11.7 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by the
Acquired Fund pursuant to this Agreement shall be limited in any case to
the Acquired Fund and its assets and the Acquiring Fund shall not seek
satisfaction of any such obligation from the shareholders of the Acquired
Fund, the trustees, officers, employees or agents of the Acquired Fund or
any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have caused this
Agreement and Plan of Reorganization to be executed and attested on its behalf
by its duly authorized representatives as of the date first above written.
Acquired Fund:
BLANCHARD FUNDS, on behalf of its
Portfolio,
BLANCHARD AMERICAN EQUITY FUND
Attest:
/s/ C. Grant Anderson By: /s/ Joseph S. Machi
...................................... ...................................
Assistant Secretary
Name: Joseph S. Machi
................................
Title:Vice President
.................................
Acquiring Fund:
THE VIRTUS FUNDS, on behalf of its
Portfolio,
THE STYLE MANAGER: LARGE CAP FUND
Attest:
/s/ C. Grant Anderson By: /s/ Joseph S. Machi
...................................... ...................................
Assistant Secretary
Name: Joseph S. Machi
................................
Title:Vice President
.................................
Cusip 093212207 G01686-01 (5/96)
LOGO
[BLANCHARD LOGO]
ACQUISITION OF THE ASSETS OF
BLANCHARD AMERICAN EQUITY FUND,
A PORTFOLIO OF BLANCHARD FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER 1-800-829-3863
BY AND IN EXCHANGE FOR INVESTMENT SHARES OF
THE STYLE MANAGER: LARGE CAP FUND,
A PORTFOLIO OF THE VIRTUS FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER 1-800-829-3863
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information dated May 16, 1996 is not a
prospectus. A Prospectus/Proxy Statement dated May 16, 1996 related to
the above-referenced matter may be obtained from The Virtus Funds on
behalf of its portfolio, The Style Manager: Large Cap Fund, through
The Virtus Funds at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. This Statement of Additional Information
should be read in conjunction with such Prospectus/Proxy Statement.
FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779
Statement dated May 16, 1996
LOGO
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
1. Statement of Additional Information of The Style Manager: Large Cap Fund,
dated November 30, 1995
2. Statement of Additional Information of Blanchard American Equity Fund, dated
August 7, 1995
3. Financial Statements of The Style Manager: Large Cap Fund, dated September
30, 1995
4. Financial Statements of Blanchard American Equity Fund, dated April 30, 1995
5. Financial Statements of Blanchard American Equity Fund, dated October 31,
1995
6. Pro Forma Financial Statements
The Statement of Additional Information of The Style Manager: Large Cap Fund
dated November 30, 1995 is incorporated herein by reference to Post-Effective
Amendment No. 13 to the Virtus Funds' Registration Statement on Form N-1A
(File Nos. 33-36451 and 811-6158) which was filed with the Securities and
Exchange Commission on or about November 29, 1995. A copy may be obtained from
The Virtus Funds at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779. Telephone Number: 1-800-829-3863.
The Statement of Additional Information of Blanchard American Equity Fund
dated August 7, 1995 is incorporated herein by reference to Post-Effective
Amendment No. 29 to the Virtus Funds' Registration Statement on Form N-1A
(File Nos. 33-3165 and 811-4579) which was filed with the Securities and
Exchange Commission on or about August 7, 1995. A copy may be obtained from
Signet Financial Services, Inc. at 41 Madison Avenue, 24th Floor, New York,
New York 10010. Telephone Number: 1-800-829-3863.
The audited financial statements of The Style Manager: Large Cap Fund dated
September 30, 1995 are incorporated herein by reference to the Annual Report
dated September 30, 1995, and filed with the Securities and Exchange
Commission on or about December 1, 1995. (File Nos. 33-36451 and 811-6158)
The audited financial statements of Blanchard American Equity Fund dated April
30, 1995 are incorporated herein by reference to the Statement of Additional
Information dated August 7, 1995, and filed with the Securities and Exchange
Commission on or about August 7, 1995. (File Nos. 33-3165 and 811-4579)
The unaudited financial statements of Blanchard American Equity Fund dated
October 31, 1995 are incorporated herein by reference to the Semi Annual
Report dated October 31, 1995, and filed with the Securities and Exchange
Commission on or about January 5, 1996. (File Nos. 33-3165 and 811-4579)
BLANCHARD AMERICAN EQUITY FUND THE STYLE MANAGER: LARGE CAP FUND (FORMERLY THE
STOCK FUND)
Introduction to Proposed Merger April 30, 1995 (unaudited)
The accompanying unaudited Pro Forma Combining Portfolio of Investments,
Statement of Assets and Liabilities and Statement of Operations reflect the
accounts of Blanchard American Equity Fund ("American Equity") and The Style
Manager: Large Cap Fund ("Large Cap") at and for the year ended September 30,
1995, the most recent fiscal year end ("FYE") of Large Cap. The accounts
reflected on American Equity's Statement of Operations have been brought up to
September 30, 1995. This updating was accomplished by adding its results of
operations from May 1, 1995 through September 30, 1995 to its FYE Statement of
Operations, and deducting the results for the period from May 1, 1994 through
September 30, 1994. The Pro Forma statements give effect to the proposed
transfer of assets from American Equity in exchange for Investment Shares of
Large Cap. The statements have been derived from the books and records
utilized in calculating daily net asset value at September 30, 1995.
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Portfolio of Investments
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Shares Value
----------------------------- --------------------------------
Blanchard The Style Blanchard The Style
American Manager: American Manager:
Equity Large Cap Pro Forma Equity Large Cap Pro Forma
Fund Fund Combined Fund Fund Combined
--------- --------- --------- ---------- ---------- ----------
COMMON STOCKS--94.4%
AEROSPACE--0.2%
<C> <C> <C> <S> <C> <C> <C>
2,900 2,900 Boeing Co. $ 197,925 $ 197,925
----------
<CAPTION>
AUTOMOBILE--0.7%
<C> <C> <C> <S> <C> <C> <C>
15,400 15,400 General Motors Corp. $ 721,875 721,875
---------- ----------
<CAPTION>
BANKING--1.7%
<C> <C> <C> <S> <C> <C> <C>
29,100 29,100 Republic New York Corp. 1,702,350 1,702,350
---------- ----------
<CAPTION>
BASIC INDUSTRY--0.8%
<C> <C> <C> <S> <C> <C> <C>
20,300 20,300 Carlisle Companies, Inc. 844,987 844,987
---------- ----------
<CAPTION>
BASIC MATERIALS--1.6%
<C> <C> <C> <S> <C> <C> <C>
35,100 35,100 PPG Industries, Inc. 1,632,150 1,632,150
---------- ----------
<CAPTION>
BROADCAST, RADIO & TV--1.9%
<C> <C> <C> <S> <C> <C> <C>
5,300 5,300 British Sky Broadcasting 191,462 191,462
Group, PLC, ADR
600 600 Capital Cities/ABC, Inc. 70,575 70,575
31,000 31,000 Gannett, Inc. 1,693,375 1,693,375
---------- ---------- ----------
Total 262,037 1,693,375 1,955,412
---------- ---------- ----------
<CAPTION>
CHEMICALS--4.7%
<C> <C> <C> <S> <C> <C> <C>
21,600 21,600 Du Pont (E.I.) De 1,485,000 1,485,000
Nemours & Co.
26,200 26,200 Kerr-McGee Corp. 1,454,100 1,454,100
17,650 17,650 Monsanto Co. 1,778,238 1,778,238
---------- ----------
Total 4,717,338 4,717,338
---------- ----------
<CAPTION>
COMMERCIAL SERVICES--0.4%
<C> <C> <C> <S> <C> <C> <C>
1,200 1,200 Alco Standard Corp. 101,700 101,700
1,700 1,700 CUC International, Inc. 59,288 59,288
4,800 4,800 Loewen Group, Inc. 198,000 198,000
1,800 1,800 Paychex, Inc. 83,250 83,250
---------- ----------
Total 442,238 442,238
---------- ----------
<CAPTION>
COMPUTERS--0.4%
<C> <C> <C> <S> <C> <C> <C>
3,400 3,400 3Com Corp. 154,700 154,700
2,350 2,350 (c)Cabletron Systems, 154,806 154,806
Inc.
1,500 1,500 Cirrus Logic, Inc. 85,875 85,875
---------- ----------
Total 395,381 395,381
---------- ----------
<CAPTION>
COMPUTER SOFTWARE & SERVICES--
1.9%
<C> <C> <C> <S> <C> <C> <C>
800 800 Automatic Data 54,500 54,500
Processing
4,100 4,100 (c)Cisco Systems, Inc. 282,900 282,900
5,250 5,250 Computer Associates 221,812 221,812
International, Inc.
2,200 2,200 Computer Sciences Corp. 141,625 141,625
5,530 5,530 First Data Corp. 342,860 342,860
6,000 6,000 Informix Corp. 195,000 195,000
3,600 3,600 Microsoft, Inc. 325,800 325,800
8,600 8,600 Oracle Corp. 330,025 330,025
---------- ----------
Total 1,894,522 1,894,522
---------- ----------
<CAPTION>
CONSUMER CYCLICAL--5.5%
<C> <C> <C> <S> <C> <C> <C>
16,000 16,000 Capital Cities ABC, Inc. 1,882,000 1,882,000
44,108 44,108 (c)Consolidated Stores 1,019,997 1,019,997
Corp.
11,450 11,450 Philip Morris Companies, 956,075 956,075
Inc.
55,950 55,950 Sara Lee Corp. 1,664,513 1,664,513
---------- ----------
Total 5,522,585 5,522,585
---------- ----------
</TABLE>
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Portfolio of Investments
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Shares Value
----------------------------- --------------------------------
Blanchard The Style Blanchard The Style
American Manager: American Manager:
Equity Large Cap Pro Forma Equity Large Cap Pro Forma
Fund Fund Combined Fund Fund Combined
--------- --------- --------- ---------- ---------- ----------
CONSUMER SERVICES--0.1%
<C> <C> <C> <S> <C> <C> <C>
1,600 1,600 McDonald's Corp. $ 61,200 $ 61,200
---------- ----------
<CAPTION>
CONSUMER STAPLES--4.5%
<C> <C> <C> <S> <C> <C> <C>
39,000 39,000 Abbott Laboratories $1,662,375 1,662,375
13,458 13,458 General Electric Co. 857,948 857,948
37,127 37,127 Merck & Co., Inc. 2,079,112 2,079,112
---------- ----------
Total 4,599,435 4,599,435
---------- ----------
<CAPTION>
ELECTRICAL EQUIPMENT--
1.9%
<C> <C> <C> <S> <C> <C> <C>
22,900 22,900 Hewlett Packard Co. 1,909,288 1,909,288
---------- ----------
<CAPTION>
ELECTRONIC TECHNOLOGY--
0.9%
<C> <C> <C> <S> <C> <C> <C>
26,400 26,400 (c)SCI Systems, Inc. 910,800 910,800
---------- ----------
<CAPTION>
ELECTRONIC & ELECTRICAL--
2.5%
<C> <C> <C> <S> <C> <C> <C>
4,800 4,800 Analog Devices 166,200 166,200
2,800 2,800 Hewlett Packard Co. 233,450 233,450
6,800 6,800 Intel Corp. 408,850 408,850
2,500 2,500 LSI Logic Corp. 144,375 144,375
937 937 Molex, Inc. 31,390 31,390
6,300 6,300 Motorola, Inc. 481,162 481,162
7,500 7,500 Nokia Corp., ADR 523,125 523,125
4,600 4,600 Texas Instruments, Inc. 367,425 367,425
3,200 3,200 Xilinx, Inc. 154,000 154,000
---------- ----------
Total 2,509,977 2,509,977
---------- ----------
<CAPTION>
ENTERTAINMENT--0.1%
<C> <C> <C> <S> <C> <C> <C>
1,900 1,900 Circus Circus 53,200 53,200
Enterprise, Inc.
---------- ----------
<CAPTION>
FINANCE--7.9%
<C> <C> <C> <S> <C> <C> <C>
34,450 34,450 Ahmanson (H.F.) and Co. 874,169 874,169
27,000 27,000 BankAmerica Corp. 1,616,625 1,616,625
32,400 32,400 Bear Stearns Companies, 696,600 696,600
Inc
7,000 7,000 CCB Financial Corp. 357,875 357,875
29,700 29,700 Chemical Banking Corp. 1,807,987 1,807,987
1,300 1,300 Federal Home Loan 89,863 89,863
Mortgage Corp.
500 500 Federal National 51,750 51,750
Mortgage Association
3,400 3,400 Finova Group, Inc. 151,300 151,300
2,100 2,100 First Financial 205,013 205,013
Management Corp.
3,400 3,400 First USA, Inc. 184,450 184,450
20,600 20,600 Fleet Financial Group, 777,650 777,650
Inc.
5,500 5,500 MBNA Corp. 228,938 228,938
13,650 13,650 Nationsbank Corp. 917,963 917,963
---------- ---------- ----------
Total 911,314 7,048,869 7,960,183
---------- ---------- ----------
<CAPTION>
FOOD & BEVERAGE--5.5%
<C> <C> <C> <S> <C> <C> <C>
49,800 49,800 Albertson's, Inc. 1,699,425 1,699,425
31,050 31,050 (c)Canandaigua Wine, 1,509,806 1,509,806
Inc.
109,200 109,200 Hudson Foods, Inc. 1,515,150 1,515,150
16,550 16,550 PepsiCo, Inc. 844,050 844,050
---------- ----------
Total 5,568,431 5,568,431
---------- ----------
<CAPTION>
HEALTH SERVICES--1.9%
<C> <C> <C> <S> <C> <C> <C>
56,500 56,500 Manor Care, Inc. 1,921,000 1,921,000
---------- ----------
</TABLE>
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Portfolio of Investments
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Shares Value
----------------------------- -----------------------------------
Blanchard The Style Blanchard The Style
American Manager: American Manager:
Equity Large Cap Pro Forma Equity Large Cap Pro Forma
Fund Fund Combined Fund Fund Combined
--------- --------- --------- ----------- ----------- -----------
HOUSEHOLD PRODUCTS--
2.7%
<C> <C> <C> <S> <C> <C> <C>
28,150 28,150 Clorox Co. $ 2,009,206 $ 2,009,206
22,550 22,550 Lancaster Colony Corp. 766,700 766,700
----------- -----------
Total 2,775,906 2,775,906
----------- -----------
<CAPTION>
INDUSTRIAL SERVICES--
2.6%
<C> <C> <C> <S> <C> <C> <C>
35,100 35,100 Baldor Electric Co. 881,887 881,887
1,600 1,600 Browning-Ferris $ 48,600 48,600
Industries
45,700 45,700 Dover Corp. 1,748,025 1,748,025
----------- ----------- -----------
Total 48,600 2,629,912 2,678,512
----------- ----------- -----------
<CAPTION>
INSURANCE--1.2%
<C> <C> <C> <S> <C> <C> <C>
1,650 1,650 American International 140,250 140,250
Group, Inc.
5,400 5,400 Loews Corp. 785,700 785,700
3,200 3,200 MGIC Investment Corp. 183,200 183,200
1,300 1,300 PMI Group, Inc. 61,588 61,588
----------- ----------- -----------
Total 385,038 785,700 1,170,738
----------- ----------- -----------
<CAPTION>
LODGING--0.2%
<C> <C> <C> <S> <C> <C> <C>
3,100 3,100 HFS, Inc. 162,363 162,363
----------- -----------
<CAPTION>
MANUFACTURING--16.1%
<C> <C> <C> <S> <C> <C> <C>
25,500 25,500 Alcan Aluminium Ltd. 825,563 825,563
3,500 3,500 American Standard 103,250 103,250
Companies
2,100 11,400 13,500 (c)Applied Materials, 214,725 1,165,650 1,380,375
Inc.
47,800 47,800 Baxter International, 1,965,775 1,965,775
Inc.
22,000 22,000 Emerson Electric Co. 1,573,000 1,573,000
29,743 29,743 Hershey Foods Corp. 1,914,706 1,914,706
24,600 24,600 Intel Corp. 1,479,075 1,479,075
40,400 40,400 Kennametal, Inc. 1,464,500 1,464,500
39,750 39,750 Parker Hannifin Corp. 1,510,500 1,510,500
32,350 32,350 Premark International, 1,645,806 1,645,806
Inc.
34,700 34,700 (c)Sun Microsystems, 2,186,100 2,186,100
Inc.
2,400 2,400 Tyco International Ltd. 151,200 151,200
----------- ----------- -----------
Total 469,175 15,730,675 16,199,850
----------- ----------- -----------
<CAPTION>
MEDICAL SERVICES--0.1%
<C> <C> <C> <S> <C> <C> <C>
2,400 2,400 United Healthcare Corp. 117,300 117,300
----------- -----------
<CAPTION>
MEDICAL SUPPLIES--0.4%
<C> <C> <C> <S> <C> <C> <C>
5,800 5,800 Medtronic, Inc. 311,750 311,750
1,100 1,100 St. Jude Medical, Inc. 69,575 69,575
----------- -----------
Total 381,325 381,325
----------- -----------
<CAPTION>
OIL--6.7%
<C> <C> <C> <S> <C> <C> <C>
21,450 21,450 Amoco Corp. 1,375,481 1,375,481
37,650 37,650 Chevron Corp. 1,830,731 1,830,731
23,400 23,400 Exxon Corp. 1,690,650 1,690,650
18,950 18,950 Mobil Corp. 1,887,894 1,887,894
----------- -----------
Total 6,784,756 6,784,756
----------- -----------
<CAPTION>
PHARMACEUTICAL--0.3%
<C> <C> <C> <S> <C> <C> <C>
2,800 2,800 Cardinal Health, Inc. 155,050 155,050
1,600 1,600 Pfizer, Inc. 85,400 85,400
1,300 1,300 Scherer (R.P.) Corp. 56,387 56,387
----------- -----------
Total 296,837 296,837
----------- -----------
</TABLE>
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Portfolio of Investments
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Shares Value
----------------------------- -----------------------------------
Blanchard The Style Blanchard The Style
American Manager: American Manager:
Equity Large Cap Pro Forma Equity Large Cap Pro Forma
Fund Fund Combined Fund Fund Combined
--------- --------- --------- ----------- ----------- -----------
PRINTING & PUBLISHING--
0.9%
<C> <C> <C> <S> <C> <C> <C>
25,500 25,500 Chesapeake Corp. $ 921,188 $ 921,188
----------- -----------
<CAPTION>
PROCESS INDUSTRIES--0.1%
<C> <C> <C> <S> <C> <C> <C>
1,900 1,900 Air Products & $ 99,038 99,038
Chemicals, Inc.
----------- -----------
<CAPTION>
RETAIL TRADE--4.0%
<C> <C> <C> <S> <C> <C> <C>
5,200 5,200 Autozone, Inc. 132,600 132,600
1,367 1,367 Home Depot, Inc. 54,509 54,509
7,650 7,650 Office Depot, Inc. 230,456 230,456
44,600 44,600 Sears Roebuck & Co. 1,644,625 1,644,625
64,800 64,800 Walgreen Co. 1,814,400 1,814,400
7,900 7,900 Wal-Mart Stores, Inc. 196,512 196,512
----------- ----------- -----------
Total 614,077 3,459,025 4,073,102
----------- ----------- -----------
<CAPTION>
TECHNOLOGY SERVICES--
2.8%
<C> <C> <C> <S> <C> <C> <C>
62,800 62,800 DQE 1,664,200 1,664,200
39,356 39,356 Sun Guard Data Systems 1,151,163 1,151,163
----------- -----------
Total 2,815,363 2,815,363
----------- -----------
<CAPTION>
TELECOMMUNICATIONS--6.5%
<C> <C> <C> <S> <C> <C> <C>
2,900 2,900 Andrew Corp. 177,263 177,263
27,800 27,800 Bell Atlantic Corp. 1,706,225 1,706,225
34,000 34,000 Ericsson LM 436,078 436,078
1,600 1,600 Glenayre Technologies, 115,200 115,200
Inc.
41,350 41,350 GTE Corp. 1,622,987 1,622,987
14,850 14,850 Harris Corp. 814,894 814,894
63,150 63,150 MCI Communications Corp. 1,645,847 1,645,847
800 800 U.S. Robotics Corp., 68,200 68,200
Inc.
----------- ----------- -----------
Total 796,741 5,789,953 6,586,694
----------- ----------- -----------
<CAPTION>
TRANSPORTATION--1.0%
<C> <C> <C> <S> <C> <C> <C>
900 900 Fritz Companies, Inc. 66,318 66,318
21,700 21,700 Illinois Central Corp. 849,013 849,013
----------- ----------- -----------
Total 66,318 849,013 915,331
----------- ----------- -----------
<CAPTION>
UTILITIES--3.7%
<C> <C> <C> <S> <C> <C> <C>
24,500 24,500 BellSouth Corp. 1,791,562 1,791,562
31,100 31,100 Eastern Utilities 754,175 754,175
Association
6,200 6,200 Enron Corp. 207,700 207,700
5,200 5,200 Frontier Corp. 138,450 138,450
29,850 29,850 Illinova Corp. 809,681 809,681
----------- ----------- -----------
Total 346,150 3,355,418 3,701,568
----------- ----------- -----------
TOTAL COMMON STOCKS 10,510,756 84,689,392 95,200,148
(IDENTIFIED COST
$82,971,985)
----------- ----------- -----------
<CAPTION>
COMMERCIAL PAPER--0.3%
<C> <C> <C> <S> <C> <C> <C>
300,000 300,000 General Electric Capital
Corp., VRDN, 10/2/1995
(at amortized cost) 300,000 300,000
----------- -----------
</TABLE>
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Portfolio of Investments
September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Shares Value
----------------------------- -----------------------------------
Blanchard The Style Blanchard The Style
American Manager: American Manager:
Equity Large Cap Pro Forma Equity Large Cap Pro Forma
Fund Fund Combined Fund Fund Combined
--------- --------- --------- ----------- ----------- -----------
(A)REPURCHASE AGREEMENT--
4.1%
<C> <C> <C> <S> <C> <C> <C>
4,116,513 4,116,513 Nikko Securities Co.
International, Inc.,
6.45%, dated 9/29/1995,
due 10/2/1995 (at
amortized cost) $ 4,116,513 $ 4,116,513
----------- ----------- -----------
TOTAL INVESTMENTS $10,810,756 $88,805,905 $99,616,661
(IDENTIFIED COST
$87,388,498)(B)
----------- ----------- -----------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(b) The cost of investments for federal tax purposes amounts to $87,388,498.
The net unrealized appreciation of investments amounts to $12,228,163 at
September 30, 1995.
(c) Non-income producing security.
Note: The categories of investments are shown as a percentage of net assets
($100,796,267) at September 30, 1995.
The following abbreviations are used in this portfolio:
ADR = American Depositary Receipt
PLC = Public Limited Company
VRDN = Variable Rate Demand Note
(See Notes to Pro Forma Financial Statements)
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Statement of Assets and Liabilities (unaudited)
September 30, 1995
<TABLE>
<CAPTION>
Blanchard The Style
American Manager: Large Pro Forma Pro Forma
Equity Fund Cap Fund Adjustment Combined
----------- -------------- ---------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in
securities, at value $10,810,756 $88,805,905 $ 99,616,661
Cash 290,016 10,220 300,236
Receivables for:
Investments sold -- 3,599,760 3,599,760
Shares of beneficial
interest sold 186,383 286,298 472,681
Income 6,710 145,241 151,951
Deferred Expenses 55,380 -- (55,380)(a) --
----------- ----------- -------- ------------
Total assets 11,349,245 92,847,424 (55,380) 104,141,289
----------- ----------- -------- ------------
LIABILITIES:
Payables for:
Shares of beneficial
interest repurchased -- 82,163 82,163
Investments purchased 299,860 2,805,536 3,105,396
Accrued expenses and
other liabilities 51,031 106,432 157,463
----------- ----------- -------- ------------
Total liabilities 350,891 2,994,131 3,345,022
----------- ----------- -------- ------------
Total Net Assets $10,998,354 $89,853,293 (55,380) $100,796,267
----------- ----------- -------- ------------
NET ASSETS CONSIST OF:
Paid in capital $ 8,490,171 $73,597,501 $ 82,087,672
Net unrealized
appreciation of
investments 3,160,902 9,067,261 12,228,163
Accumulated net realized
gain (loss) on
investments (532,461) 7,080,902 6,548,441
Undistributed net
investment income (120,258) 107,629 (55,380) (68,009)
----------- ----------- -------- ------------
Total Net Assets 10,998,354 89,853,293 (55,380) 100,796,267
----------- ----------- -------- ------------
Trust Shares $ N/A $45,344,738 $ 45,344,738
----------- ----------- -------- ------------
Investment Shares $10,998,354 $44,508,555 (55,380) $ 55,451,529
----------- ----------- -------- ------------
SHARES OUTSTANDING
Trust Shares N/A 3,310,403 3,310,403
Investment Shares 927,493 3,249,476 (128,569)(b) 4,048,400
----------- ----------- -------- ------------
Total Shares Outstanding 927,493 6,559,879 (128,569) 7,358,803
----------- ----------- -------- ------------
NET ASSET VALUE AND
OFFERING PRICE PER
SHARE:
Trust Shares $N/A $13.70 $13.70
----------- ----------- -------- ------------
Investment Shares $11.86 $13.70 $13.70
----------- ----------- -------- ------------
REDEMPTION PROCEEDS PER
SHARE:
Investment Shares* $N/A $13.43** $13.43**
----------- ----------- -------- ------------
Investments, at
identified cost $ 7,649,854 $79,738,644 $ 87,388,498
----------- ----------- -------- ------------
</TABLE>
(a) Adjustment to write off deferred organizational expense of Blanchard
American Equity Fund.
(b) Adjustment to reflect share balance as a result of the combination.
* See "Redeeming Shares" in the Prospectus.
** Computation of redemption proceeds per share: 98/100 of net asset value.
(See Notes to Pro Forma Financial Statements)
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Statement of Operations (unaudited)
Year Ended September 30, 1995
<TABLE>
<CAPTION>
Blanchard The Style
American Manager: Large Pro Forma Pro Forma
Equity Fund Cap Fund Adjustments Combined
----------- -------------- ----------- -----------
<C> <C> <C> <S> <C>
INVESTMENT INCOME:
Interest $ 11,464 $ 258,149 $ $ 269,613
Dividends 87,370 1,442,419 1,529,789
---------- ----------- -----------
Total investment income 98,834 1,700,568 1,799,402
---------- ----------- -----------
EXPENSES:
Investment advisory fee 114,622 678,512 (39,622)(A) 753,512
Directors'/Trustees' fees 17,690 2,214 (16,550)(B) 3,354
Administration personnel and services fee 7,234 97,229 2,766 (C) 107,229
Custodian fees 11,669 47,305 (6,669)(D) 52,305
Transfer and dividend disbursing agent fees and expenses 53,847 93,183 (46,847)(E) 100,183
Share registration costs 25,349 22,401 (23,849)(F) 23,901
Auditing fees 5,691 17,738 (5,691)(G) 17,738
Legal fees 28,468 3,409 (27,968)(H) 3,909
Printing and postage 25,198 18,638 (23,198)(I) 20,638
Portfolio accounting fees 58,317 61,337 (55,317)(J) 64,337
Insurance premiums 500 6,430 500 (K) 7,430
Distribution services fee 52,101 80,046 (43,101)(L) 89,046
Amortization of deferred organizational expenses 31,209 -- (31,209)(M) --
Miscellaneous 6,223 8,756 (5,223)(N) 9,756
---------- ----------- --------- -----------
Total expenses 438,118 1,137,198 (321,978) 1,253,338
---------- ----------- --------- -----------
Deduct--Waivers--
Investment advisory fee (91,183) (189,983) 71,047 (A) (210,119)
Reimbursement of other expenses (6,000) -- 6,000 (O) --
---------- ----------- --------- -----------
Net expenses 340,935 947,215 (244,931) 1,043,219
---------- ----------- --------- -----------
Net investment income (242,101) 753,353 244,931 756,183
---------- ----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 544,036 7,288,596 7,832,632
Net change in unrealized appreciation of investments 1,966,887 8,056,089 10,022,976
---------- ----------- --------- -----------
Net realized and unrealized gain on investments 2,510,923 15,344,685 17,855,608
---------- ----------- --------- -----------
Change in net assets resulting from operations $2,268,822 $16,098,038 $ 244,931 $18,611,791
---------- ----------- --------- -----------
</TABLE>
(See Legend to Pro Forma Adjustments on following page)
(See Notes to Pro Forma Financial Statements)
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Pro Forma Combining Statement of Operations (continued)
Year Ended September 30, 1995 (unaudited)
A) Virtus Capital Management, Inc., The Virtus Funds' investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal
to 0.75% of The Style Manager: Large Cap Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
The voluntary waiver is adjusted to reflect the historical waiver percentage
of The Style Manager: Large Cap Fund.
B) Adjustment to reflect the elimination of the Trustees fees for Blanchard
American Equity Fund.
C) Federated Administrative Services ("FAS") provides The Style Manager: Large
Cap Fund with certain administrative personnel and services. The FAS fee is
based on the level of average aggregate net assets of The Virtus Funds for the
period.
D) Adjustment to reflect custodian costs for The Style Manager: Large Cap Fund
only. This adjustment reflects the decrease in fees due to the increased
assets of the combined Fund. Custody fees would be charged at the rate of
0.05% of the first $10 million of average aggregate daily net assets of the
Fund; and 0.025% of the remaining assets. In addition, a $10,000 minimum fee
per year is charged as well as a $20 fee per transaction.
E) Federated Shareholder Services Company serves as transfer and dividend
disbursing agent for The Style Manager: Large Cap Fund. The fee is based on
the size, type, and number of accounts and transactions made by shareholders.
F) Adjustment to reflect state registration costs for The Style Manager: Large
Cap Fund only.
G) Adjustment to reflect the audit fee for one portfolio only.
H) Pro Forma combined legal fees are adjusted to include legal retainers, plus
out-of-pocket charges, for one portfolio only. This adjustment reflects the
elimination of the legal costs associated with Blanchard American Equity Fund.
I) Printing and postage expenses are adjusted to reflect estimated savings to
be realized by combining two portfolios into a single portfolio.
J) Federated Services Company maintains The Style Manager: Large Cap Fund's
accounting records. The fee is based on the level of the Fund's average net
assets for the period, plus out-of-pocket expenses. This adjustment reflects
additional asset based charges associated with The Style Manager: Large Cap
Fund and the elimination of the minimum charge associated with maintaining
Blanchard American Equity Fund's accounting records.
K) Insurance premiums are allocated from a group coverage. The allocation is
comprised of a base amount, plus a portion based on average net assets. The
pro forma combined insurance premium equals the fixed base premium for a
single portfolio, plus its allowable portion which is based on its percentage
of the combined fund complex assets.
L) Under the terms of a Distribution Plan, The Style Manager: Large Cap Fund
will reimburse Federated Securities Corp., the principal distributor, from the
net assets of the Fund to finance activities intended to result in the sale of
the Fund's Investment Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of the average daily net assets of the
Fund's Investment Shares. This adjustment reflects the lower distribution fee
charged by The Style Manager: Large Cap Fund as compared to Blanchard American
Equity Fund.
M) Adjustment to write off deferred organizational expenses of Blanchard
American Equity Fund.
N) Pro forma combined miscellaneous expenses are adjusted to reflect estimated
savings to be realized by combining two portfolios into a single portfolio.
O) The expenses accrued on The Style Manager: Large Cap Fund are sufficient to
cover all expenses. Therefore no reimbursement is necessary.
Blanchard American Equity Fund
The Style Manager: Large Cap Fund
(formerly The Stock Fund)
Notes to Pro Forma Financial Statements (unaudited)
1.BASIS OF COMBINATION
The unaudited Pro Forma Combining Portfolio of Investments, Statement of
Assets and Liabilities and Statement of Operations reflect the accounts of
Blanchard American Equity Fund ("American Equity") and The Style Manager:
Large Cap Fund ("Large Cap") at and for the year ended September 30, 1995.
These statements have been derived from the books and records utilized in
calculating daily net asset value at September 30, 1995.
The Pro Forma Combining Portfolio of Investments, Statement of Assets and
Liabilities and Statement of Operations should be read in conjunction with
the historical financial statements of the Funds which have been
incorporated by reference in the Statement of Additional Information. The
Funds follow generally accepted accounting principles ("GAAP") applicable
to management investment companies which are disclosed in their historical
financial statements.
The Pro Forma statements give effect to the proposed transfer of assets of
American Equity in exchange for Investment Shares of Large Cap. Under GAAP,
Large Cap will be the surviving entity for accounting purposes with its
historical cost of investment securities and results of operations being
carried forward.
The Pro Forma financial statements have been adjusted to reflect the
anticipated advisory and administration fees for the surviving entity.
Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change
as a result of the reorganization are currently undeterminable.
For the year ended September 30, 1995, American Equity and Large Cap paid
investment advisory fees computed at an annual rate of 1.10% and 0.75%,
respectively, of average daily net assets.
2.SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes that a total of 4,048,400
Investment Shares of Large Cap are outstanding including 927,493 shares
from American Equity.
CUSIP 093212207 GO1686-02 (5/96)
BLANCHARD AMERICAN EQUITY FUND
SPECIAL MEETING OF SHAREHOLDERS JUNE 21, 1996
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Blanchard American Equity Fund hereby appoint C. Grant Anderson, Patricia F.
Conner, Patricia L. Godlewski, Suzanne W. Land, and Gia C. Albanowski or any
of them, true and lawful attorneys, with the power of substitution of each,
to vote all shares of Blanchard American Equity Fund which the undersigned is
entitled to vote, at the Special Meeting of Shareholders to be held on June
21, 1996, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:00
p.m. (Eastern Time), and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys
named will vote the shares represented by this proxy in accordance with the
choices made on this ballot. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
BLANCHARD AMERICAN KEEP THIS PORTION FOR YOUR RECORDS
EQUITY FUND DETACH AND RETURN THIS PORTION ONLY
VOTE ON PROPOSAL
FOR AGAINST ABSTAIN1. TO APPROVE OR DISAPPROVE AN AGREEMENT
AND PLAN OF REORGANIZATION PROVIDING
- --- --- ---
FOR THE TRANSFER OF THE ASSETS OF BLANCHARD
AMERICAN EQUITY FUND TO THE INVESTMENT SHARES OF
THE STYLE MANAGER: LARGE CAP FUND OF THE VIRTUS
FUNDS.
Please sign EXACTLY as your name(s) appear above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give full
title as such. If a corporation or partnership, please sign the full name by
an authorized officer or partner. If stock is owned jointly, all parties
should sign.
