Reg. No.333-
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811-6158
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
The Virtus Funds
(Exact Name of Registrant as Specified in Charter)
(412) 288-1900
(Area Code and Telephone Number)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
JOHN W. MCGONIGLE, ESQUIRE
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Copies to:
C. Grant Anderson, Esquire Matthew G. Maloney, Esquire
Corporate Counsel Dickstein Shapiro Morin &
Federated Investors Oshinsky, LLP
Federated Investors Tower 2101 L Street, N.W.
Pittsburgh, PA 15222-3779 Washington, D.C. 20037
It is proposed that this filing will become effective on January 22, 1997
pursuant to Rule 488. (Approximate Date of Proposed Public Offering).
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
that it elects to register an indefinite amount of securities under the
Securities Act of 1933, as amended, and filed the Notice required by that
Rule for Registrant's fiscal year ended September
30, 1996 on November 15, 1996. Accordingly, no filing fee is submitted herewith.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 1(A) OF FORM N-14 SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY FORM N-14
Item of Part A of Form N-14 and Caption Caption or Location
in Prospectus
1.Beginning of Registration
Statement and Outside Front Cross Reference
of Prospectus Cover Page Sheet; Cover Page
2.Beginning and Outside Back
Cover Page of Prospectus Table of Contents
3.Fee Table, Synopsis Information Summary of Fund
and Risk Factors Expenses;
Summary;
Risk Factors
4.Information About the Information About
the Transaction Proposal
5.Information About the Information About
Registrant Blanchard Funds,
The Virtus Funds,
Capital Growth and
Large Cap
6.Information About the Information About
Company Being Acquired Blanchard Funds,
The Virtus Funds,
Capital Growth and
Large Cap
7.Voting Information Voting Information
8.Interest of Certain Persons
and Experts Not Applicable
9.Additional Information
Required for Reoffering by
Persons Deemed to be
Underwriters Not Applicable
BLANCHARD GROUP OF FUNDS
VERY IMPORTANT
Enclosed is an important proxy statement
and proxy vote card.
They concern the pending merger
of the Blanchard Capital Growth 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 over the past year and a half. 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 Capital Growth Fund.
Namely, the Board of Trustees has unanimously recommended a tax-free merger
of the BLANCHARD CAPITAL GROWTH FUND into THE VIRTUS STYLE MANAGER: LARGE
CAP FUND.
POTENTIALLY LOWER EXPENSES, SIMILAR INVESTMENT OBJECTIVE
In recommending this merger, the Board of Trustees has come to the conclusion
that the low asset level and high expenses of the Blanchard Capital Growth Fund
make its long-term viability questionable. The Board believes that shareholders
would benefit from potentially lower expenses and economies of scale that could
result from this merger.
The Board further considered the fact that The Virtus Style Manager: Large
Cap Fund has a similar investment objective as the Blanchard Capital Growth
Fund.
Specifically, the Blanchard Capital Growth Fund seeks to provide long-term
capital growth, while The Virtus Style Manager: Large Cap Fund seeks to provide
long-term growth and income. And both Funds pursue their objectives by
investing primarily in the common stocks of large capitalization companies.
NO TAXABLE CONSEQUENCES -- SAME SHAREHOLDER PRIVILEGES
Because this merger of assets is tax-free, there are no taxable consequences
for you. Plus, you'll continue to enjoy all of the same shareholder privileges
that you do now. These include free telephone exchanges between any Blanchard
and Virtus mutual fund, as well as free telephone redemptions.
PLEASE VOTE TODAY!
Because shareholder approval is required for this fund merger to take place,
your individual vote is of critical importance. It 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.
The Board of Trustees has unanimously voted to recommend that you vote "FOR"
this merger. And if the proxy is approved, the merger of the Blanchard Capital
Growth Fund into The Virtus Style Manager: Large Cap Fund is scheduled to be
completed , 1997.
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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 of 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' services
representative will be standing by between 8:30 a.m. and 5:30 p.m., EST.
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 VirtusSM 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.
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
LOGO
BLANCHARD FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF BLANCHARD CAPITAL GROWTH FUND:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Blanchard
Capital Growth Fund (`Capital Growth''), a portfolio of Blanchard Funds, will
be held at 2:00 p.m. on
February , 1997 at Federated Investors Tower, 19th Floor, Pittsburgh,
--
Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposal whereby Capital Growth would (a)
withdraw its investment in Capital Growth Portfolio, in order to permit the
current two-tier structure of Capital Growth to be replaced, temporarily, by a
one-tier structure common to most mutual funds; and (b) enter into a proposed
agreement pursuant to which The Style Manager: Large Cap Fund (''Large Cap''), a
portfolio of The Virtus Funds, would acquire all of Capital Growth's assets in
exchange for Investment Shares of Large Cap. Capital Growth 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: January , 1997 John W. McGonigle
--
Secretary
Shareholders of record at the close of business on January , 1997 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
JANUARY , 1997
--
ACQUISITION OF THE ASSETS OF
BLANCHARD CAPITAL GROWTH FUND
(``CAPITAL GROWTH''),
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
Unlike many other mutual funds, including Large Cap, which directly acquire
and manage their own portfolios of securities, Capital Growth seeks to achieve
its investment objective by investing all its assets in Capital Growth
Portfolio, which is a separate registered investment company with an identical
investment objective to that of Capital Growth.
This Prospectus/Proxy Statement describes the proposal whereby Capital
Growth would (i) withdraw its investment in Capital Growth the Portfolio,
thereby replacing Capital Growth's current two-tier structure with a one-tier
structure currently used by Large Cap (the `Restructuring''); and (ii) enter
into an Agreement and Plan of Reorganization (the ''Plan'') whereby Large Cap
would acquire all of the assets of Capital Growth, in exchange for Investment
Shares of Large Cap. These shares would then be distributed pro rata by Capital
Growth to its shareholders, and, as a result, each Capital Growth 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 Capital Growth (the
`Reorganization''). The Reorganization would result in the complete liquidation
and the termination of Capital Growth.
Blanchard 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 Capital Growth is long term capital
appreciation. 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 Capital Growth dated
February 29, 1996 (supplemented May 17, 1996); the Statements of Additional
Information for Large Cap and Capital Growth, dated November 30, 1995 and
February 29, 1996 (revised
October 7, 1996), respectively (relating to the Prospectuses of Large Cap and
Capital Growth, respectively, of the same date), and the Statement of Additional
Information of Large Cap dated January , 1997 (relating to this
--
Prospectus/Proxy Statement), all containing additional information; and the
Annual Reports of Cap Growth and Large Cap dated October 31, 1996 and September
30, 1996, respectively, have been filed with the Securities and Exchange
Commission and are incorporated herein by reference. Copies of the Prospectuses,
Statements of Additional Information and Annual Reports 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. GOVERNMENT, 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary...............................................1
Risk Factors..........................................4
Management's Discussion of Fund Performance (The Style Manager: Large Cap Fund-
Investment Shares)...............................5
Information About the Proposal........................6
Information About the Blanchard Group of Funds, The Virtus Funds,
Capital Growth, and Large Cap....................9
Voting Information...................................10
Exhibit A-Agreement and Plan of Reorganization......A-1
SUMMARY
ABOUT THE PROPOSED REORGANIZATION
The Board of Trustees of Blanchard Funds has voted to recommend to
shareholders of Capital Growth the approval of a proposal (the `Proposal'')
whereby Capital Growth would (i) withdraw its investment in Capital Growth
Portfolio in order to permit the current two-tier structure of Capital Growth to
be replaced, temporarily, by a one-tier structure currently used by Large Cap
(the `Restructuring'') and (ii) enter into a proposed Plan pursuant to which
Large Cap would acquire all of the assets of Capital Growth in exchange for
Investment Shares of Large Cap. These shares would thereupon be distributed pro
rata by Capital Growth to its shareholders and, as a result, each shareholder of
Capital Growth would 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 Capital Growth (the `Reorganization'').
As a condition to the Proposal, Blanchard Funds will receive an opinion of
counsel that the Restructuring will not cause Capital Growth or its shareholders
to recognize any gain or loss under the Internal Revenue Code of 1986, as
amended (the `Code''), and 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 Code so that no gain or
loss will be recognized by either Large Cap or Capital Growth or their
shareholders.
In recommending the Proposal, 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 Capital Growth, Capital Growth'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 Capital Growth into Large Cap.
The following discussion compares certain key aspects of Capital Growth and
Large Cap (collectively, the ''Funds'').
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
COMBINED
STYLE
MANAGER
VIRTUS STYLE BLANCHARD LARGE CAP/
MANAGER CAPITAL CAPITAL
LARGE CAP GROWTH GROWTH
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 original purchase price or redemption
proceeds, as applicable)(1) 2.00% None 2.00%
Redemption Fees (as a percentage of amount
redeemed, if applicable) None None None
Exchange Fee None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fees 0.75% 0.40% (2) 0.75%
12b-1 Fees 0.25% 0.00% (3) 0.25%
Other Expenses 0.36% 6.13% (4) 0.36%
Total Fund Operating Expenses(after waivers) 1.36% 6.53%(5) 1.36%
(1) The contingent deferred sales charge is 2.00% of the lesser of the original
purchase price or the net asset value of Shares redeemed within five years of
purchase date. A contingent deferred sales charge will not be imposed on the
redemption of Large Cap shares held by current shareholders of Capital Growth.
See "Summary-Purchase and Redemption Procedures.
(2) The management fee has been reduced to reflect the voluntary waiver by the
Manager. The Manager may terminate this voluntary waiver at any time at its
sole discretion. The maximum management fee is 1.10%.
(3) Under the Fund's Rule 12b-1 Distribution Plan, the Fund can pay up to 0.50%
of its daily average net assets as a 12b-1 fee. The 12b-1 fee has been reduced
to reflect the voluntary waiver by the Distributor. The Distributor may
terminate this voluntary waiver at any time at its sole discretion
(4) Other Expenses would have been 13.37% absent the voluntary waiver of a
portion of the administrative fees and the assumption of other operating
expenses by the adviser. The administrator can terminate this voluntary waiver
at any time at its sole discretion
(5) Total Fund Operating Expenses would have been 14.46% absent the voluntary
waivers and assumption described in notes (2) and (3) above.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS
COSTS AND EXPENSES THAT A SHAREHOLDER WILL BEAR, EITHER DIRECTLY OR INDIRECTLY.
FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE
"MANAGEMENT OF THE FUNDS." Wire-transferred redemptions may be subject to an
additional fee.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE MAXIMUM
FRONT-END SALES CHARGE PERMITTED BY THE RULES OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
EXAMPLE
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.
COMBINED
STYLE
MANAGER
VIRTUS STYLE BLANCHARD LARGE CAP/
MANAGER CAPITAL CAPITAL
LARGE CAP GROWTH GROWTH
1 year...................... $35 $65 $35
3 years..................... $65 $191 $65
5 years..................... $74 + $314 $74 +
10 years.................... $164 + $605 $164 +
+Reflects expenses on the same investment, assuming no redemption.
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 Capital Growth and Large Cap are similar.
Capital Growth, which invests all of its investable assets in Capital Growth
Portfolio, seeks to provide long term capital growth. 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 corporate preferred stocks, bonds, notes, warrants, rights and
convertible securities, in American Depositary Receipts (`ADRs'') and in high-
quality, short-term money market instruments such as commercial paper of
domestic and foreign issuers and obligations of domestic and foreign banks.
Capital Growth Portfolio pursues its investment objective by investing at least
80% of its assets under normal market conditions in common stocks and it may
also invest up to 20% of its assets in convertible securities and in separately
traded principal and interest components of securities backed by the full faith
and credit of the U.S. government. Capital Growth Portfolio may also invest in
U.S. government securities, Depositary Receipts, and high quality short-term
money market instruments such as commercial paper of domestic and foreign
issuers and obligations of domestic and foreign banks.
The debt securities in which Large Cap 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 security's rating is reduced below the
required minimum after Large Cap has purchased it, Large Cap is not required to
sell the security 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 a weakened capacity to make
principal and interest payments than higher rated bonds).
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 traded in
the over-the-counter markets. Capital Growth Portfolio will invest in stocks of
companies with capitalizations of $750 million to $4 billion.
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. Capital Growth Portfolio utilizes both
quantitative and fundamental research to identify undervalued stocks with a
catalyst for positive changes.
Capital Growth Portfolio may invest up to 20% of its total assets in
foreign securities, including Depositary Receipts. Large Cap may invest in
ADRs, which are typically issued by an American bank or trust company and
evidence ownership of underlying securities issued by a foreign issuer. Both
Large Cap and Capital Growth Portfolio may enter into repurchase agreements, put
and call options contracts and futures contracts. Capital Growth Portfolio may
enter into reverse repurchase agreements and forward currency contracts and may
purchase and sell structured products.
Large Cap and Capital Growth Portfolio are subject to certain investment
limitations. The investment limitations of the two funds are substantially
similar. These limitations include provisions that, in effect, prohibit either
fund from: selling any securities short (except, with respect to Capital Growth
Portfolio, short sales `against the box'') or purchasing securities on margin;
issuing senior securities, except that Large Cap may borrow up to one-third of
the value of its total assets and Capital Growth Portfolio may issue senior
securities to the extent permitted by the Investment Company Act of 1940 (the
`1940 Act''); 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 15% of their respective net assets in illiquid securities.
Reference is hereby made to the Prospectus, dated February 29, 1996
(supplemented
May 17, 1996) of Capital Growth and Statement of Additional Information dated
February 29, 1996 (revised October 7, 1996) of Capital Growth, 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 Capital Growth may pay to Federated
Securities Corp. an amount computed at an annual rate of .25% and .50% 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) incurs fees under the
12b-1 Plan at an annual rate of .25% of its average daily net assets, while
Capital Growth , as a result of waivers, does not incur any fees under the 12b-1
Plan. Large Cap will not, as a result of the Reorganization, assume any
liabilities or make any voluntary reimbursements on account of Capital Growth's
12b-1 Plan.
ADVISORY ARRANGEMENTS AND FEES
Virtus Capital Management, Inc. (''VCM''), a Maryland corporation and a
wholly-owned subsidiary of Signet Banking Corporation, provides investment
advisory services for The Virtus Funds, including Large Cap. VCM is entitled to
receive an annual management fee equal to .75% of Capital Growth's average daily
net assets. Currently, Large Cap incurs advisory fees of .75% of its average
daily net assets.
VCM provides overall management services for Blanchard Funds, including
Capital Growth, and The Chase Manhattan Bank, N.A. (`Chase'') provides
investment advisory services for Capital Growth Portfolio. VCM is entitled to
receive an annual management fee equal to .70% of Capital Growth's average daily
net assets, and Chase is entitled to receive an annual advisory fee of .40% of
Capital Growth Portfolio's average daily net assets. Accordingly, the maximum
aggregate annual management and advisory fees incurrable by Capital Growth is
1.10% of Capital Growth's average daily net assets. See also the ''Summary of
Fund Expenses.'' Capital Growth currently incurs aggregate management and
advisory fees of .40%, due to the current waiver by VCM of its entire management
fee. VCM may voluntarily waive a portion of its fee or reimburse either Large
Cap or Capital Growth for certain operating expenses. This agreement to waive
fees or reimburse expenses may be terminated by VCM at any time in its
discretion.
ADMINISTRATIVE SERVICES ARRANGEMENTS
Federated Administrative Services, a subsidiary of Federated Investors,
provides Large Cap and Capital Growth with certain administrative personnel and
services necessary to their operation. The rate charged for such administrative
services is .15% of the first $250 million of average aggregate daily net assets
of The Virtus Funds and Blanchard Funds combined, .125 % on the next $250
million, .10% on the next $250 million and .075% of assets in excess of $750
million. The administrative fee received during any fiscal year shall be at
least $75,000 per fund. Capital Growth estimates that its administrative fee
expense for the current fiscal year will be .07% of its average aggregate daily
net assets. Large Cap estimates that its administrative fee expense for the
current fiscal year will be .10% of its average aggregate daily net assets.
TOTAL ANNUAL OPERATING EXPENSES
The total annual operating expenses for Capital Growth are expected to be
6.53% of average daily net assets, and would be 14.46% of average daily net
assets absent voluntary fee waivers and expense reimbursements. The total
annual operating expenses for Large Cap are expected to be 1.36% 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
Capital Growth shares. For a complete description of the purchase and redemption
procedures applicable to purchases and redemptions of shares, refer to the
Prospectus of Capital Growth dated February 29, 1996, 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 on which the
New York Stock Exchange is open for business, except on Lee-Jackson King Day,
Columbus Day and Veterans' Day. 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 Large Cap or Capital Growth 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 Capital Growth 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 Capital Growth pursuant
to the Reorganization (the ''Reorganization Shares''); (ii) to be received by
current shareholders of Capital Growth pursuant to reinvestment of dividends or
capital gains distributions made in respect of Reorganization Shares or (iii)
purchased by current shareholders of Capital Growth 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 Capital Growth may exchange shares of Capital Growth 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 Proposal, Blanchard Funds will receive an opinion of
counsel that the Restructuring will not cause Capital Growth or its shareholders
to recognize any gain or loss under the Code, and 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 Code
so that no gain or loss will be recognized by either Large Cap or Capital Growth
or their respective shareholders.
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; 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; with
respect to foreign securities, the risks of currency fluctuation and imposition
of currency exchange regulation, the lack of information available concerning
foreign issuers, the fact that foreign issuers are not subject to financial
reporting standards comparable to those in the U.S. and the possibility of
expropriation of assets and political instability. Investment in Capital Growth
carries risks of a substantially similar nature, as more fully described in its
Prospectus dated February 29, 1996 (supplemented May 17, 1996) and its Statement
of Additional Information dated February 29, 1996 (revised October 7, 1996).
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, 1996. The Management's Discussion contained in
the Annual Report in its entirety, is as follows:
MANAGEMENT DISCUSSION AND ANALYSIS
- ----------------------------------------------------------------------------
Under the direction of Garry M. Allen, Chief Investment Officer, Virtus Capital
Management Inc. has implemented a new style of equity management. The new
method of investment is called "Style Management". Style Management is a unique
method of investing.
Academic research shows that style determines 80-90% of investment return.
Virtus seeks to capture the predominant investment style to take greater
advantage of market trends. This involves opportunistic positioning defined by
style and size. "Style" refers to two widely accepted descriptions of stocks
known as growth and value. Growth stocks are those companies with above-average
earnings expectations. Value stocks are those companies selling at a low price
relative to the actual value of their underlying assets. "Size" refers to the
division between large and small companies based upon market value.
Style movements typically occur every one to three years (there have been
sixteen intermediate style changes since 1968), while size movements generally
occur every five to seven years (there have been four size changes since 1968).
This type of shifting between style and size has been occuring ever since the
stock market has existed.
Style management identifies and pursues greater rewards from active management.
Style (value vs. growth) and size (small vs. large-cap) represent the two major
components of systematic risk and return in the market. Style dominates even the
most skillful manager's returns. Active style management reduces the level of
risk in a portfolio and thus improves the risk/reward trade-off.
The market for U.S. large company stocks is represented by the total return
on the S&P 500*. For the twelve months ended September 30, 1996, the S&P 500
returned 20.3%. On a long-term "calendar" year basis, the S&P 500 has managed a
return of 10.5% from 1926 - 1995. Therefore, the twelve month period ended
September 30, 1996, represents substantial above-average performance relative to
the long-term history of the U.S. Large Cap Equity market.
This twelve month period favored growth stocks largely due to the strong growth
stock performance over the last six months. In general a stronger than expected
economy created an environment favorable to growth stocks at the large cap end
of the U.S. Equity market.
Virtus Capital Management anticipates that 1997 will increasingly reward value
stock investors as the overall market climate could shift to a theme of capital
preservation and safety. Value stocks are well positioned to benefit from a
slow-down in business cycle conditions in 1997.
*The S&P 500 is an unmanaged index comprised of common stocks in industry,
transportation, and financial and public utility companies. Investments
cannot be made in an index.
GROWTH OF $10,000 INVESTED IN THE STYLE MANAGER: LARGE CAP FUND--
INVESTMENT SHARES
The graph below illustrates the hypothetical investment of $10,000 in The Style
Manager: Large Cap Fund (the "Fund") from October 16, 1990 (start of
performance) to September 30, 1996, compared to the Standard & Poor's 500 Index
("S&P 500").+
[GRAPH TO BE INSERTED UPON PRINTING]*
*The graphic presentation that will be displayed above consists of a
legend, below the graph, indicating the components of the
corresponding chart. The line graph chart is a visual
representation of the narrative text around it, which shows that an
initial investment of $10,000 in The Style Manager: Large Cap Fund-
Investment Shares on October 16, 1990, would have grown to $18,199
by September 30, 1996, as compared to the Standard & Poor's 500
Index, which would have grown to $26,619.. The "x" axis reflects
the cost of investment, the "y" axis reflects computation periods
from 1990 to 1996, and the right margin reflects a total investment
range from $0 to $30,000. The chart further indicates the ending
market value attributable to principal, as well as the ending market
value attributable to capital gains and reinvested dividends.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED SEPTEMBER 30, 1996
1 Year.....................................................................9.08%
5 Year.....................................................................8.21%
Start of Performance (10/16/90)...........................................10.57%
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
9/30/96, on a cumulative basis.
**Represents a hypothetical investment of $10,000 in the Fund. Certain
investors are subject to a 2.00% contingent deferred sales charge on shares
redeemed within five years of purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions.
+The S&P 500 is not adjusted to reflect sales charges, 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.
INFORMATION ABOUT THE PROPOSAL
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 has conducted an
ongoing review and evaluation of the investment objectives and strategies of the
Blanchard Funds. As a result of this review, VCM determined that, because of
the low asset and high expense levels of Capital Growth, Capital Growth's long-
term viability is questionable, and that Capital Growth would potentially
benefit from economies of scale and potentially lower expense ratios that should
be realized by the transfer of Capital Growth's assets to 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 Capital Growth and Large Cap and that the interests of
Capital Growth and Large Cap shareholders would not be diluted as a result of
effecting the Reorganization and have unanimously approved the Proposal.
DESCRIPTION OF THE RESTURCTURING
Unlike other mutual funds such as Large Cap, which directly acquire and
manage their own portfolios of securities, Capital Growth currently seeks to
achieve its investment objective by investing all its assets in Capital Growth
Portfolio, which is a separate registered investment company with identical
investment objectives as Capital Growth. Since the Trustees of Blanchard Funds
have proposed that Capital Growth enter into the Reorganization, it will be
necessary for Capital Growth to require Capital Growth Portfolio to distribute
to Capital Growth a portion of Capital Growth Portfolio's assets for transfer to
Large Cap in satisfaction of Capital Growth's obligations under the Plan.
To accomplish the Restructuring, Large Cap and Large Cap Portfolio have
entered into a Withdrawal Agreement, dated January , 1997, pursuant to which
--
Large Cap Portfolio will distribute to Capital Growth on the Closing Date of the
Reorganization, portfolio securities mutually acceptable to Capital Growth and
Capital Growth Portfolio, having an aggregate value equal to the net asset value
of Capital Growth's share interest in Capital Growth Portfolio as of the Closing
Date.
The Proposal is subject to the receipt by Blanchard Funds of an opinion of
Dickstein Shapiro Morin and Oshinsky LLP, that the withdrawal by Capital Growth
of its investment in Capital Growth Portfolio will not cause Capital Growth or
its shareholders to recognize any gain or loss under the Code.
DESCRIPTION OF THE REORGANIZATION
The Plan provides that on or about February , 1997 (the ''Closing
--
Date''), Large Cap will acquire all of the assets of Capital Growth in exchange
for Investment Shares of Large Cap to be distributed pro rata by Capital Growth
to its shareholders in complete liquidation and termination of Capital Growth.
Shareholders of Capital Growth 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 Capital Growth shareholders in
connection with the acquisition of the assets of Capital Growth will not be
subject to a sales load. Shareholders of Capital Growth will earn their last
dividend from Capital Growth 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 Capital Growth 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 Capital Growth 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 Capital Growth and the costs of holding the Special Meeting of
Shareholders.
The foregoing brief summary of the Plan entered into between Capital Growth
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 Capital
Growth 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 in respect of
Trust Shares will exceed those payable in respect of 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 & Oshinsky LLP, 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 Capital Growth's assets
solely in exchange for Investment Shares of Large Cap; (3) no gain or loss will
be recognized by Capital Growth 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 Capital
Growth shareholders solely in exchange for their shares of Capital Growth; (4)
no gain or loss will be recognized by shareholders of Capital Growth upon the
exchange of their Capital Growth shares for Investment Shares of Large Cap; (5)
the tax basis of Capital Growth's assets acquired by Large Cap will be the same
as the tax basis of such assets to Capital Growth immediately prior to the
Reorganization; (6) the tax basis of Investment Shares of Large Cap received by
each shareholder of Capital Growth pursuant to the Plan will be the same as the
tax basis of Capital Growth shares held by such shareholder immediately prior to
the Reorganization; (7) the holding period of the assets of Capital Growth in
the hands of Large Cap will include the period during which those assets were
held by Capital Growth; and (8) the holding period of Investment Shares of Large
Cap received by each shareholder of Capital Growth will include the period
during which the Capital Growth shares exchanged therefor were held by such
shareholder, provided the Capital Growth 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 Capital Growth 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
Capital Growth and Large Cap (individually a `Fund'').
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 Capital Growth, 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 Capital Growth and
Large Cap as of November 30, 1996 and on a pro forma basis as of that date:
Large Cap
Investment Capital Pro Forma Pro Forma
Shares Growth Adjustment Combined
Net Assets $66,597,160 $1,704,292 -- $68,301,452
Net Asset Value Per Share $15.22 $9.22 --
$15.22
Shares Outstanding 4,376,708 184,750 (72,745)(a)
4,488,713
(a) Adjustment to reflect share balance as a result of the combination based on
an exchange ratio of .606251691475 for Capital Growth.
TRUSTEES' RECOMMENDATION
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF CAPITAL GROWTH
APPROVE THE PROPOSAL.
If the shareholders of Capital Growth do not approve the Proposal, Capital
Growth will continue to operate in its existing structure, and the Trustees will
consider what future action to take.
INFORMATION ABOUT BLANCHARD FUNDS, THE VIRTUS FUNDS,
CAPITAL GROWTH, AND LARGE CAP
Information about Blanchard Funds, The Virtus Funds, Capital Growth, and
Large Cap is contained in their respective Prospectuses dated (in the case of
Blanchard Funds and Capital Growth) February 29, 1996 (supplemented May 17,
1996) 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 January ,
---
1997 (relating to this Prospectus/Proxy Statement) and Large Cap's Annual Report
to Shareholders dated September 30, 1996, which are incorporated herein by
reference. Additional information about Capital Growth is included in the
Statement of Additional Information of Capital Growth dated February 29, 1996
(revised October 7, 1996) (relating to the Prospectus of Capital Growth of
February 29, 1996), and Capital Growth's Annual Report dated October 31, 1996,
which are incorporated herein by reference. Copies of the Statements of
Additional Information of Capital Growth 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 are each 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 Capital Growth of proxies for use at
the Special Meeting of Shareholders (the ''Meeting'') to be held on February ,
--
1997 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 Restructuring and the Reorganization. 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 ,
----------------
1997 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 shares of Capital Growth
-------
outstanding. Each Capital Growth 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 Capital Growth'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 Capital Growth.
The votes of the shareholders of Large Cap are not being solicited, since
their approval or consent is not necessary for approval of the Proposal. As of
the record date, there were Investment Shares and Trust Shares of
------ -------
Large Cap outstanding. On the record date, Stephens Inc., owned of record
approximately ( %) of the outstanding Investment Shares of Large
-------- ----
Cap, and BOVA & CO. owned of record approximately ( %) 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.
A majority of the outstanding shares of Capital Growth, represented in
person or by proxy, will be required to constitute a quorum at the Special
Meeting for the purpose of voting on the Proposal. 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. Approval of the Proposal requires the affirmative
vote of the majority of Capital Growth's outstanding shares.
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 Capital Growth objecting to the Proposal have no appraisal
or dissenter's rights under the Declaration of Trust or Massachusetts law. Under
the Plan, if approved by Capital Growth shareholders, each Capital Growth
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 Capital Growth at the Closing Date.
OTHER MATTERS
Management of Capital Growth 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 December 20, 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 Capital Growth 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 Paragraph 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 February , 1997 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
October 31, 1996 have been audited by Deloitte & Touche 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) Since October 31, 1996, 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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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).
(n) 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.
(o) 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, 1995 and 1996, 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, 1996, 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 October 31, 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 October 31, 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 basis 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 Blanchard's President or Vice
President and Blanchard's 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 Virtus' President or Vice
President and Virtus' 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 Blanchard and Virtus 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 & Oshinsky LLP 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 Virtus or of Blanchard, 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 CAPITAL GROWTH FUND
Attest:
/s/ By: /s/
Assistant Secretary Name:
Title:
Acquiring Fund:
THE VIRTUS FUNDS,
on behalf of its Portfolio,
THE STYLE MANAGER:
LARGE CAP FUND
Attest:
/s/ By: /s/
Assistant Secretary Name:
Title:
G01686-08
SBM Financial Services
Proxy Services
P. O. Box 9156
Farmingdale, New York 11735
BLANCHARD CAPITAL GROWTH FUND,
a Portfolio of
BLANCHARD FUNDS
SPECIAL MEETING OF SHAREHOLDERS
, 1997
==========
BLANCHARD CAPITAL GROWTH FUND,
a Portfolio of
BLANCHARD FUNDS
The undersigned shareholder(s) of Blanchard Capital Growth Fund, a portfolio of
Blanchard Funds, (`Capital Growth''), hereby appoint(s) Gia C. Albanowski, C.
Grant Anderson, Patricia F. Conner, and Jody L. Petras, or any of them true and
lawful attorneys, with power of substitution of each, to vote all shares of
Capital Growth which the undersigned is entitled to vote, at the Special Meeting
of Shareholders to be held on , 1997, at Federated Investors Tower, 19th
--------
Floor, Pittsburgh, Pennsylvania 15222-3779, at 2:00 p.m. (local 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 choice
made on this ballot. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS PROXY WILL
BE VOTED AFFIRMATIVELY ON THAT MATTER.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your 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 owners should sign.
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: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
BLANCHARD CAPITAL GROWTH FUND,
RECORD DATE SHARES:
-----------------
Vote On Proposal(s)
1. To approve or disapprove a proposal whereby Capital Growth would (a)
withdraw its investment in Capital Growth Portfolio, in order to permit the
current two-tier structure of Capital Growth to be replaced, temporarily, by a
one-tier structure common to most mutual funds; and (b) enter into a proposed
agreement pursuant to which The Style Manager: Large Cap Fund (''Large Cap''), a
portfolio of The Virtus Funds, would acquire all of Capital Growth's assets in
exchange for Investment Shares of Large Cap. Capital Growth would then
distribute the shares of Large Cap so received pro rata to its shareholders and
would liquidate and terminate its existence.
FOR AGAINST ABSTAIN
- -----------------------------------
Signature
Signature (Joint Owners)
Date:
---------------------------------
STATEMENT OF ADDITIONAL INFORMATION
January , 1997
--
ACQUISITION OF THE ASSETS OF
BLANCHARD CAPITAL GROWTH 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
This Statement of Additional Information dated January , 1997 is not
---
a prospectus. A Prospectus/Proxy Statement dated January , 1997 related to
----
the above-referenced matter may be obtained from The Virtus Funds, Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This Statement of
Additional Information should be read in conjunction with such Prospectus/Proxy
Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of The Style Manger: Large Cap Fund, a
portfolio of The Virtus Funds, dated November 30, 1995.
2. Statement of Additional Information of Blanchard Capital Growth Fund, a
portfolio of Blanchard Funds, dated February 29, 1996 (revised October 7, 1996).
3. Financial Statements of The Style Manager: Large Cap Fund, a portfolio of
The Virtus Funds, dated September 30, 1996.
4. Financial Statements of Blanchard Capital Growth Fund, a portfolio of
Blanchard Funds, dated October 31, 1996.
The Statement of Additional Information of The Style Manager: Large Cap
Fund (`Large Cap''), a portfolio of The Virtus Funds, dated November 30, 1995,
is incorporated herein by reference to Post-Effective Amendment No. 14 to The
Virtus Fund's 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 22, 1996. A copy may be obtained, upon request and without charge,
from Large Cap at Federated Investors Tower, Pittsburgh, PA 15222-3779;
telephone number: 1-800-829-3863.
The Statement of Additional Information of Blanchard Capital Growth Fund
("Capital Growth"), a portfolio of Blanchard Funds, dated February 29, 1996, is
incorporated herein by reference to Post-Effective Amendment No. 39 to the
Blanchard Fund's 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
November 27, 1996. A copy may be obtained, upon request and without charge,
from Capital Growth at Federated Investors Tower, Pittsburgh, PA 15222-3779;
telephone number: 1-800-829-3863.
The audited financial statements of Large Cap, dated September 30, 1996, are
incorporated herein by reference to Large Cap's Annual Report to Shareholders
dated September 30, 1996, which was filed with the Securities and Exchange
Commission. A copy may be obtained, upon request and without charge, from Large
Cap at Federated Investors Tower, Pittsburgh, PA 15222-3779; telephone number 1-
800-829-3863.
The audited financial statements of Capital Growth, dated October 31,
1996, are incorporated herein by reference to Capital Growth's Annual Report to
Shareholders dated October 31, 1996 which was filed with the Securities and
Exchange Commission. A copy may be obtained, upon request and without charge,
from Capital Growth at Federated Investors Tower, Pittsburgh, PA 15222-3779;
telephone number: 1-800-829-3863.
Pro forma financial statements are not included herein as the total net
assets of Capital Growth do not exceed 10% of the total assets of Large Cap. At
November 30, 1996, the total net assets of Capital Growth were, $1,704,292 and
the total net assets of Large Cap were $103,627,013.
G01686-09
PART C - OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to trustees and officers of the Registrant
pursuant to the Registrant's Declaration of Trust, except where such
indemnification is not permitted by law. However, the Declaration of Trust does
not protect the trustees or officers from liability based on willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their office.
Trustees and officers of the Registrant are insured against certain
liabilities, including liabilities arising under the Securities Act of 1933 (the
"Act").
Insofar as indemnification for liabilities arising under the Act may be
permitted to trustees, officers, and controlling persons of the Registrant by
the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by trustees, officers, or controlling persons of the Registrant in
connection with the successful defense of any act, suit, or proceeding) is
asserted by such trustees, officers, or controlling persons in connection with
the shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Insofar as indemnification for liabilities may be permitted pursuant to
Section 17 of the Investment Company Act of 1940 for trustees, officers, or
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware of the position of
the Securities and Exchange Commission as set forth in Investment Company Act
Release No. IC-11330. Therefore, the Registrant undertakes that in addition to
complying with the applicable provisions of the Declaration of Trust or
otherwise, in the absence of a final decision on the merits by a court or other
body before which the proceeding was brought, that an indemnification payment
will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a majority vote of
a quorum of non-party trustees who are not interested persons of the Registrant
or (ii) by independent legal counsel in a written opinion that the indemnitee
was not liable for an act of willful misfeasance, bad faith, gross negligence,
or reckless disregard of duties. The Registrant further undertakes that
advancement of expenses incurred in the defense of a proceeding (upon
undertaking for repayment unless it is ultimately determined that
indemnification is appropriate) against an officer, trustee, or controlling
person of the Registrant will not be made absent the fulfillment of at least one
of the following conditions: (i) the indemnitee provides security for his
undertaking; (ii) the Registrant is insured against losses arising by reason of
any lawful advances; or (iii) a majority of a quorum of disinterested non-party
trustees or independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be entitled to
indemnification.
Item 16. Exhibits
1.1 Conformed Copy of Declaration of Trust of the Registrant, as restated (5)
2.1 Bylaws of the Registrant (1)
3 Not Applicable
4 Agreement and Plan of Reorganization dated December 20, 1996, between
Blanchard Funds, a Massachusetts business trust, on behalf of its portfolio,
Blanchard Capital Growth Fund, and The Virtus Funds, a Massachusetts business
trust, on behalf of its portfolio, The Style Manager: Large Cap Fund*
5 Copy of Specimen Certificate for Shares of Beneficial Interest of the
Registrant (2)
6.1 Conformed Copy of Investment Advisory Contract of the Registrant, and
Amendment No. 1 thereto (6)
6.2 Conformed Copy of Sub-Advisory Contract of the Registrant (9)
7.1 Conformed Copy of Distributor's Contract of the Registrant (5)
7.2 Conformed Copy of Exhibits E and F to the Distributor's Contract of the
Registrant (6)
8 Not Applicable
9 Conformed Copy of Custodian Agreement of the Registrant (3)
9.1 Conformed Copy of Amendment No. 1 to Custodian Agreement of the Registrant
(6)
10.1 Conformed Copy of Distribution Plan of the Registrant, as amended (5)
10.2 Copy of Rule 12b-1 Agreement of the Registrant and Amendment Nos. 1 and 2
thereto (6)
10.3 Conformed Copy of Administrative Services Agreement of the Registrant (6)
10.4 Conformed Copy of Previous Administrative Services Agreement of the
Registrant (6)
10.5 Conformed Copy of Multiple Class Plan of the Registrant (6)
11 Opinion of S. Elliott Cohan, Deputy General Counsel, Federated Investors
regarding legality of shares being issued*
12 Opinion of Dickstein Shapiro Morin & Oshinsky LLP regarding tax
consequences of Reorganization (4)
13.1 Conformed Copy of Agreement for Fund Accounting Services, Administrative
Services, Shareholder Recordkeeping Services and Custody Services Procurement
(3)
14.1 Conformed Copy of Consent of Independent Auditors of The Virtus Funds.,
Deloitte & Touche LLP*
15 Not Applicable
16 Conformed Copy of Power of Attorney*
17.1 Declaration under Rule 24f-2*
17.2 Form of Proxy of The Virtus Funds*
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed on August 24, 1990. (File Nos. 33-36451 and
811-6158)
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed November 24, 1993. (File Nos. 33-36451 and
811-6158)
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed June 20, 1994. (File Nos. 33-36451 and
811-6158)
(4) To be filed by Post-Effective Amendment pursuant to `Dear Registrant''
letter dated February 15, 1996.
(5) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed December 21, 1994. (File Nos. 33-36451 and
811-6158)
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed November 22, 1996. (File Nos. 33-36451 and
811-6158)
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus which is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
3) The undersigned Registrant agrees to file by Post-Effective
Amendment the opinion of counsel regarding the tax consequences of the proposed
reorganization required by Item 16(12) of Form N-14 within a reasonable time
after receipt of such opinion.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, The Virtus Funds, has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Pittsburgh, Commonwealth of Pennsylvania on December 23, 1996.
THE VIRTUS FUNDS
(Registrant)
By: *
Edward C. Gonzales
President and Treasurer
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 23, 1996:
* Chairman and Trustee
John F. Donahue
(Chief Executive Officer)
* President, Treasurer and Trustee
Edward C. Gonzales
(Principal Financial and Accounting Officer)
* Trustee
Thomas G. Bigley
* Trustee
John T. Conroy, Jr.
* Trustee
William J. Copeland
* Trustee
James E. Dowd
* Trustee
Lawrence D. Ellis, M.D.
* Trustee
Edward L. Flaherty, Jr.
* Trustee
Peter E. Madden
* Trustee
Gregor F. Meyer
* Trustee
John E. Murray, Jr., J.D., S.J.D.
* Trustee
Wesley W. Posvar
* Trustee
Marjorie P. Smuts
1* By: /s/ S. Elliott Cohan
Attorney in Fact
EXHIBIT 11
THE VIRTUS FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
December 20, 1996
The Trustees of
The Virtus Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
The Style Manager: Large Cap Fund (the `Fund''), a portfolio of The
Virtus Funds, a Massachusetts business trust, proposes to issue shares of
beneficial interest (such shares of beneficial interest being herein
referred to as `Shares'') in connection with the acquisition of the assets
of Blanchard Capital Growth Fund, a portfolio of Blanchard Funds,
Massachusetts business trust, pursuant to the Agreement and Plan of
Reorganization dated as of December 20, 1996 (`Agreement''), filed as an
exhibit to the registration statement of the Fund filed on Form N-14
(Securities Act of 1933 No. to be assigned) under the Securities Act of
1933 as amended (`N-14 Registration'').
As counsel I have participated in the organization of the Fund, its
registration under the Investment Company Act of 1940, the registration of
its securities on Form N-1A under the Securities Act of 1933 and its N-14
Registration. I have examined and am familiar with the written Declaration
of Trust of The Virtus Funds dated June 20, 1990 (`Declaration of
Trust'), the Bylaws of The Virtus Funds, the Agreement and such other
documents and records deemed relevant. I have also reviewed questions of
law and consulted with counsel thereon as deemed necessary or appropriate
for the purposes of this opinion.
Based upon the foregoing, it is my opinion that:
1. The Fund is duly organized and validly existing pursuant to The Virtus
Funds' Declaration of Trust.
2. The Shares which are currently being registered by the N-14
Registration may be legally and validly issued in accordance with the
provisions of the Agreement and The Virtus Funds' Declaration of Trust upon
receipt of consideration sufficient to comply with the provisions of
Article III, Section 3, of The Virtus Funds' Declaration of Trust and
subject to compliance with the Investment Company Act of 1940, as amended,
and applicable state laws regulating the sale of securities. Such Shares,
when so issued, will be fully paid and non-assessable.
I consent to your filing this opinion as an exhibit to the N-14
Registration referred to above and to any application or registration
statement filed under the securities laws of any of the states of the
United States.
Very truly yours,
The Virtus Funds
By:/s/ S. Elliott Cohan
S. Elliott Cohan
Title: Assistant Secretary
Exhibit 14.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders
of THE STYLE MANAGER: LARGE CAP FUND (a portfolio of The Virtus Funds)
We consent to the incorporation by reference in this Registration Statement
on Form N-14 of The Style Manager: Large Cap Fund (formerly, The Stock
Fund) of our report dated November 8, 1996, appearing in the Combined
Annual Report to Shareholders of The Virtus Funds for the year ended
September 30, 1996, and the incorporation by reference of our report on the
The Stock Fund dated November 17, 1995 in the Combined Prospectus and
Combined Statement of Additional Information of The Stock Fund, for the
year ended September 30, 1995, both dated November 30, 1995 (revised
December 29, 1995 and March 15, 1996), and to the references to us within
this Registration Statement.
/s/ Deloitte & Touche
Deloitte & Touche
Pittsburgh, Pennsylvania
December 20, 1996
Exhibit 16
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of The Virtus Funds and the Deputy General
Counsel of Federated Investors, and each of them, their true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for them and in their names, place and stead, in any and all capacities, to sign
any and all documents to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as each of them might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and Trustee April 28, 1995
John F. Donahue (Chief Executive Officer)
/s/ Edward C. Gonzales President, Treasurer andApril 28, 1995
Edward C. Gonzales Trustee (Principal
Financial and Accounting
Officer)
/s/ Thomas G. Bigley Trustee April 28, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Trustee April 28, 1995
John T. Conroy, Jr.
/s/ William J. Copeland Trustee April 28, 1995
William J. Copeland
SIGNATURES TITLE DATE
/s/ James E. Dowd Trustee April 28, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Trustee April 28, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Trustee April 28, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Trustee April 28, 1995
Peter E. Madden
/s/ Gregor F. Meyer Trustee April 28, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Trustee April 28, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Trustee April 28, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee April 28, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 28th day of April, 1995
/s/ Marie M. Hamm
Marie M. Hamm
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Notary Public
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996
Member, Pennsylvania Association of Notaries
EXHIBIT 17.1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 24F-2
ANNUAL NOTICE OF SECURITIES SOLD
PURSUANT TO RULE 24F-2
Read instructions at end of Form before preparing Form.
Please print or type.
1. Name and address of issuer:
The Virtus Funds
Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
2. Name of each series or class of funds for which this
notice is filed:
The U.S. Government Securities Fund The Style
Manager Fund
The Style Manager Fund: Large Cap Fund The Virginia
Municipal Bond Fund
The Maryland Municipal Bond Fund The Treasury
Money Market Fund
The Money Market Fund The Tax-Free MoneyMarket Fund
3. Investment Company Act File Number:
811-6158
Securities Act File Number:
33-36451
4. Last day of fiscal year for which this notice is filed:
September 30, 1996
5. Check box if this notice is being filed more than 180
days after the close of the issuer's fiscal year for
purposes of reporting securities sold after the close
of the fiscal year but before termination of the
issuer's 24f-2 declaration:
[ ]
6. Date of termination of issuer's declaration under rule
24f-2(a)(1), if applicable:
7. Number and amount of securities of the same class or
series which had been registered under the Securities
Act of 1933 other than pursuant to rule 24f-2 in a
prior fiscal year, but which remained unsold at the
beginning of the fiscal year:
0:$0
8. Number and amount of securities registered during the
fiscal year other than pursuant to rule 24f-2:
0:$0
9. Number and aggregate sale price of securities sold
during the fiscal year (includes DRIP shares):
1,770,172,990:$1,896,376,659
10. Number and aggregate sale price of securities sold
during the fiscal year in reliance upon registration
pursuant to rule 24f-2:
1,770,172,990:$1,896,376,659
11. Number and aggregate sale price of securities issued
during the fiscal year in connection with dividend
reinvestment plans, if applicable:
12. Calculation of registration fees:
(i) Aggregate sale price of securities sold during the
fiscal
year in reliance on rule 24f-2 (from Item 10):$
1,896,376,659
(ii) Aggregate price of shares issued in connection
with
dividend reimbursement plans
(from Item 11, if applicable) +
(iii) Aggregate
price of shares redeemed or repurchased
during the fiscal year (if applicable)-
1,808,290,347
(iv) Aggregate price of shares redeemed or repurchased
and previously applied as a reduction to filing
fees
pursuant to rule 24e-2 (if applicable) +
(v) Net aggregate price of securities sold and issued
during
the fiscal year in reliance on rule 24f-2 [line
(i), plus
line (ii), less line (iii), plus line (iv)] (if
applicable): $
88,086,312
(vi) Multiplier prescribed by Section 6(b) of the
Securities
Act of 1933 or other applicable law or regulation
(see Instruction C.6): x
1/3300
(vii) Fee due [line
(i) or line (v) multiplied by line (vi)]:$
26,693
Instruction: Issuers
should complete lines (ii), (iii), (iv), and (v)
only if the form in being filed within 60 days
after the close of the issuer's fiscal year. See
Instruction C.3.
13. Check box if fees are being remitted to the
Commission's lockbox depository as described in section
3a of the Commission's Rules of Informal and Other
Procedures
(17 CFR 202.3a).
[ ]
Date of mailing or wire transfer of filing fees to the
Commission's lockbox depository:
November 15, 1996
SIGNATURES
This report has been signed below by the following persons
on behalf of the issuer and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ C. Grant Anderson
C. Grant Anderson
Assistant Secretary
Date: November 15, 1996
* Please print the name and title of the signing officer below the signature.
FEDERATED ADMINISTRATIVE
SERVICES
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
412-288-1900
November 15, 1996
The Virtus Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
You have requested my opinion for use in conjunction with a Rule 24f-2
Notice for The Virtus Funds (`Trust'') to be filed in respect of shares of
the Trust (`Shares'') sold for the fiscal year ended September 30, 1996,
pursuant to the Trust's registration statement filed with the Securities
and Exchange Commission (the `SEC'') under the Securities Act of 1933
(File No. 33-36451) (`Registration Statement'').
In its Registration Statement, the Trust elected to register an
indefinite number of shares pursuant to the provisions of Investment
Company Act Rule 24f-2.
As counsel, I have participated in the preparation and filing of the
Trust's amended Registration Statement under the Securities Act of 1933.
Further, I have examined and am familiar with the provisions of the
Declaration of Trust dated June 20, 1990, (`Declaration of Trust''), the
Bylaws of the Trust and such other documents and records deemed relevant. I
have also reviewed questions of law and consulted with counsel thereon as
deemed necessary or appropriate by me for the purposes of this opinion.
On the basis of the foregoing, it is my opinion the Shares sold for
the fiscal year ended September 30, 1996, registration of which the Rule
24f-2 Notice makes definite in number, were legally issued, fully paid and
non-assessable by the Trust.
I hereby consent to the filing of this opinion as an exhibit to the
Rule 24f-2 Notice referred to above, the Registration Statement of the
Trust and to any application or registration statement filed under the
securities laws of any of the States of the United States.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the Commonwealth of Massachusetts, and I am
expressing no opinion as to the effect of the laws of any other
jurisdiction.
Very truly yours,
/s/ C. Grant Anderson
C. Grant Anderson
Fund Attorney
The Virtus Funds
Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
November 15, 1996
EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549
RE: Form 24f-2 for The Virtus Funds
1933 Act File No. 33-36451
1940 Act File No. 811-6158
Dear Sir or Madam:
Pursuant to the provisions of Rule 24f-2 of the Investment Company Act of
1940, I enclose form 24f-2 for The Virtus Funds. This filing has been filed
electronically via EDGAR.
Since the aggregate sales price of securities sold exceeded the aggregate
redemption proceeds of securities redeemed during the period for which form 24f-
2 is filed, an additional filing fee in the amount of $26,693 pursuant to Rule
24f-2(c) has been FedDirect wire transferred to the U.S. Treasury Lockbox at
Mellon Bank in Pittsburgh.
As required by Rule 24f-2(b), a conformed opinion of counsel has been
electronically filed herewith which indicates whether the securities, the
registration of which this form makes definite in number, were legally issued,
fully paid and non-assessable.
Very truly yours,
/s/ C. Grant Anderson
C. Grant Anderson
Assistant Secretary
Enclosures
cc: Matthew G. Maloney, Esquire
Linda L. Banas
EXHIBIT 17.2
SBM Financial Services
Proxy Services
P. O. Box 9156
Farmingdale, New York 11735
BLANCHARD CAPITAL GROWTH FUND,
a Portfolio of
BLANCHARD FUNDS
SPECIAL MEETING OF SHAREHOLDERS
, 1997
==========
BLANCHARD CAPITAL GROWTH FUND,
a Portfolio of
BLANCHARD FUNDS
The undersigned shareholder(s) of Blanchard Capital Growth Fund, a
portfolio of Blanchard Funds, (`Capital Growth''), hereby appoint(s) Gia
C. Albanowski, C. Grant Anderson, Patricia F. Conner, and Jody L. Petras,
or any of them true and lawful attorneys, with power of substitution of
each, to vote all shares of Capital Growth which the undersigned is
entitled to vote, at the Special Meeting of Shareholders to be held on
, 1997, at Federated Investors Tower, 19th Floor, Pittsburgh,
- --------
Pennsylvania 15222-3779, at 2:00 p.m. (local 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
choice made on this ballot. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your 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 owners should sign.
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: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
BLANCHARD CAPITAL GROWTH FUND,
RECORD DATE SHARES:
-----------------
Vote On Proposal(s)
1. To approve or disapprove a proposal whereby Capital Growth would (a)
withdraw its investment in Capital Growth Portfolio, in order to permit the
current two-tier structure of Capital Growth to be replaced, temporarily,
by a one-tier structure common to most mutual funds; and (b) enter into a
proposed agreement pursuant to which The Style Manager: Large Cap Fund
(''Large Cap''), a portfolio of The Virtus Funds, would acquire all of
Capital Growth's assets in exchange for Investment Shares of Large Cap.
Capital Growth would then distribute the shares of Large Cap so received
pro rata to its shareholders and would liquidate and terminate its
existence.
FOR AGAINST ABSTAIN
- -----------------------------------
Signature
Signature (Joint Owners)
Date:
EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated December 20, 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 Capital Growth 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 Paragraph 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 February , 1997 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
October 31, 1996 have been audited by Deloitte & Touche 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) Since October 31, 1996, 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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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).
(n) 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.
(o) 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, 1995 and 1996, 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, 1996, 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 October 31, 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 October 31, 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 basis 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 Blanchard's
President or Vice President and Blanchard's 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 Virtus' President or
Vice President and Virtus' 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 Blanchard and Virtus 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 & Oshinsky LLP 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 Virtus or of Blanchard, 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 CAPITAL GROWTH FUND
Attest:
/s/ By: /s/
Assistant Secretary Name:
Title:
Acquiring Fund:
THE VIRTUS FUNDS,
on behalf of its Portfolio,
THE STYLE MANAGER:
LARGE CAP FUND
Attest:
/s/ By: /s/
Assistant Secretary Name:
Date:
