SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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)
Copy to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
It is proposed that this filing will become effective on May 16, 1996
pursuant to Rule 488. (Approximate Date of Proposed Public Offering)
An indefinite amount of the Registrant's securities has been registered
under the Securities Act of 1933 pursuant to Rule 24f-2 under The Investment
Company Act of 1940. In reliance upon such Rule, no filing fee is being paid
at this time. A Rule 24f-2 notice for the Registrant for the year ended
September 30, 1995 was filed on November 16, 1995.
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 Cover Page of
Prospectus ................ Cross Reference Sheet; Cover Page
2. Beginning and Outside
Back Cover Page of Prospectus Table of Contents
3. Synopsis Information
and Risk Factors .......... Summary; Risk Factors
4. Information About the
Transaction ............... Information About the Reorganization
5. Information About the Registrant Information About Blanchard Funds, The
Virtus Funds, American Equity, and Large
Cap
6. Information About the Company
Being Acquired ............ Information About Blanchard Funds, The
Virtus Funds, American Equity, 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 AMERICAN EQUITY FUND
INTO THE VIRTUS STYLE MANAGER: LARGE CAP FUND.
PLEASE REVIEW AND CAST YOUR VOTE TODAY!
Dear Valued Shareholder,
As you may be aware, there have been a number of exciting developments in
regards to the Blanchard Group of Funds in recent months. One of the benefits
has been that the management and Trustees have identified a number of changes
which they feel will either enhance performance, reduce expenses or expand the
services offered to Blanchard mutual fund shareholders.
We're writing you today to inform you of a recommended change which affects
your Blanchard American Equity Fund.
o Namely, the Board of Trustees has unanimously recommended a tax-free
merger of the BLANCHARD AMERICAN EQUITY FUND into the VIRTUS STYLE
MANAGER: LARGE CAP FUND.
SIMILAR INVESTMENT OBJECTIVE
In recommending this merger, the Board of Trustees considered the fact that
the Virtus Style Manager: Large Cap Fund has a similar investment objective
as the Blanchard American Equity Fund.
The Virtus Style Manager: Large Cap Fund seeks to provide long-term growth
and income by investing primarily in the stocks of large capitalization
companies (capitalization of at least $1 billion) according to the stock
selection style (value or growth) which, in the opinion of the portfolio
manager, is favored by prevailing market conditions.
o The value style seeks stocks that, in the opinion of the portfolio
manager, are undervalued and are (or will be) worth more than their
current price.
o The growth style seeks stocks with higher earnings growth which, in the
opinion of the portfolio manager, are likely to lead to appreciation in
stock price over time.
In short, as market trends change, so does the portfolio of the Virtus
Style Manager: Large Cap Fund in an attempt to benefit from either the growth
or value styles. This is in sharp contrast to the Blanchard American Equity
Fund which limits its investments to growth stocks regardless of prevailing
market conditions.
POTENTIAL ECONOMIES OF SCALE AND LOWER EXPENSE RATIOS
The Board of Trustees has concluded that economies of scale and potentially
lower expense ratios are likely to be realized by merging the assets of the
Blanchard American Equity Fund into the Virtus Style Manager: Large Cap Fund.
Instead of using a sub-advisor to manage the portfolio as is the case with
Provident Investment Counsel for the Blanchard American Equity Fund, the
Virtus Style Manager: Large Cap Fund is managed by an in-house team of equity
specialists from Virtus Capital Management, Inc., the investment advisor to
the Blanchard and Virtus families of mutual funds.
The expenses of the Virtus Style Manager: Large Cap Fund are at %,
---
which is lower than the % assessed by the Blanchard American Equity Fund.
---
And if the merger is approved, the increased asset size of the Virtus Style
Manager: Large Cap Fund is likely to result in an even lower expense ratio.
NO TAXABLE CONSEQUENCES--SAME SHAREHOLDER PRIVILEGES
Because this merger of assets is tax-free, there are no taxable
consequences for you. And you'll continue to enjoy all of the same
shareholder privileges that you do now. These include free telephone switches
between any Blanchard and Virtus mutual fund, as well as free telephone
redemptions.
PLEASE VOTE TODAY!
It is for all of the reasons cited in this letter that the Board of
Trustees has unanimously voted to recommend that you vote "FOR" this merger.
Because shareholder approval is required for this Fund merger, your
individual vote is of critical importance. This gives you an important say in
the management of your investment.
o A voting card is enclosed. It is essential that you mark your card in
the appropriate space and return it in the postage-paid envelope
provided.
If the proxy is approved, the merger of the Blanchard American Equity Fund
into the Virtus Style Manager: Large Cap Fund is scheduled to be completed
, 1996.
- - -------- ---
If a majority of shareholders do not return their votes, additional proxy
statements must be sent out, costing money, as well as valuable time. So
please, take a few moments now to fill out and return the enclosed proxy
voting card, while the material is at hand.
Before voting, please refer to the enclosed prospectus for the Virtus Style
Manager: Large Cap Fund for more complete details on investment objectives,
management fees, risks and expenses.
If you have additional questions on the voting process, or on the Fund,
please call 1-800-829-3863. A friendly and experienced shareholders' service
representative will be standing by between 8:30 a.m. and 5:30 p.m., EDT.
Thank you for your continued confidence in the Blanchard Group of Funds.
Sincerely,
The Blanchard Group of Funds
The Blanchard Group of Funds and the Virtus Funds are distributed by Federated
Securities Corp. and are advised by Virtus Capital Management, Inc.
THE BLANCHARD GROUP OF FUNDS AND THE VIRTUS FUNDS ARE NOT DEPOSITS,
OBLIGATIONS OF, OR GUARANTEED BY ANY BANK OR OTHER FINANCIAL INSTITUTION, AND
ARE NOT INSURED BY THE FDIC OR ANY FEDERAL AGENCY. IN ADDITION, THEY INVOLVE
RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
BLANCHARD FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF BLANCHARD AMERICAN EQUITY FUND:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Blanchard
American Equity Fund ("American Equity"), a portfolio of Blanchard Funds, will
be held at 2:00 p.m. on June 21, 1996 at Federated Investors Tower, 19th
Floor, Pittsburgh, Pennsylvania 15222-3779 for the following purposes:
1. To approve or disapprove a proposed agreement pursuant to which The
Style Manager: Large Cap Fund ("Large Cap"), a portfolio of The
Virtus Funds, would acquire all of American Equity's assets in
exchange for Investment Shares of Large Cap. American Equity would
then distribute the shares of Large Cap so received pro rata to its
shareholders and would liquidate and terminate its existence; and
FEDERATED SECURITIES CORP.
2.
Distributor
TA subsidiary of Federated Investors
o transact such other business as may properly come before the
meeting or any adjournment thereof.
By Order of the Board of Trustees,
John W. McGonigle
Dated: May 23, 1996 Secretary
Shareholders of record at the close of business May 13, 1996 are entitled to
vote at the meeting. Whether or not you plan to attend the meeting, please
sign and return the enclosed proxy card or call 1-800-829-3863. YOUR VOTE IS
IMPORTANT.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF
FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN
PERSON IF YOU ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
MAY 16, 1996
ACQUISITION OF THE ASSETS OF
BLANCHARD AMERICAN EQUITY FUND
("AMERICAN EQUITY"),
A PORTFOLIO OF BLANCHARD FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-829-3863
BY AND IN EXCHANGE FOR SHARES OF
THE STYLE MANAGER: LARGE CAP FUND
("LARGE CAP"),
A PORTFOLIO OF THE VIRTUS FUNDS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TELEPHONE NUMBER: 1-800-829-3863
This Prospectus/Proxy Statement describes the proposed Agreement and Plan
of Reorganization (the "Plan") whereby Large Cap would acquire all of the
assets of American Equity, in exchange for Investment Shares of Large Cap.
These shares would then be distributed pro rata by American Equity to its
shareholders, and, as a result, each American Equity shareholder will own
Investment Shares of Large Cap having a total net asset value equal to the
total net asset value of his or her holdings in American Equity. The Plan
would result in the complete liquidation and the termination of American
Equity.
Blanchard Funds is an open-end management investment company which
currently includes nine portfolios, each of which has a distinct investment
objective. The investment objective of American Equity is long term growth of
capital. The Virtus Funds is an open-end management investment company which
currently includes eight portfolios, each of which has a distinct investment
objective. The investment objective of Large Cap is to provide growth of
capital and income. For a comparison of the investment policies of the Funds,
see "Summary--Investment Objectives, Policies, and Limitations."
This Prospectus/Proxy Statement should be retained for future reference.
It sets forth concisely the information about The Virtus Funds and Large Cap
that a prospective investor should know before investing in Large Cap. This
Prospectus/Proxy Statement is accompanied by the Prospectus of Large Cap dated
November 30, 1995 (revised December 29, 1995 and March 15, 1996), which is
incorporated herein by reference. The Prospectus of American Equity dated
August 7, 1995, and the Statements of Additional Information for Large Cap and
American Equity, dated November 30, 1995 and August 7, 1995, respectively
(relating to the Prospectuses of Large Cap and American Equity, respectively,
of the same date) and May 16, 1996 (relating to this Prospectus/Proxy
Statement), and the Annual Report of Large Cap for the fiscal year ended April
30, 1995, all containing additional information, have been filed with the
Securities and Exchange Commission and are incorporated herein by reference.
Copies of the Prospectus, Statements of Additional Information and Annual
Report may be obtained without charge by calling Signet Financial Services at
1-800-829-3863.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF SIGNET BANK OR ANY OF ITS AFFILIATES, OR OF ANY BANK, ARE NOT
ENDORSED OR GUARANTEED BY SIGNET BANK OR ANY OF ITS AFFILIATES, OR BY ANY
BANK, AND ARE NOT OBLIGATIONS OF, GUARANTEED BY OR INSURED BY THE U.S.
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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
Summary......................................................................
Risk
Factors......................................................................
Information About the
Reorganization...............................................................
Information About the Blanchard Group of Funds, The Virtus Funds,
American Equity, and Large Cap..........................................
Voting Information...........................................................
Exhibit A--Agreement and Plan of Reorganization..............................
SUMMARY
ABOUT THE PROPOSED REORGANIZATION
The Board of Trustees of Blanchard Funds has voted to recommend to
shareholders of American Equity the approval of a Plan whereby Large Cap would
acquire all of the assets of American Equity in exchange for Investment Shares
of Large Cap. These shares would thereupon be distributed pro rata by American
Equity to its shareholders and, as a result, each shareholder of American
Equity will become the owner of Investment Shares of Large Cap having a total
net asset value equal to the total net asset value of his or her holdings in
American Equity. These transactions (referred to as the "Reorganization")
would result in the complete liquidation and the termination of American
Equity.
As a condition to the Reorganization transactions, The Virtus Funds and
Blanchard Funds will receive an opinion of counsel that the Reorganization
will be considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by either
Large Cap or American Equity or their shareholders. The tax basis of the
Investment Shares of Large Cap received by American Equity shareholders will
be the same as the tax basis of their shares in American Equity.
In recommending the Reorganization, the Blanchard Funds' and The Virtus
Funds' investment adviser, Virtus Capital Management, Inc., and the Board of
Trustees of Blanchard Funds and The Virtus Funds, considered the fact that,
because of the low asset and high expense levels of American Equity, American
Equity's long-term viability is questionable, and have concluded that
economies of scale, and potentially lower expense ratios, could be realized by
transferring the assets of American Equity into Large Cap.
The following discussion compares certain key aspects of American Equity
and Large Cap (collectively, the "Funds").
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
Estimated
The Style The Style
Manager: Manager:
Blanchard Large Large
American Cap Fund Cap Fund
SHAREHOLDER TRANSACTION EXPENSES Equity Fund Investment Shares Investment Shares
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) None None None
Contingent Deferred Sales Charge (as a
percentage of amount redeemed, if applicable) None 2.00% 2.00%
Redemption Fees (as a percentage of amount
redeemed, if applicable) None None None
Exchange Fee None None None
Estimated
The Style The Style
Manager: Manager:
Blanchard Large Large
American Cap Fund Cap Fund
ANNUAL OPERATING EXPENSES Equity Fund Investment Shares Investment Shares
(as a percentage of average net assets)
Management Fee (after waivers) 0.00%(1) 0.75% 0.75%
12b-1 Fee 0.50% 0.25% 0.25%
Total Other Expenses 2.55%(1) 0.32% 0.32%(2)
Total Operating Expenses 3.05%(1) 1.32% 1.32%(2)
</TABLE>
(1) The management fee has been reduced to reflect a voluntary waiver by
the investment adviser. The adviser can terminate this voluntary waiver at
any time at its sole discretion. The maximum management fee is 1.10%. The
investment adviser may voluntarily waive a portion of its fee and may
voluntarily reimburse certain operating expenses. This voluntary waiver
and reimbursement may be modified or terminated at any time. Absent such
fee waivers and/or expense reimbursements, it is estimated that the Total
Operating Expenses for the Blanchard American Equity Fund would be 4.46%.
(2) The Total Operating expenses in the table above are based on expenses
expected during the fiscal year ending September 30, 1996. The Total
Operating Expenses were 1.21% for the fiscal year ended September 30, 1995.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Estimated
The Style The Style
Manager: Manager:
Blanchard Large Large
American Cap Fund Cap Fund
EXPENSES Equity Fund Investment Shares Investment Shares
You would pay the following expenses
on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end
of each time period
1 Year........................ $31 $34 $34
1 Year(+)..................... $31 $13 $13
3 Years....................... $94 $64 $64
3 Years(+).................... $94 $42 $42
5 Years....................... $160 $72 $72
10 Years...................... $336 $159 $159
</TABLE>
+Reflects expenses on the same investment, assuming no redemption.
The purpose of the foregoing Example is to assist an investor in understanding
the various costs and expenses that a shareholder of the Funds will bear,
either directly or indirectly.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
INVESTMENT OBJECTIVES, POLICIES, AND LIMITATIONS
The investment objectives of American Equity and Large Cap are similar.
American Equity seeks to provide long term growth of capital. Large Cap seeks
to provide growth of capital and income.
Large Cap pursues its investment objective by investing primarily (i.e.,
at least 65% of its assets under normal conditions) in common stocks, and may
also invest in preferred stocks, corporate bonds, notes, warrants, rights and
convertible securities. American Equity pursues its investment objective by
investing at least 80% of its assets under normal market conditions in common
stocks, convertible preferred stocks, convertible debt securities and
warrants.
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 Exchange or trade in
the over-the-counter markets. American Equity will invest in securities of
companies of various sizes, approximately one-half of which will be traded on
the New York Stock Exchange and the remainder of which will be traded over-
the-counter.
Large Cap is managed to take advantage of trends in the stock market that
favor different styles of stock selection (value or growth). The value style
seeks stocks that, in the opinion of the adviser, are undervalued and are or
will be worth more than their current price. The growth style seeks stocks
with higher earnings growth which, in the opinion of the adviser, will lead to
appreciation in stock price. American Equity selects stocks of companies which
are currently experiencing a rate of earnings growth greater than the average
of such rate for all companies included in Standard & Poor's 500 Index.
Large Cap may invest in American Depository Receipts, which are typically
issued by an American bank or trust company and evidence ownership of
underlying securities issued by a foreign issuer. Both Funds may enter into
repurchase agreements and futures contracts.
Large Cap and American Equity are subject to certain investment
limitations. The investment limitations of the two Funds are substantially
identical. These limitations include provisions that, in effect, prohibit
either Fund from: selling any securities short (except, with respect to Large
Cap, in certain limited circumstances) or purchasing securities on margin;
issuing senior securities, except that American Equity may borrow up to 20%,
and Large Cap may borrow up to one-third, of the value of their total assets;
mortgaging, pledging, or hypothecating any assets except to secure permitted
borrowings; lending any of their respective assets, except portfolio
securities up to one-third of the value of their total assets; or investing
more than a stated percentage (10% in the case of American Equity and 15% in
the case of Large Cap) of their respective assets in illiquid securities.
Reference is hereby made to the Prospectus and Statement of Additional
Information of American Equity, dated August 7, 1995, and the Prospectus of
Large Cap, dated November 30, 1995 (revised December 29, 1995 and March 15,
1996), and Statement of Additional Information of Large Cap, dated November
30, 1995, which set forth in full the investment objectives, policies and
investment limitations of both funds and which are incorporated by reference
herein.
DISTRIBUTION ARRANGEMENTS
Federated Securities Corp. is the principal distributor for shares of
Blanchard Funds and The Virtus Funds. Under distribution plans adopted in
accordance with Investment Company Act Rule 12b-1 (the "12b-1 Plan"), Large
Cap (with respect to Investment Shares), and American Equity may pay to
Federated Securities Corp. an amount computed at an annual rate of 0.25 of 1%
and 0.50 of 1% of each respective Fund's average daily net assets to finance
any activity which is principally intended to result in the sale of shares
subject to the 12b-1 Plan. Currently, Large Cap (with respect to Investment
Shares) and American Equity incur fees under the 12b-1 Plan at an annual rate
of 0.25 of 1% and 0.50 of 1% of each respective Fund's average daily net
assets.
ADVISORY AND OTHER FEES
Virtus Capital Management, Inc. ("VCM"), a Maryland corporation and a
wholly-owned subsidiary of Signet Banking Corporation, provides overall
management services for Blanchard Funds and The Virtus Funds. VCM is currently
entitled to receive an annual investment advisory fee equal to 0.75% of Large
Cap's average daily net assets and (subject to approval at a shareholder
meeting scheduled to be held on , 1996) will, on and after ,
------- --------
1996 be entitled to receive an annual management fee equal to 1% of Large
Cap's average daily net assets. VCM is entitled to receive an annual
management fee equal to 1.10 of 1% of American Equity's average daily net
assets, of which such Fund's portfolio adviser, Provident Investment Counsel,
is entitled to receive from VCM an annual subadvisory fee of 0.50% of the
first $150 million of such Fund's average daily net assets; 0.45% of the next
$100 million of average daily net assets; 0.40% of the next $150 million of
average daily net assets; and 0.35% of average daily net assets in excess of
$400 million. See also the "Summary of Portfolio Expenses." VCM has undertaken
to reimburse each Fund, up to the amount of its management fee, for operating
expenses in excess of limitations established by certain states. VCM may
further voluntarily waive a portion of its fee or reimburse either Fund for
certain operating expenses. This agreement to waive fees or reimburse expenses
may be terminated by VCM at any time in its discretion.
Federated Administrative Services, a subsidiary of Federated Investors,
provides the Funds with certain administrative personnel and services
necessary to operate the Funds. The rate charged for such administrative
services is 0.15 of 1% of the first $250 million of average aggregate daily
net assets of The Virtus Funds and Blanchard Funds combined, 0.125 of 1% on
the next $250 million, 0.10 of 1% on the next $250 million and 0.075 of 1% of
assets in excess of $750 million. The administrative fee received during any
fiscal year shall be at least $75,000 per Fund. American Equity estimates that
its administrative fee expense for the current fiscal year will be 0.60 of 1%
of its average aggregate daily net assets. The administrative fee for Large
Cap's most recent fiscal year was 0.11 of 1% of its average aggregate daily
net assets. Large Cap estimates that its administrative fee expense for the
current fiscal year will be 0.10 of 1% of its average aggregate daily net
assets.
The total annual operating expenses for American Equity are expected to
be 3.15% of average daily net assets, and would be 4.25% of average daily net
assets absent the voluntary waiver of the management fee. The total annual
operating expenses for Large Cap are expected to be 1.32% of average daily net
assets.
PURCHASE AND REDEMPTION PROCEDURES
Procedures for the purchase and redemption of Investment Shares of Large
Cap are similar to procedures applicable to the purchase and redemption of
American Equity shares. For a complete description of the purchase and
redemption procedures applicable to purchases and redemptions of shares, refer
to the Prospectus of Blanchard Funds dated August 7, 1995, and the Prospectus
of the Virtus Funds dated November 30, 1995 (revised December 29, 1995 and
March 15, 1996), which are incorporated herein by reference. Any questions
about such procedures maybe directed to, and assistance in effecting
purchases, redemptions, or exchanges of shares may be obtained by calling 1-
800-829-3863.
Investment Shares of Large Cap are sold on all business days except on
days on which the New York Stock Exchange is closed. Shares are sold at their
net asset value next determined after an order is received. There is no sales
charge at the time of purchase. The net asset value is calculated as of the
close of the New York Stock Exchange (normally 4:00 p.m., Eastern time) on
days shares are sold. Purchases of shares of either Fund may be made by wire,
by ACH or by check. Orders are considered received after payment is converted
into federal funds. The minimum initial investment in Large Cap is $1,000.
Redemption requests cannot be executed on days which the New York Stock
Exchange is closed and federal or state holidays restricting wire transfers.
Shares of American Equity are redeemed at their net asset value next
determined after the redemption request is received. Shares of Large Cap are
redeemed at their net asset value next determined after the redemption request
is received, except that a contingent deferred sales charge will be imposed in
certain instances. A contingent deferred sales charge will not be charged on
the redemption of shares of Large Cap to be received by shareholders of
American Equity pursuant to the Reorganization. Proceeds will be distributed
by wire or check. Requests for redemption can be made by telephone or by mail
as more particularly described in the above-referenced Prospectuses.
EXCHANGE PRIVILEGES
Shareholders of Investment Shares of Large Cap may exchange Investment
Shares of Large Cap for shares of another Virtus Fund at net asset value. The
dollar amount of an exchange must be at least $1,000. In addition, holders of
Large Cap may exchange such Large Cap shares for shares of any Blanchard Fund
at net asset value. The dollar amount of an exchange into a Blanchard Fund
must meet the initial investment requirement of the Blanchard Fund into which
the exchange is being made. No fees are charged in connection with any such
exchange.
Shareholders of American Equity may exchange shares of American Equity
for shares of another Blanchard Fund or for Investment Shares of any Virtus
Fund at net asset value. No fees are charged in connection with any such
exchange. The dollar amount of an exchange into a Blanchard Fund must meet the
initial investment requirement of the Fund into which the exchange is being
made. All subsequent exchanges into that Fund must be at least $1,000. The
dollar amount of any exchanges into a Virtus fund must be at least $1,000.
TAX CONSEQUENCES
As a condition to the Reorganization transactions, Blanchard Funds and
The Virtus Funds will receive an opinion of counsel that the Reorganization
will be considered a tax-free "reorganization" under applicable provisions of
the Internal Revenue Code so that no gain or loss will be recognized by either
Large Cap or American Equity or their respective shareholders. The tax basis
of Large Cap shares received by American Equity shareholders will be the same
as the tax basis of their shares in American Equity.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
THE STYLE MANAGER: LARGE CAP FUND-Investment Shares
(formerly, The Stock Fund-Investment Shares)
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, 1995, compared to the Standard & Poor's 500
Index ("S&P 500"). +
[GRAPH WILL APPEAR IN THE DEFINITIVE FILING.]
AVERAGE ANNUAL TOTAL RETURN *** FOR THE PERIOD ENDED SEPTEMBER 30, 1995
1 Year................................................17.91%
Start of Performance (10/16/90).......................10.43%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Reflects operations of the Fund from the start of performance 10/16/90
through 9/30/95, on a cumulative basis.
** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
*** Total return quoted reflects all applicable contingent deferred sales
charges.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
S&P 500 has been adjusted to reflect reinvestment of dividends on securities
in the index. This index is unmanaged.
The following information was included in the Large Cap's Annual Report for
the fiscal year ended September 30, 1995. (At the date of the Annual Report,
Large Cap was known as The Stock Fund.) The Management Discussion contained
in the Annual Report in its entirety, is as follows:
For the year ended September 30, 1995, The Stock Fund (the "Fund") had a
return of 20.33% for Trust Shares* and 17.91% for Investment Shares* (taking
into account the contingent deferred sales charge), which compares to the
Standard and Poor's 500 Index ** (S&P 500) at 29.81%.
The Stock Fund is managed utilizing a cash flow return on investment framework
coupled with traditional fundamental analysis. In addition, the Fund attempts
to incorporate into the portfolio the dominant equity style, growth or value,
which Virtus believes will show superior performance. Style is incorporated
into The Stock Fund by overweighting or underweighting specific S&P 500 market
sectors.
Year to date through September 30, 1995, The Stock Fund has been managed with
emphasis on growth equities. Accordingly, the consumer staples and technology
sectors have been overweighted while the energy and financial sectors have
been underweighted. The companies in the portfolio are predominantly larger
capitalized and the overall dividend yield has been comparable to that of the
S&P 500.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** The Standard and Poor's 500 Index is a composite of 500 stocks. The index
is unmanaged.
RISK FACTORS
Investment in Large Cap is subject to certain risks that are set forth in
its Prospectus dated November 30, 1995 (revised December 29, 1995 and March
15, 1996) and its Statement of Additional Information, dated November 30, 1995
which are incorporated herein by reference thereto. Briefly, these risks
include, but are not limited to, fluctuation of the value of shares of Large
Cap, uncertainty that a secondary market for options or for positions in
futures contracts will exist at all times, and imperfect correlation between
the prices of financial futures and options on financial futures, on the one
hand, and prices of the securities subject to the options and futures
contracts, on the other hand, which could cause a futures contract and any
related options to react differently than the underlying portfolio securities
to market changes. Investment in American Equity carries risks of a
substantially similar nature, as more fully described in its Prospectus and
its Statement of Additional Information dated August 7, 1995.
INFORMATION ABOUT THE REORGANIZATION
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION
On July 12, 1995, VCM acquired the assets and business of Sheffield
Management Co. ("Sheffield"), which was, until that time, manager of the
Blanchard Funds. Upon succeeding Sheffield as manager, VCM conducted a review
and evaluation of the investment objectives and strategies of the Funds. As a
result of this review, VCM determined that, because of the low asset and high
expense levels of American Equity, American Equity's long-term viability is
questionable, and that both Funds would potentially benefit from economies of
scale, and potentially lower expense ratios, that could (but will not
necessarily) be realized by transferring the assets of American Equity into
Large Cap.
The Trustees of Blanchard Funds and The Virtus Funds, including the
independent Trustees, have unanimously concluded that consummation of the
Reorganization is in the best interests of Blanchard Funds and The Virtus
Funds and the shareholders of American Equity and Large Cap and that the
interests of American Equity and Large Cap shareholders would not be diluted
as a result of effecting the Reorganization and have unanimously approved the
Plan. The Trustees also noted that the shareholders of American Equity would
continue to receive the same quality investment management services from VCM
as shareholders of Large Cap.
DESCRIPTION OF THE PLAN OF REORGANIZATION
The Plan provides that on or about June 21, 1996 (the "Closing Date")
Large Cap will acquire all of the assets of American Equity in exchange for
Investment Shares of Large Cap to be distributed pro rata by American Equity
to its shareholders in complete liquidation and termination of American
Equity. Shareholders of American Equity will become shareholders of Large Cap
as of 4:00 p.m. (Eastern time) on the Closing Date and will begin accruing
dividends on the next day. Shares of Large Cap received by American Equity
shareholders in connection with the acquisition of the assets of American
Equity will not be subject to a sales load. Shareholders of American Equity
will earn their last dividend from American Equity on the Closing Date.
Consummation of the Reorganization is subject to the conditions set forth
in the Plan, including receipt of an opinion in form and substance
satisfactory to Blanchard Funds and The Virtus Funds, as described under the
caption "Federal Income Tax Consequences" below. The Plan may be terminated
and the Reorganization may be abandoned at any time before or after approval
by shareholders of American Equity prior to the Closing Date by Blanchard
Funds or The Virtus Funds if it believes that consummation of the
Reorganization would not be in the best interests of the shareholders of
either American Equity or Large Cap.
VCM is responsible for the payment of all expenses of the Reorganization
incurred by either Fund, whether or not the Reorganization is consummated.
Such expenses include, but are not limited to, legal fees, registration fees,
transfer taxes (if any), the fees of banks and transfer agents and the costs
of preparing, printing, copying and mailing proxy solicitation materials to
shareholders of American Equity and the costs of holding the Special Meeting
of Shareholders.
The foregoing brief summary of the Plan entered into between American
Equity and Large Cap is qualified in its entirety by the terms and provisions
of the Plan, a copy of which is attached hereto as Exhibit A and incorporated
herein by reference.
DESCRIPTION OF INVESTMENT SHARES OF LARGE CAP
Investment Shares of Large Cap to be issued to shareholders of American
Equity under the Plan will be fully paid and non assessable when issued and
transferable without restriction and will have no preemptive or conversion
rights. Large Cap offers two classes of shares. Trust Shares, the other class
offered by Large Cap, are sold to trusts, fiduciaries and institutions at net
asset value at a minimum investment of $10,000. Trust Shares are not sold
pursuant to a Rule 12b-1 Plan. The amount of dividends payable to Trust Shares
will exceed those payable to Investment Shares by the difference between class
expenses and distribution expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares. Reference is
hereby made to the Prospectus of Large Cap dated November 30, 1995 (revised
December 29, 1995 and March 15, 1996) provided herewith for additional
information about Investment Shares of Large Cap.
FEDERAL INCOME TAX CONSEQUENCES
As a condition to the Reorganization, Blanchard Funds and The Virtus
Funds will receive an opinion from Dickstein, Shapiro & Morin, L.L.P., counsel
to Blanchard Funds and The Virtus Funds, to the effect that, on the basis of
the existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), current administrative rules and court decisions, for federal income
tax purposes: (1) the Reorganization as set forth in the Plan will constitute
a tax-free reorganization under section 368(a)(1)(C) of the Code; (2) no gain
or loss will be recognized by Large Cap upon its receipt of American Equity's
assets solely in exchange for Investment Shares of Large Cap; (3) no gain or
loss will be recognized by American Equity upon the transfer of its assets to
Large Cap solely in exchange for Investment Shares of Large Cap or upon the
distribution (whether actual or constructive) of Investment Shares of Large
Cap to American Equity shareholders solely in exchange for their shares of
American Equity; (4) no gain or loss will be recognized by shareholders of
American Equity upon the exchange of their American Equity shares for
Investment Shares of Large Cap; (5) the tax basis of American Equity's assets
acquired by Large Cap will be the same as the tax basis of such assets to
American Equity immediately prior to the Reorganization; (6) the tax basis of
Investment Shares of Large Cap received by each shareholder of American Equity
pursuant to the Plan will be the same as the tax basis of American Equity
shares held by such shareholder immediately prior to the Reorganization; (7)
the holding period of the assets of American Equity in the hands of Large Cap
will include the period during which those assets were held by American
Equity; and (8) the holding period of Investment Shares of Large Cap received
by each shareholder of American Equity will include the period during which
the American Equity shares exchanged therefor were held by such shareholder,
provided the American Equity shares were held as capital assets on the date of
the Reorganization.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS AND OBLIGATIONS
Blanchard Funds and The Virtus Funds are organized as business trusts
pursuant to Declarations of Trust under the laws of the Commonwealth of
Massachusetts. The rights of shareholders of American Equity and Large Cap as
set forth in their respective Declarations of Trust are substantially
identical. Set forth below is a brief summary of the significant rights of
shareholders of American Equity and Large Cap.
Neither Fund is required to hold annual meetings of shareholders.
Shareholder approval is necessary only for certain changes in operations or
the election of trustees under certain circumstances. A special meeting of
shareholders of either Fund for any permissible purpose is required to be
called by the Trustees upon the written request of the holders of at least 10%
of the outstanding shares of the relevant Fund.
Under certain circumstances, shareholders of American Equity, Large Cap,
or any other portfolio of Blanchard Funds or The Virtus Funds may be held
personally liable as partners under Massachusetts law for obligations of
Blanchard Funds or The Virtus Funds, as the case may be. To protect
shareholders of all portfolios of Blanchard Funds and The Virtus Funds,
Blanchard Funds and The Virtus Funds have filed legal documents with the
Commonwealth of Massachusetts that expressly disclaim the liability of
shareholders of portfolios of Blanchard Funds and The Virtus Funds for such
acts or obligations of Blanchard Funds and The Virtus Funds. These documents
require that notice of this disclaimer be given in each agreement, obligation
or instrument that Blanchard Funds and The Virtus Funds or their trustees
enter into or sign on behalf of Blanchard Funds and The Virtus Funds.
In the unlikely event a shareholder of a portfolio of Blanchard Funds or
The Virtus Funds is held personally liable for obligations of Blanchard Funds
or The Virtus Funds, Blanchard Funds and The Virtus Funds are required to use
their property to protect or compensate the shareholder. On request, Blanchard
Funds and The Virtus Funds will defend any claims made and pay any judgment
against a shareholder of a portfolio of Blanchard Funds and The Virtus Funds
for any act or obligation of Blanchard Funds and The Virtus Funds. Therefore,
financial loss resulting from liability as a shareholder of a portfolio of
Blanchard Funds and The Virtus Funds will occur only if Blanchard Funds or The
Virtus Funds cannot meet their obligation to indemnify shareholders and pay
judgments against them from the assets of Blanchard Funds or The Virtus Funds.
CAPITALIZATION
The following table sets forth the capitalization of American Equity and
Large Cap as of March 31, 1996 and on a pro forma basis as of that date:
American Large Pro Forma Pro Forma
Equity Cap Adjustment Combined
Net Assets......... $9,579,375$95,063,101 (43,359)$104,599,117
Shares Outstanding. 815,497 7,093,486 (103,932) 7,805,051
Price Per Share.... $11.75 $13.40 ---- $13.40
INFORMATION ABOUT BLANCHARD FUNDS, THE VIRTUS FUNDS, AMERICAN EQUITY, AND
LARGE CAP
Information about Blanchard Funds, The Virtus Funds, American Equity, and
Large Cap is contained in their respective Prospectuses dated (in the case of
Blanchard Funds and American Equity) August 7, 1995 and (in the case of The
Virtus Funds and Large Cap) November 30, 1995 (revised December 29, 1995 and
March 15, 1996), which are incorporated by reference herein. A copy of the
Prospectus for Large Cap is included herewith. Additional information about
The Virtus Funds and Large Cap is included in the Statement of Additional
Information of Large Cap dated November 30, 1995 (relating to the Prospectus
of Large Cap of the same date), and May 16, 1996 (relating to this
Prospectus/Proxy Statement) and Large Cap's Annual Report to Shareholders
dated September 30, 1995, which are incorporated herein by reference.
Additional information about American Equity is included in the Statement of
Additional Information of American Equity dated August 7, 1995, and May 16,
1996 (relating to this Prospectus/Proxy Statement) and American Equity's
Annual Report dated April 30, 1995, which are incorporated herein by
reference. Copies of the Statements of Additional Information of American
Equity and Large Cap, which have been filed with the Securities and Exchange
Commission (the "SEC"), may be obtained without charge by contacting Blanchard
Group of Funds at 1-800-829-3863 or by writing to Signet Financial Services,
Inc., 41 Madison Avenue, 24th Floor, New York, NY 10010.
Blanchard Funds and The Virtus Funds, on behalf of the Funds, are subject
to the informational requirements of the Securities Act of 1933 (the "1933
Act"), the Securities Exchange Act of 1934 (the "1934 Act") and the Investment
Company Act of 1940 (the "1940 Act") and in accordance therewith file reports
and other information with the SEC. Reports, proxy and information statements
and other information filed by Blanchard Funds and The Virtus Funds, on behalf
of the Funds, can be obtained by calling or writing to Blanchard Funds or The
Virtus Funds and can also be inspected and copied by the public at the public
reference facilities maintained by the SEC in Washington, D.C. located at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
regional offices located at Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, IL 60621 and 13th Floor, Seven World Trade Center,
New York, NY 10048. Copies of such material also may be obtained at prescribed
rates from the Public Reference Branch, Office of Consumer Affairs and
Information Services, SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
This Prospectus/Proxy Statement and the related Statement of Additional
Information do not contain all of the information set forth in the
registration statement that The Virtus Funds have filed with the SEC under the
1933 Act to which reference is hereby made. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference
to the copy of the applicable documents filed with the SEC. The SEC file
number for Blanchard Funds' prospectuses and related Statements of Additional
Information which are incorporated by reference herein is Registration No. 33-
3165. The SEC file number for The Virtus Funds' prospectuses and related
Statements of Additional Information which are incorporated by reference
herein is Registration No. 33-36451.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of American Equity of proxies for use at
the Special Meeting of Shareholders (the "Meeting") to be held on June 21,
1996 and at any adjournment thereof. The proxy confers discretionary authority
on the persons designated therein to vote on other business not currently
contemplated which may properly come before the Meeting. A proxy, if properly
executed, duly returned and not revoked, will be voted in accordance with the
specifications thereon; if no instructions are given, such proxy will be voted
in favor of the Plan. A shareholder may revoke a proxy at any time prior to
use by filing with the Secretary of Blanchard Funds an instrument revoking the
proxy, by submitting a proxy bearing a later date or by attending and voting
at the Meeting.
The cost of the solicitation, including the printing and mailing of proxy
materials, will be borne by VCM. In addition to solicitations through the
mails, proxies may be solicited by officers, employees and agents of Blanchard
Funds and VCM at no additional cost to Blanchard Funds. Such solicitations may
be made by telephone. VCM will reimburse custodians, nominees and fiduciaries
for the reasonable costs incurred by them in connection with forwarding
solicitation materials to the beneficial owners of shares held of record by
such persons.
OUTSTANDING SHARES AND VOTING REQUIREMENTS
The Board of Trustees has fixed the close of business on May 13, 1996 as
the record date for the determination of shareholders entitled to notice of,
and to vote at, the Special Meeting of Shareholders and any adjournment
thereof. As of the record date, there were shares of American
-----------
Equity outstanding. Each American Equity share is entitled to one vote and
fractional shares have proportionate voting rights. On the record date, no
shareholder or other person owned of record, or to the knowledge of VCM,
beneficially owned, 5% or more of American Equity's outstanding shares. On the
record date, the trustees and officers of Blanchard Funds as a group owned
less than 1% of the outstanding shares of American Equity.
The votes of the shareholders of Large Cap are not being solicited, since
their approval or consent is not necessary for approval of the Reorganization.
As of the record date, there were Investment Shares and
---------- ----------
Trust Shares of Large Cap outstanding. On the record date,
, owned of record approximately ( %)of the
- - --------------------- ---------- -----
outstanding Investment Shares of Large Cap, and 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.
Approval of the Plan requires the affirmative vote of the majority of
American Equity's outstanding shares. The votes of shareholders of Large Cap
are not being solicited since their approval is not required in order to
effect the Reorganization.
A majority of the outstanding shares of American Equity, represented in
person or by proxy, will be required to constitute a quorum at the Special
Meeting for the purpose of voting on the proposed Reorganization. For purposes
of determining the presence of a quorum, shares represented by abstentions and
"broker non-votes" will be counted as present, but not as votes cast, at the
Special Meeting. Under the Declaration of Trust, the approval of any action
submitted to shareholders is determined on the basis of a majority of votes
entitled to be cast at the Special Meeting.
If at the time any session of the Special Meeting is called to order, a
quorum is not present in person or by proxy, the persons named as proxies may
vote those proxies which have been received to adjourn the Special Meeting to
a later date. In the event that a quorum is present but sufficient votes in
favor of one or more of the proposals have not been received, the persons
named as proxies may propose one or more adjournments of the Special Meeting
to permit further solicitation of proxies with respect to any such proposal.
All such adjournments will require the affirmative vote of a majority of the
shares present in person or by proxy at the session of the Special Meeting to
be adjourned. The persons named as proxies will vote those proxies which they
are entitled to vote in favor of the proposal, in favor of such an
adjournment, and will vote those proxies required to be voted against the
proposal, against any such adjournment. A vote may be taken on one or more of
the proposals in this proxy statement prior to any such adjournment if
sufficient votes for its approval have been received and it is otherwise
appropriate.
DISSENTER'S RIGHT OF APPRAISAL
Shareholders of American Equity objecting to the Reorganization have no
appraisal or dissenter's rights under the Declaration of Trust or
Massachusetts law. Under the Plan, if approved by American Equity
shareholders, each American Equity shareholder will become the owner of
Investment Shares of Large Cap having a total net asset value equal to the
total net asset value of his or her holdings in American Equity at the Closing
Date.
OTHER MATTERS
Management of American Equity knows of no other matters that may properly
be, or which are likely to be, brought before the meeting. However, if any
other business shall properly come before the meeting, the persons named in
the proxy intend to vote thereon in accordance with their best judgment.
So far as management is presently informed, there is no litigation
pending or threatened against Blanchard Funds or The Virtus Funds.
Whether or not shareholders expect to attend the meeting, all
shareholders are urged to sign, fill in and return the enclosed proxy form
promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated April 12, 1996 (the "Agreement"),
between THE VIRTUS FUNDS, a Massachusetts business trust ("Virtus"), on behalf
of its portfolio, The Style Manager: Large Cap Fund (hereinafter called the
"Acquiring Fund"), and BLANCHARD FUNDS, a Massachusetts business trust
("Blanchard"), on behalf of its portfolio, Blanchard American Equity Fund
(hereinafter called the "Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of the transfer of all of
the assets of the Acquired Fund in exchange solely for Investment Shares of
the Acquiring Fund (the "Acquiring Fund Shares") and the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions hereinafter set forth in
this Agreement.
WHEREAS, Virtus and Blanchard are registered open-end management
investment companies and the Acquired Fund owns securities in which the
Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue their shares of beneficial interest;
WHEREAS, the Board of Trustees, including a majority of the Trustees who
are not "interested persons" (as defined under the Investment Company Act of
1940, as amended (the "1940 Act")), of Virtus has determined that the exchange
of all of the assets of the Acquired Fund for Acquiring Fund Shares is in the
best interests of the Acquiring Fund shareholders and that the interests of
the existing shareholders of the Acquiring Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the Trustees who
are not "interested persons" (as defined under the 1940 Act), of Blanchard has
determined that the exchange of all of the assets of the Acquired Fund for
Acquiring Fund Shares is in the best interests of the Acquired Fund
shareholders and that the interests of the existing shareholders of the
Acquired Fund would not be diluted as a result of this transaction;
NOW THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring
Fund all of the assets of the Acquired Fund, including all securities
and cash other than cash in an amount necessary to pay any unpaid
dividends and distributions as provided in paragraph 1.5, and the
Acquiring Fund agrees in exchange therefor (i) to deliver to the Acquired
Fund the number of Acquiring Fund Shares, including fractional Acquiring
Fund Shares, determined as set forth in paragraph 2.3. Such transaction
shall take place at the closing (the "Closing") on the closing date (the
"Closing Date") provided for in paragraph 3.1. In lieu of delivering
certificates for the Acquiring Fund Shares, the Acquiring Fund shall
credit the Acquiring Fund Shares to the Acquired Fund's account on the
stock record books of the Acquiring Fund and shall deliver a
confirmation thereof to the Acquired Fund.
1.2 The Acquired Fund will discharge all of its liabilities and
obligations prior to the Closing Date.
1.3 Delivery of the assets of the Acquired Fund to be transferred
shall be made on the Closing Date and shall be delivered to Signet Trust
Company, Richmond, Virginia, the Acquiring Fund's custodian (the
"Custodian"), for the account of the Acquiring Fund, together with
proper instructions and all necessary documents to transfer to the
account of the Acquiring Fund, free and clear of all liens, encumbrances,
rights, restrictions and claims. All cash delivered shall be in the form
of currency and immediately available funds payable to the order of the
Custodian for the account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring
Fund any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund hereunder. The
Acquired Fund will transfer to the Acquiring Fund any distributions,
rights or other assets received by the Acquired Fund after the Closing
Date as distributions on or with respect to the securities transferred.
Such assets shall be deemed included in assets transferred to the
Acquiring Fund on the Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and
distribute pro rata to the Acquired Fund's shareholders of record,
determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), the Acquiring Fund Shares received by the
Acquired Fund pursuant to paragraph 1.1. In addition, each shareholder of
record of the Acquired Fund shall have the right to receive any unpaid
dividends or other distributions which were declared before the Valuation
Date with respect to the shares of the Acquired Fund that are held by
the shareholder on the Valuation Date. Such liquidation and distribution
will be accomplished by the transfer of the Acquiring Fund Shares then
credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share record books of the
Acquiring Fund in the names of the Acquired Fund Shareholders and
representing the respective pro rata number of the Acquiring Fund Shares
due such shareholders. All issued and outstanding shares of the Acquired
Fund will simultaneously be canceled on the books of the Acquired Fund.
Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares after the Closing Date as
determined in accordance with Section 2.3. The Acquiring Fund shall not
issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's current prospectus
and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund
shares on the books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the
Closing Date and such later dates, with respect to liquidation and
termination of the Acquired Fund, on which the Acquired Fund is
liquidated and terminated.
2. VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by
the Acquiring Fund hereunder shall be the value of such assets computed
as of the close of the New York Stock Exchange (normally 4:00 p.m.,
Eastern time) on the Closing Date (such time and date being hereinafter
called the "Valuation Date"), using the valuation procedures set forth in
the Acquiring Fund's then-current prospectus or statement of additional
information.
2.2 The net asset value of an Acquiring Fund Share shall be the net
asset value per share computed as of the close of the New York Stock
Exchange (normally 4:00 p.m., Eastern time) on the Valuation Date, using
the valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the
Acquired Fund determined using the same valuation procedures referred to
in paragraph 2.1 by the net asset value of one Acquiring Fund Share
determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be June 21, 1996 or such later date as
the parties may mutually agree. All acts taking place at the Closing Date
shall be deemed to take place simultaneously as of the close of business
on the Closing Date unless otherwise provided. The Closing shall be held
at 4:00 p.m. (Eastern time) at the offices of the Acquiring Fund,
Federated Investors Tower, Pittsburgh, PA 15222-3779, or such other time
and/or place as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading
or the reporting of trading shall be disrupted so that accurate appraisal
of the value of the net assets of the Acquiring Fund or the Acquired Fund
is impracticable, the Closing Date shall be postponed until the first
business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.3 Federated Services Company, as transfer agent for each of the
Acquired Fund and Acquiring Fund, shall deliver at the Closing a
certificate of an authorized officer stating that its records contain the
names and addresses of the Acquired Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and
deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the Acquired Fund, or
provide evidence satisfactory to the Acquired Fund that such Acquiring
Fund Shares have been credited to the Acquired Fund's account on the
books of the Acquiring Fund. At the Closing, each party shall deliver to
the other such bills of sale, checks, assignments, assumption agreements,
share certificates, if any, receipts or other documents as such other
party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Blanchard represents and warrants to Virtus as follows:
(a) Blanchard is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has power to own all of its properties and assets
and to carry out this Agreement.
(b) Blanchard is registered under the 1940 Act, as an open-end,
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) Blanchard is not, and the execution, delivery and
performance of this Agreement will not result, in material violation
of its Declaration of Trust or By-Laws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which
the Acquired Fund is a party or by which it is bound.
(d) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will
result in liability to it after the Closing Date.
(e) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or
to its knowledge threatened against the Acquired Fund or any of its
properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the
conduct of its business. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings, and is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions herein contemplated.
(f) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to
the applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), and the 1940 Act and the rules and
regulations of the Securities and Exchange Commission (the
"Commission") thereunder and do not include any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(g) The Statements of Assets and Liabilities of the Acquired
Fund at April 30, 1994 and 1995 have been audited by Price
Waterhouse LLP, independent accountants, and have been prepared in
accordance with generally accepted accounting principles,
consistently applied, and such statements (copies of which have been
furnished to the Acquiring Fund) fairly reflect the financial
condition of the Acquired Fund as of such dates, and there are no
known contingent liabilities of the Acquired Fund as of such date
not disclosed therein.
(h) The unaudited Statement of Assets and Liabilities of the
Acquired Fund at October 31, 1995 has been prepared in accordance
with generally accepted accounting principles, consistently applied,
and such statement (copies of which have been supplied to the
Acquiring Fund) fairly reflect the financial condition of the
Acquired Fund as of such date.
(i) Since October 31, 1995, there has not been any material
adverse change in the Acquired Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund.
(j) At the Closing Date, all Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by
such date shall have been filed, and all Federal and other taxes
shall have been paid so far as due, or provision shall have been
made for the payment thereof, and to the best of the Acquired Fund's
knowledge no such return is currently under audit and no assessment
has been asserted with respect to such returns.
(k) For each fiscal year of its operation, the Acquired Fund
has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(l) All issued and outstanding shares of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. All of the issued and
outstanding shares of the Acquired Fund will, at the time of the
Closing, be held by the persons and in the amounts set forth in the
records of the transfer agent as provided in paragraph 3.3. The
Acquired Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of the Acquired Fund
shares, nor is there outstanding any security convertible into any
of the Acquired Fund shares.
(m) On the Closing Date, the Acquired Fund will have full
right, power and authority to sell, assign, transfer and deliver the
assets to be transferred by it hereunder.
(n) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of
Blanchard's Trustees and, subject to the approval of the Acquired
Fund Shareholders, this Agreement constitutes the valid and legally
binding obligation of the Acquired Fund enforceable in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar
laws relating to or affecting creditors' rights generally and court
decisions with respect thereto, and to general principles of equity
and the discretion of the court (regardless of whether the
enforceability is considered in a proceeding in equity or at law).
(o) The prospectus/proxy statement of the Acquired Fund (the
"Prospectus/Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.5 (other than information
therein that relates to the Acquiring Fund) will, on the effective
date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not misleading.
(p) Virtus Capital Management, Inc. has agreed to assume the
expense of the reorganization including accountants' fees, legal
fees, registration fees, transfer taxes (if any), the fees of banks
and transfer agents and the costs of preparing, printing, copying
and mailing proxy solicitation materials to the Acquiring Fund's
shareholders and the costs of holding the Special Meeting of
Shareholders.
4.2 Virtus represents and warrants to Blanchard as follows:
(a) Virtus is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts and has the power to carry on its business as it is
now being conducted and to carry out this Agreement.
(b) Virtus is registered under the 1940 Act as an open-end,
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and
the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(d) Virtus is not, and the execution, delivery and performance
of this Agreement will not result, in material violation of its
Declaration of Trust or By-Laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound.
(e) No litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or
to its knowledge threatened against the Acquiring Fund or any of its
properties or assets which, if adversely determined, would
materially and adversely affect its financial condition or the
conduct of its business. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings, and is
not a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions contemplated herein.
(f) The Statements of Assets and Liabilities of the Acquiring
Fund at September 30, 1994 and 1995, have been audited by Deloitte &
Touche LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles,
consistently applied, and such statements (copies of which have been
furnished to the Acquired Fund) fairly reflect the financial
condition of the Acquiring Fund as of such date, and there are no
known contingent liabilities of the Acquiring Fund as of such date
not disclosed therein.
(g) Since September 30, 1995, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary
course of business, or any incurrence by the Acquiring Fund of any
indebtedness, except as otherwise disclosed to and accepted by the
Acquired Fund.
(h) At the Closing Date, all Federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed shall
have been filed, and all Federal and other taxes shown as due on
said returns and reports shall have been paid or provision shall
have been made for the payment thereof.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company.
(j) All issued and outstanding shares of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. The Acquiring Fund does
not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquiring Fund Shares, nor is
there outstanding any security convertible into any Acquiring Fund
Shares.
(k) The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action, if any, on the
part of Virtus' Trustees, and this Agreement constitutes the valid
and legally binding obligation of the Acquiring Fund enforceable in
accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and to general
principles of equity and the discretion of the court (regardless of
whether the enforceability is considered in a proceeding in equity
or at law).
(l) The Prospectus/Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring
Fund) will, on the effective date of the Registration Statement and
on the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(m) The Acquiring Fund has entered into an agreement under
which Virtus Capital Management, Inc. will assume the expenses of
the reorganization including accountants' fees, legal fees,
registration fees, transfer taxes (if any), the fees of banks and
transfer agents and the costs of preparing, printing, copying and
mailing proxy solicitation materials to the Acquired Fund's
shareholders and the costs of holding the Special Meeting of
Shareholders.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 The Acquired Fund will call a meeting of the Acquired Fund
Shareholders to consider and act upon this Agreement and to take all
other action necessary to obtain approval of the transactions
contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated
by this Agreement.
5.4 As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring
Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a
statement of the earnings and profits of the Acquired Fund for Federal
income tax purposes which will be carried over to the Acquiring Fund as a
result of Section 381 of the Code and which will be certified by the
Acquired Fund's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus (the
"Prospectus") which will include the Proxy Statement, referred to in
paragraph 4.1(n), all to be included in a Registration Statement on Form
N-14 of the Acquiring Fund (the "Registration Statement"), in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended, and
the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have
declared a dividend or dividends, with a record date and ex-dividend date
prior to the Valuation Date, which, together with all previous dividends,
shall have the effect of distributing to its shareholders all of its
investment company taxable income, if any, plus the excess of its
interest income, if any, excludable from gross income under Code section
103 (a) over its deductions disallowed under Code sections 265 and 171
(a)(2) for the taxable periods or years ended on or before April 30, 1996
and for the period from said date to and including the Closing Date
(computed without regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized in taxable periods or years ended
on or before April 30, 1996 and in the period from said date to and
including the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the
following conditions:
6.1 All representations and warranties of Blanchard contained in
this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
6.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets, together with a list of the
Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of Blanchard.
6.3 The Acquired Fund shall have delivered to the Acquiring Fund on
the Closing Date a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquiring Fund, to the effect that the
representations and warranties of Blanchard made in this Agreement are
true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Acquiring Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of Virtus contained in this
Agreement shall be true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same
force and effect as if made on and as of the Closing Date.
7.2 The Acquiring Fund shall have delivered to the Acquired Fund on
the Closing Date a certificate executed in its name by its President or
Vice President and its Treasurer or Assistant Treasurer, in form and
substance reasonably satisfactory to the Acquired Fund, to the effect
that the representations and warranties of Virtus made in this Agreement
are true and correct at and as of the Closing Date, except as they may be
affected by the transactions contemplated by this Agreement, and as to
such other matters as the Acquired Fund shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund,
the other party to this Agreement shall, at its option, not be required
to consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall
have been approved by the Boards of Trustees of the Acquired Fund and the
Acquiring Fund and by the requisite vote of the holders of the
outstanding shares of the Acquired Fund in accordance with the provisions
of the Acquired Fund's Declaration of Trust.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection
with, this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including
those of the Commission and of state Blue Sky and securities
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund
to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring Fund
or the Acquired Fund, provided that either party hereto may for itself
waive any of such conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall
have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted
or be pending, threatened or contemplated under the 1933 Act.
8.5 Blanchard and Virtus shall have received an opinion of
Dickstein, Shapiro & Morin, L.L.P. substantially to the effect that for
Federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets in exchange
for the Acquiring Fund Shares and the distribution of the Acquiring
Fund Shares to the Acquired Fund Shareholders in liquidation of the
Acquired Fund will constitute a "reorganization" within the meaning
of Section 368(a)(1)(C) of the Code; (b) No gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of
the Acquired Fund solely in exchange for the Acquiring Fund Shares;
(c) No gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund assets to the Acquiring Fund in
exchange for the Acquiring Fund Shares or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to
Acquired Fund Shareholders in exchange for their shares of the
Acquired Fund; (d) No gain or loss will be recognized by the
Acquired Fund Shareholders upon the exchange of their Acquired Fund
shares for the Acquiring Fund Shares; (e) The tax basis of the
Acquired Fund assets acquired by the Acquiring Fund will be the same
as the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization; (f) The tax basis of the Acquiring Fund
Shares received by each of the Acquired Fund Shareholders pursuant
to the Reorganization will be the same as the tax basis of the
Acquired Fund shares held by such shareholder immediately prior to
the Reorganization; (g) The holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Acquired Fund; and
(h) The holding period of the Acquiring Fund Shares to be received
by each Acquired Fund Shareholder will include the period during
which the Acquired Fund shares exchanged therefor were held by such
shareholder (provided the Acquired Fund shares were held as capital
assets on the date of the Reorganization).
9. TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of
Blanchard or Virtus at any time prior to the Closing Date (and
notwithstanding any vote of the Board of Trustees of Blanchard) if
circumstances should develop that, in the opinion of either of the
parties' Board of Trustees, make proceeding with the Agreement
inadvisable.
9.2 If this Agreement is terminated and the exchange contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this
Agreement shall become void and have no effect, without any liability on
the part of any party hereto or the trustees, officers or shareholders of
Virtus or of Blanchard, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing
conditions may be waived by the Board of Trustees of the Acquiring Fund
or of the Acquired Fund, if, in the judgment of either, such waiver will
not have a material adverse effect on the benefits intended under this
Agreement to the shareholders of the Acquiring Fund or of the Acquired
Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided
for herein shall survive consummation of the transactions contemplated
hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements, and
understandings of every kind and nature between them relating to the
subject matter hereof. Neither party shall be bound by any condition,
definition, warranty or representation, other than as set forth or
provided in this Agreement or as may be set forth in a later writing
signed by the party to be bound thereby.
11.3 This Agreement shall be governed and construed in accordance
with the internal laws of the Commonwealth of Massachusetts, without
giving effect to principles of conflict of laws.
11.4 This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be an
original.
11.5 This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement.
11.6 The Acquired Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquiring Fund and agrees that the obligations assumed by
the Acquiring Fund pursuant to this Agreement shall be limited in any
case to the Acquiring Fund and its assets and the Acquired Fund shall not
seek satisfaction of any such obligation from the shareholders of the
Acquiring Fund, the trustees, officers, employees or agents of the
Acquiring Fund or any of them.
11.7 The Acquiring Fund is hereby expressly put on notice of the
limitation of liability as set forth in Article XI of the Declaration of
Trust of the Acquired Fund and agrees that the obligations assumed by the
Acquired Fund pursuant to this Agreement shall be limited in any case to
the Acquired Fund and its assets and the Acquiring Fund shall not seek
satisfaction of any such obligation from the shareholders of the Acquired
Fund, the trustees, officers, employees or agents of the Acquired Fund or
any of them.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have caused
this Agreement and Plan of Reorganization to be executed and attested on its
behalf by its duly authorized representatives as of the date first above
written.
Acquired Fund:
BLANCHARD FUNDS,
on behalf of its Portfolio,
BLANCHARD AMERICAN
EQUITY FUND
Attest:
/s/ C. Grant Anderson By: /s/ Joseph S. Machi
Assistant Secretary
Name: Joseph S. Machi
Title: Vice President
Acquiring Fund:
THE VIRTUS FUNDS,
on behalf of its Portfolio,
THE STYLE MANAGER:
LARGE CAP FUND
Attest:
/s/ C. Grant Anderson By: /s/ Joseph S. Machi
Assistant Secretary
Name: Joseph S. Machi
Title: Vice President
Cusip
--------------
XXXXXXXXXX (5/96)
Acquisition of the Assets of
BLANCHARD AMERICAN EQUITY FUND,
a Portfolio of BLANCHARD FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number 1-800-829-3863
By and in exchange for Investment Shares of
THE STYLE MANAGER: LARGE CAP FUND,
a Portfolio of THE VIRTUS FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number 1-800-829-3863
Statement of Additional Information
This Statement of Additional Information dated May 16, 1996 is not a
prospectus. A Prospectus/Proxy Statement dated May 16, 1996 related to the
above-referenced matter may be obtained from The Virtus Funds on behalf of its
portfolio, The Style Manager: Large Cap Fund, through The Virtus Funds at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. This
Statement of Additional Information should be read in conjunction with such
Prospectus/Proxy Statement.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated May 16, 1996
TABLE OF CONTENTS
1. Statement of Additional Information of The Style Manager: Large Cap Fund,
dated
November 30, 1995
2. Statement of Additional Information of Blanchard American Equity Fund,
date
FEDERATED SECURITIES
d
CORP.
Augu
st Distributor
7, A subsidiary of Federated
1995 Investors
3. Financial Statements of The Style Manager: Large Cap Fund, dated
September 30, 1995
4. Financial Statements of Blanchard American Equity Fund, dated April 30,
1995
5. Financial Statements of Blanchard American Equity Fund, dated October 31,
1995
6. Pro Forma Financial Statements
The Statement of Additional Information of The Style Manager: Large Cap Fund
dated November 30, 1995 is incorporated herein by reference to Post-Effective
Amendment No 13 to the Virtus Funds' Registration Statement on Form N-1A (File
Nos. 33-36451 and 811-6158) which was filed with the Securities and Exchange
Commission on or about November 29, 1995. A copy may be obtained from The
Virtus Funds at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779. Telephone Number: 1-800-723-9512.
The Statement of Additional Information of Blanchard American Equity Fund
dated August 7, 1995 is incorporated herein by reference to Post-Effective
Amendment No 29 to the Virtus Funds' Registration Statement on Form N-1A (File
Nos. 33-3165 and 811-4579) which was filed with the Securities and Exchange
Commission on or about August 7, 1995. A copy may be obtained from Signet
Financial Services, Inc. at 41 Madison Avenue, 24th Floor, New York, New York,
10010. Telephone Number: 1-800-829-3863.
The audited financial statements of The Style Manager: Large Cap Fund dated
September 30, 1995 are incorporated herein by reference to the Annual Report
dated September 30, 1995, and filed with the Securities and Exchange
Commission on or about December 1, 1995. (File Nos. 33-36451 and 811-6158)
The audited financial statements of Blanchard American Equity Fund dated April
30, 1995 are incorporated herein by reference to the Statement of Additional
Information dated August 7, 1995, and filed with the Securities and Exchange
Commission on or about August 7, 1995. (File Nos. 33-3165 and 811-4579)
The unaudited financial statements of Blanchard American Equity Fund dated
October 31, 1995 are incorporated herein by reference to the Semi Annual
Report dated October 31, 1995, and filed with the Securities and Exchange
Commission on or about January 5, 1996. (File Nos. 33-3165 and 811-4579)
Cusip
--------------
XXXXXXXXXX (5/96)
BLANCHARD AMERICAN EQUITY FUND
THE STYLE MANAGER: LARGE CAP FUND (FORMERLY THE STOCK FUND)
INTRODUCTION TO PROPOSED MERGER
SEPTEMBER 30, 1995 (UNAUDITED)
The accompanying unaudited Pro Forma Combining Portfolio of Investments,
Statement of Assets and Liabilities and Statement of Operations reflect
the accounts of Blanchard American Equity Fund ("American Equity") and
The Style Manager: Large Cap Fund ("Large Cap") at and for the year
ended September 30, 1995, the most recent fiscal year end ("FYE") of
Large Cap.
The accounts reflected on American Equity's Statement of Operations have
been brought up to September 30, 1995. This updating was accomplished by
adding its results of operations from May 1, 1995 through September 30,
1995 to its FYE Statement of Operations, and deducting the results for
the period from May 1, 1994 through September 30, 1994. The Pro Forma
statements give effect to the proposed transfer of assets from American
Equity in exchange for Investment Shares of Large Cap.
The statements have been derived from the books and records utilized in
calculating daily net asset value at September 30, 1995.
BLANCHARD AMERICAN EQUITY FUND
THE STYLE MANAGER: LARGE CAP FUND
(FORMERLY THE STOCK FUND)
PRO FORMA COMBINING PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
<C> <C> <C> <S> <C> <C> <C>
SHARES VALUE
THE STYLE
BLANCHARD MANAGER: BLANCHARD THE STYLE
AMERICAN LARGE CAP AMERICAN MANAGER: PRO
EQUITY FUND PRO FORMA EQUITY LARGE CAP FORMA
FUND COMBINED FUND FUND COMBINED
COMMON STOCKS--94.4%
AEROSPACE--0.2%
2,900 2,900 Boeing Co. $197,925 $197,925
AUTOMOBILE--0.7%
15,400 15,400 General Motors Corp. 721,875 721,875
BANKING--1.7%
29,100 29,100 Republic New York Corp. 1,702,350 1,702,350
BASIC INDUSTRY--0.8%
20,300 20,300 Carlisle Companies, Inc. 844,987 844,987
BASIC MATERIALS--1.6%
35,100 35,100 PPG Industries, Inc. 1,632,150 1,632,150
BROADCAST, RADIO & TV--1.9%
5,300 5,300 British Sky Broadcasting Group,
PLC, ADR 191,462 191,462
600 600 Capital Cities/ABC, Inc. 70,575 70,575
31,000 31,000 Gannett, Inc. 1,693,375 1,693,375
Total 262,037 1,693,375 1,955,412
CHEMICALS--4.7%
21,600 21,600 Du Pont (E.I.) De Nemours & Co. 1,485,000 1,485,000
26,200 26,200 Kerr-McGee Corp. 1,454,100 1,454,100
17,650 17,650 Monsanto Co. 1,778,238 1,778,238
Total 4,717,338 4,717,338
COMMERCIAL SERVICES--0.4%
1,200 1,200 Alco Standard Corp. 101,700 101,700
1,700 1,700 CUC International, Inc. 59,288 59,288
4,800 4,800 Loewen Group, Inc. 198,000 198,000
1,800 1,800 Paychex, Inc. 83,250 83,250
Total 442,238 442,238
COMPUTERS--0.4%
3,400 3,400 3Com Corp. 154,700 154,700
2,350 2,350 (c)Cabletron Systems, Inc. 154,806 154,806
1,500 1,500 Cirrus Logic, Inc. 85,875 85,875
Total 395,381 395,381
COMPUTER SOFTWARE & SERVICES--1.9%
800 800 Automatic Data Processing 54,500 54,500
4,100 4,100 (c)Cisco Systems, Inc. 282,900 282,900
5,250 5,250 Computer Associates International, 221,812 221,812
Inc.
2,200 2,200 Computer Sciences Corp. 141,625 141,625
5,530 5,530 First Data Corp. 342,860 342,860
6,000 6,000 Informix Corp. 195,000 195,000
SHARES VALUE
COMPUTER SOFTWARE & SERVICES--
CONTINUED
3,600 3,600 Microsoft, Inc. $325,800 $325,800
8,600 8,600 Oracle Corp. 330,025 330,025
Total 1,894,522 1,894,522
CONSUMER CYCLICAL--5.5%
16,000 16,000 Capital Cities ABC, Inc. 1,882,000 1,882,000
44,108 44,108 (c)Consolidated Stores Corp. 1,019,997 1,019,997
11,450 11,450 Philip Morris Companies, Inc. 956,075 956,075
55,950 55,950 Sara Lee Corp. 1,664,513 1,664,513
Total 5,522,585 5,522,585
CONSUMER SERVICES--0.1%
1,600 1,600 McDonald's Corp. 61,200 61,200
CONSUMER STAPLES--4.5%
39,000 39,000 Abbott Laboratories 1,662,375 1,662,375
13,458 13,458 General Electric Co. 857,948 857,948
37,127 37,127 Merck & Co., Inc. 2,079,112 2,079,112
Total 4,599,435 4,599,435
ELECTRICAL EQUIPMENT -1.9%
22,900 22,900 Hewlett Packard Co. 1,909,288 1,909,288
ELECTRONIC TECHNOLOGY--0.9%
26,400 26,400 (c)SCI Systems, Inc. 910,800 910,800
ELECTRONIC & ELECTRICAL--2.5%
4,800 4,800 Analog Devices 166,200 166,200
2,800 2,800 Hewlett Packard Co. 233,450 233,450
6,800 6,800 Intel Corp. 408,850 408,850
2,500 2,500 LSI Logic Corp. 144,375 144,375
937 937 Molex, Inc. 31,390 31,390
6,300 6,300 Motorola, Inc. 481,162 481,162
7,500 7,500 Nokia Corp., ADR 523,125 523,125
4,600 4,600 Texas Instruments, Inc. 367,425 367,425
3,200 3,200 Xilinx, Inc. 154,000 154,000
Total 2,509,977 2,509,977
ENTERTAINMENT--0.1%
1,900 1,900 Circus Circus Enterprise, Inc. 53,200 53,200
FINANCE--7.9%
34,450 34,450 Ahmanson (H.F.) and Co. 874,169 874,169
27,000 27,000 BankAmerica Corp. 1,616,625 1,616,625
32,400 32,400 Bear Stearns Companies, Inc. 696,600 696,600
7,000 7,000 CCB Financial Corp. 357,875 357,875
29,700 29,700 Chemical Banking Corp. 1,807,987 1,807,987
1,300 1,300 Federal Home Loan Mortgage Corp. 89,863 89,863
500 500 Federal National Mortgage 51,750 51,750
Association
3,400 3,400 Finova Group, Inc. 151,300 151,300
2,100 2,100 First Financial Management Corp. 205,013 205,013
3,400 3,400 First USA, Inc. 184,450 184,450
20,600 20,600 Fleet Financial Group, Inc. 777,650 777,650
5,500 5,500 MBNA Corp. 228,938 228,938
13,650 13,650 Nationsbank Corp. 917,963 917,963
Total 911,314 7,048,869 7,960,183
SHARES VALUE
FOOD & BEVERAGE--5.5%
49,800 49,800 Albertson's, Inc. $1,699,425 $1,699,425
31,050 31,050 (c)Canandaigua Wine, Inc. 1,509,806 1,509,806
109,200 109,200 Hudson Foods, Inc. 1,515,150 1,515,150
16,550 16,550 PepsiCo, Inc. 844,050 844,050
Total 5,568,431 5,568,431
HEALTH SERVICES--1.9%
56,500 56,500 Manor Care, Inc. 1,921,000 1,921,000
HOUSEHOLD PRODUCTS--2.7%
28,150 28,150 Clorox Co. 2,009,206 2,009,206
22,550 22,550 Lancaster Colony Corp. 766,700 766,700
Total 2,775,906 2,775,906
INDUSTRIAL SERVICES--2.6%
35,100 35,100 Baldor Electric Co. 881,887 881,887
1,600 1,600 Browning-Ferris Industries 48,600 48,600
45,700 45,700 Dover Corp. 1,748,025 1,748,025
Total 48,600 2,629,912 2,678,512
INSURANCE--1.2%
1,650 1,650 American International Group, Inc. 140,250 140,250
5,400 5,400 Loews Corp. 785,700 785,700
3,200 3,200 MGIC Investment Corp. 183,200 183,200
1,300 1,300 PMI Group, Inc. 61,588 61,588
Total 385,038 785,700 1,170,738
LODGING--0.2%
3,100 3,100 HFS, Inc. 162,363 162,363
MANUFACTURING--16.1%
25,500 25,500 Alcan Aluminium Ltd. 825,563 825,563
3,500 3,500 American Standard Companies 103,250 103,250
2,100 11,400 13,500 (c)Applied Materials, Inc. 214,725 1,165,650 1,380,375
47,800 47,800 Baxter International, Inc. 1,965,775 1,965,775
22,000 22,000 Emerson Electric Co. 1,573,000 1,573,000
29,743 29,743 Hershey Foods Corp. 1,914,706 1,914,706
24,600 24,600 Intel Corp. 1,479,075 1,479,075
40,400 40,400 Kennametal, Inc. 1,464,500 1,464,500
39,750 39,750 Parker Hannifin Corp. 1,510,500 1,510,500
32,350 32,350 Premark International, Inc. 1,645,806 1,645,806
34,700 34,700 (c)Sun Microsystems, Inc. 2,186,100 2,186,100
2,400 2,400 Tyco International Ltd. 151,200 151,200
Total 469,175 15,730,675 16,199,850
MEDICAL SERVICES--0.1%
2,400 2,400 United Healthcare Corp. 117,300 117,300
MEDICAL SUPPLIES--0.4%
5,800 5,800 Medtronic, Inc. 311,750 311,750
1,100 1,100 St. Jude Medical, Inc. 69,575 69,575
Total 381,325 381,325
OIL--6.7%
21,450 21,450 Amoco Corp. 1,375,481 1,375,481
37,650 37,650 Chevron Corp. 1,830,731 1,830,731
23,400 23,400 Exxon Corp. 1,690,650 1,690,650
18,950 18,950 Mobil Corp. 1,887,894 1,887,894
Total 6,784,756 6,784,756
SHARES VALUE
PHARMACEUTICAL--0.3%
2,800 2,800 Cardinal Health, Inc. $155,050 $155,050
1,600 1,600 Pfizer, Inc. 85,400 85,400
1,300 1,300 Scherer (R.P.) Corp. 56,387 56,387
Total 296,837 296,837
PRINTING & PUBLISHING--0.9%
25,500 25,500 Chesapeake Corp. 921,188 921,188
PROCESS INDUSTRIES--0.1%
1,900 1,900 Air Products & Chemicals, Inc. 99,038 99,038
RETAIL TRADE--4.0%
5,200 5,200 Autozone, Inc. 132,600 132,600
1,367 1,367 Home Depot, Inc. 54,509 54,509
7,650 7,650 Office Depot, Inc. 230,456 230,456
44,600 44,600 Sears Roebuck & Co. 1,644,625 1,644,625
64,800 64,800 Walgreen Co. 1,814,400 1,814,400
7,900 7,900 Wal-Mart Stores, Inc. 196,512 196,512
Total 614,077 3,459,025 4,073,102
TECHNOLOGY SERVICES--2.8%
62,800 62,800 DQE 1,664,200 1,664,200
39,356 39,356 Sun Guard Data Systems 1,151,163 1,151,163
Total 2,815,363 2,815,363
TELECOMMUNICATIONS--6.5%
2,900 2,900 Andrew Corp. 177,263 177,263
27,800 27,800 Bell Atlantic Corp. 1,706,225 1,706,225
34,000 34,000 Ericsson LM 436,078 436,078
1,600 1,600 Glenayre Technologies, Inc. 115,200 115,200
41,350 41,350 GTE Corp. 1,622,987 1,622,987
14,850 14,850 Harris Corp. 814,894 814,894
63,150 63,150 MCI Communications Corp. 1,645,847 1,645,847
800 800 U.S. Robotics Corp., Inc. 68,200 68,200
Total 796,741 5,789,953 6,586,694
TRANSPORTATION--1.0%
900 900 Fritz Companies, Inc. 66,318 66,318
21,700 21,700 Illinois Central Corp. 849,013 849,013
Total 66,318 849,013 915,331
UTILITIES--3.7%
24,500 24,500 BellSouth Corp. 1,791,562 1,791,562
31,100 31,100 Eastern Utilities Association 754,175 754,175
6,200 6,200 Enron Corp. 207,700 207,700
5,200 5,200 Frontier Corp. 138,450 138,450
29,850 29,850 Illinova Corp. 809,681 809,681
Total 346,150 3,355,418 3,701,568
TOTAL COMMON STOCKS (IDENTIFIED
COST
$82,971,985) 10,510,756 84,689,392 95,200,148
PRINCIPAL AMOUNT VALUE
COMMERCIAL PAPER--0.3%
General Electric Capital Corp.,
$300,000 VRDN, 10/2/1995 (at amortized
$300,000 cost) $300,000 $300,000
(A)REPURCHASE AGREEMENT--4.1%
Nikko Securities Co.
International, Inc.,
6.45%, dated 9/29/1995, due
10/2/1995
4,116,513 4,116,513 (at amortized cost) 4,116,513 4,116,513
TOTAL INVESTMENTS (IDENTIFIED COST
$87,388,498)(B) $10,810,756 $88,805,905 $99,616,661
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market
prices at the date of the portfolio.
(b) The cost of investments for federal tax purposes amounts to $87,388,498.
The net unrealized appreciation
of investments amounts to $12,228,163 at September 30, 1995.
(c) Non-income producing security.
Note: The categories of investments are shown as a percentage of net assets
($100,796,267) at September 30, 1995.
The following abbreviations are used in this portfolio:
ADR - American Depositary Receipt
PLC - Public Limited Company
VRDN - Variable Rate Demand Note
(See Notes to Pro Forma Financial Statements)
BLANCHARD AMERICAN EQUITY FUND
THE STYLE MANAGER: LARGE CAP FUND (FORMERLY THE STOCK FUND)
PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
BLANCHARD THE STYLE
AMERICAN MANAGER: LARGE PRO FORMA PRO FORMA
EQUITY FUND CAP FUND ADJUSTMENT COMBINED
<S> <C> <C> <C> <C>
ASSETS:
Investments in
securities, at value $ 10,810,756 $ 88,805,905 $ 99,616,661
Cash 290,016 10,220 300,236
Receivables for:
Investments sold ----- 3,599,760 3,599,760
Shares of beneficial 186,383 286,298 472,681
interest sold
Income 6,710 145,241 151,951
Deferred Expenses 55,380 ----- (55,380)(a) ----
Total assets 11,349,245 92,847,424 (55,380) 104,141,289
LIABILITIES:
Payables for:
Shares of beneficial
interest
repurchased ----- 82,163 82,163
Investments purchased 299,860 2,805,536 3,105,396
Accrued expenses and
other liabilities 51,031 106,432 157,463
Total liabilities 350,891 2,994,131 3,345,022
TOTAL NET ASSETS 10,998,354 $ 89,853,293 (55,380) $ 100,796,267
NET ASSETS CONSIST OF:
Paid in capital $ 8,490,171 $ 73,597,501 $ 82,087,672
Net unrealized
appreciation of
investments 3,160,902 9,067,261 12,228,163
Accumulated net
realized gain (loss)
on investments (532,461) 7,080,902 6,548,441
Undistributed net (120,258) 107,629 (55,380) (68,009)
investment income
TOTAL NET ASSETS $ 10,998,354 $ 89,853,293 (55,380) $ 100,796,267
Trust Shares N/A $ 45,344,738 $ 45,344,738
Investment Shares 10,998,354 $ 44,508,555 (55,380) $ 55,451,529
SHARES OUTSTANDING
Trust Shares N/A 3,310,403 3,310,403
Investment Shares 927,493 3,249,476 (128,569) (b) 4,048,400
TOTAL SHARES 927,493 6,559,879 (128,569) 7,358,803
OUTSTANDING
NET ASSET VALUE AND
OFFERING
PRICE PER SHARE:
Trust Shares N/A $ 13.70 $ 13.70
Investment Shares $ 11.86 $ 13.70 $ 13.70
REDEMPTION PROCEEDS PER
SHARE:
INVESTMENT SHARES* N/A $ 13.43** $ 13.43**
Investments, at 7,649,854 $ 79,738,644 $ 87,388,498
identified cost
</TABLE>
(a) Adjustment to write off deferred organizational expense of Blanchard
American Equity Fund.
(b) Adjustment to reflect share balance as a result of the combination.
* See "Redeeming Shares" in the Prospectus.
** Computation of redemption proceeds per share: 98/100 of net asset value.
(See Notes to Pro Forma Financial Statements)
BLANCHARD AMERICAN EQUITY FUND
THE STYLE MANAGER: LARGE CAP FUND (FORMERLY THE STOCK FUND)
PRO FORMA COMBINING STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION
BLANCHARD THE STYLE
AMERICAN MANAGER: PRO FORMA PRO FORMA
EQUITY LARGE ADJUSTMENT COMBINED
FUND CAP FUND S
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ $ 258,149 $ $ 269,613
11,464
Dividends 87,370 1,442,419 1,529,789
Total investment income 98,834 1,700,568 1,799,402
EXPENSES:
Investment advisory fee 114,622 678,512 (39,622)(A) 753,512
Directors'/Trustees' fees 17,690 2,214 (16,550)(B) 3,354
Administration personnel and services 7,234 97,229 2,766(C) 107,229
fee
Custodian fees 11,669 47,305 (6,669)(D) 52,305
Transfer and dividend disbursing agent 53,847 93,183 (46,847)(E) 100,183
fees and expenses
Share registration costs 25,349 22,401 (23,849)(F) 23,901
Auditing fees 5,691 17,738 (5,691)(G) 17,738
Legal fees 28,468 3,409 (27,968)(H) 3,909
Printing and postage 25,198 18,638 (23,198)(I) 20,638
Portfolio accounting fees 58,317 61,337 (55,317)(J) 64,337
Insurance premiums 500 6,430 500(K) 7,430
Distribution services fee 52,101 80,046 (43,101)(L) 89,046
Amortization of deferred organizational 31,209 ---- (31,209)(M) ----
expenses
Miscellaneous 6,223 8,756 (5,223)(N) 9,756
Total expenses 438,118 1,137,198 (321,978) 1,253,338
Deduct - Waivers--
Investment advisory fee (91,183) (189,983) 71,047(A) (210,119)
Reimbursement of other expenses (6,000) ---- 6,000(O) ----
Net expenses 340,935 947,215 (244,931) 1,043,219
Net investment income (242,101) 753,353 244,931 756,183
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments 544,036 7,288,596 7,832,632
Net change in unrealized appreciation 1,966,887 8,056,089 10,022,976
of investments
Net realized and unrealized gain on 2,510,923 15,344,685 17,855,608
investments
Change in net assets resulting 2,268,822 $ 16,098,038 $ 244,931 $ 18,611,791
from operations
</TABLE>
(See Legend to Pro Forma Adjustments on following page)
(See Notes to Pro Forma Financial Statements)
BLANCHARD AMERICAN EQUITY FUND
THE STYLE MANAGER: LARGE CAP FUND
(FORMERLY THE STOCK FUND)
PRO FORMA COMBINING STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED SEPTEMBER 30, 1995 (UNAUDITED)
(A) Virtus Capital Management, Inc., The Virtus Funds' investment adviser
(the "Adviser"), receives for its services an annual investment advisory
fee equal to 0.75% of The Style Manager: Large Cap Fund's average daily
net assets. The Adviser may voluntarily choose to waive a portion of its
fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion. The voluntary waiver is adjusted to reflect
the historical waiver percentage of The Style Manager: Large Cap Fund.
(B) Adjustment to reflect the elimination of the Trustees fees for Blanchard
American Equity Fund.
(C) Federated Administrative Services ("FAS") provides The Style Manager:
Large Cap Fund with certain administrative personnel and services. The
FAS fee is based on the level of average aggregate net assets of The
Virtus Funds for the period.
(D) Adjustment to reflect custodian costs for The Style Manager: Large Cap
Fund only. This adjustment reflects the decrease in fees due to the
increased assets of the combined Fund. Custody fees would be charged at
the rate of 0.05% of the first $10 million of average aggregate daily net
assets of the Fund; and 0.025% of the remaining assets. In addition, a
$10,000 minimum fee per year is charged as well as a $20 fee per
transaction.
(E) Federated Shareholder Services Company serves as transfer and dividend
disbursing agent for The Style Manager: Large Cap Fund. The fee is based
on the size, type, and number of accounts and transactions made by
shareholders.
(F) Adjustment to reflect state registration costs for The Style Manager:
Large Cap Fund only.
(G) Adjustment to reflect the audit fee for one portfolio only.
(H) Pro Forma combined legal fees are adjusted to include legal retainers,
plus out-of-pocket charges, for one portfolio only. This adjustment
reflects the elimination of the legal costs associated with Blanchard
American Equity Fund.
(I) Printing and postage expenses are adjusted to reflect estimated savings
to be realized by combining two portfolios into a single portfolio.
(J) Federated Services Company maintains The Style Manager: Large Cap Fund's
accounting records. The fee is based on the level of the Fund's average
net assets for the period, plus out-of-pocket expenses. This adjustment
reflects additional asset based charges associated with The Style
Manager: Large Cap Fund and the elimination of the minimum charge
associated with maintaining Blanchard American Equity Fund's accounting
records.
(K) Insurance premiums are allocated from a group coverage. The allocation
is comprised of a base amount, plus a portion based on average net
assets. The pro forma combined insurance premium equals the fixed base
premium for a single portfolio, plus its allowable portion which is based
on its percentage of the combined fund complex assets.
(L) Under the terms of a Distribution Plan, The Style Manager: Large Cap Fund
will reimburse Federated Securities Corp., the principal distributor,
from the net assets of the Fund to finance activities intended to result
in the sale of the Fund's Investment Shares. The Plan provides that the
Fund may incur distribution expenses up to 0.25% of the average daily net
assets of the Fund's Investment Shares. This adjustment reflects the
lower distribution fee charged by The Style Manager: Large Cap Fund as
compared to Blanchard American Equity Fund.
(M) Adjustment to write off deferred organizational expenses of Blanchard
American Equity Fund.
(N) Pro forma combined miscellaneous expenses are adjusted to reflect
estimated savings to be realized by combining two portfolios into a
single portfolio.
(O) The expenses accrued on The Style Manager: Large Cap Fund are sufficient
to cover all expenses. Therefore no reimbursement is necessary.
BLANCHARD AMERICAN EQUITY FUND
THE STYLE MANAGER: LARGE CAP FUND (FORMERLY THE STOCK FUND)
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF COMBINATION
The unaudited Pro Forma Combining Portfolio of Investments, Statement of
Assets and Liabilities and Statement of Operations reflect the accounts
of Blanchard American Equity Fund ("American Equity") and The Style
Manager: Large Cap Fund ("Large Cap") at and for the year ended September
30, 1995. These statements have been derived from the books and records
utilized in calculating daily net asset value at September 30, 1995.
The Pro Forma Combining Portfolio of Investments, Statement of Assets and
Liabilities and Statement of Operations should be read in conjunction
with the historical financial statements of the Funds which have been
incorporated by reference in the Statement of Additional Information. The
Funds follow generally accepted accounting principles ("GAAP") applicable
to management investment companies which are disclosed in their
historical financial statements.
The Pro Forma statements give effect to the proposed transfer of assets
of American Equity in exchange for Investment Shares of Large Cap. Under
GAAP, Large Cap will be the surviving entity for accounting purposes with
its historical cost of investment securities and results of operations
being carried forward.
The Pro Forma financial statements have been adjusted to reflect the
anticipated advisory and administration fees for the surviving entity.
Certain other operating costs have also been adjusted to reflect
anticipated expenses of the combined entity. Other costs which may change
as a result of the reorganization are currently undeterminable.
For the year ended September 30, 1995, American Equity and Large Cap paid
investment advisory fees computed at an annual rate of 1.10% and 0.75%,
respectively, of average daily net assets.
2. SHARES OF BENEFICIAL INTEREST
The Pro Forma net asset value per share assumes that a total of 4,048,400
Investment Shares of Large Cap are outstanding including 927,493 shares
from American Equity.
PART C - OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to officers and trustees 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 from liabilities 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, and
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 (6)
1.2 Copy of Amendment No. 1, dated September 20, 1990, to the Declaration
of Trust (2)
1.3 Copy of Amendment No. 2, dated November 14, 1991, to the Declaration of
Trust (3)
1.4 Conformed Copy of Amendment No. 3, dated October 1, 1992, to the
Declaration of Trust (4)
1.5 Conformed Copy of Amendment No. 4, dated October 1, 1992, to the
Declaration of Trust (6)
1.6 Conformed Copy of Amendment No. 5, dated May 27, 1994, to the
Declaration of Trust (6)
1.7 Conformed Copy of Amendment No. 6, dated July 28, 1994, to the
Declaration of Trust (6)
1.8 Conformed Copy of Amendment No. 7, dated December 25, 1993, to the
Declaration of Trust (6)
1.9 Conformed Copy of Amendment No. 8, dated December 1, 1994, to the
Declaration of Trust (6)
2. Copy of Bylaws of the Registrant (1)
3. Not Applicable
4. Agreement and Plan of Reorganization is included as Appendix A to the
Combined Proxy Statement and Prospectus of this Registration Statement
*
5. Not Applicable
6.1 Conformed Copy of Investment Advisory Contract of the Registrant and
Exhibits A-G thereto (6)
6.2 Form of Exhibit H to the present Investment Advisory Contract of the
Registrant to add The Strategic Stock Fund to the existing Investment
Advisory Contract (8)
7.1 Conformed Copy of Distributor's Contract of the Registrant and Exhibits
A-D thereto (6)
7.2 Form of Exhibit E to the Distributor's Contract of the Registrant (8)
8. Not Applicable
9.1 Conformed Copy of Custodian Agreement of the Registrant (5)
9.2 Conformed Copy of Transfer Agency and Service Agreement (Fund
Accounting and Shareholder Recordkeeping) of the Registrant (5)
10.1 Conformed Copy of the Distribution Plan of the Registrant and Amendment
No. 1 and Exhibit A thereto, and Amendment No. 2 thereto (6)
10.2 Copy of Rule 12b-1 Agreement of the Registrant and Amendment Nos. 1 and
2 thereto (6)
11. Opinion regarding legality of shares being issued *
12. Opinion regarding tax consequences of Reorganization (to be filed by
Amendment)
13.1 Conformed Copy of Administrative Services Agreement of the Registrant
(6)
13.2 Conformed Copy of previous Administrative Services Agreement of the
Registrant (6)
14.1 Conformed Copy of Consent of Deloitte & Touche LLP, Independent
Auditors *
14.2 Conformed Copy of Consent of Price Waterhouse LLP, Independent Public
Accountants *
15. Not Applicable
16. Conformed Copy of Power of Attorney (7)
17.1 Copy of Declaration under Rule 24f-2 *
17.2 Form of Proxy *
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed August 24, 1990. (File No. 33-
36451 and 811-6158).
(2) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 3 and Amendment No. 3 to its Registration Statement on
Form N-1A filed October 9, 1990. (File Nos. 33-36451 and 811-6158).
(3) Response is incorporated by reference to the Registrant's Post-Effective
Amendment No. 3 and Amendment No. 6 to its Registration Statement on Form
N-1A filed on December 2, 1991. (File Nos. 33-36451 and 811-6158).
(4) Response is incorporated by reference to the Registrant's Post-Effective
Amendment No. 5 and Amendment No. 8 to its Registration Statement on Form
N-1A filed November 24, 1993. (File Nos. 33-36451 and 811-6158)
(5) Response in incorporated by reference to Registrant's Post-Effective
Amendment No. 7 and Amendment No. 10 to its Registration Statement on
Form N-1A filed June 20, 1994. (File Nos. 33-36451 and 811-6158)
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 and Amendment No. 13 to its Registration Statement on
Form N-1A filed December 21, 1994. (File Nos. 33-36451 and 811-6158)
(7) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 and Amendment No. 15 to its Registration Statement on
Form N-1A filed on May 26, 1995. (File Nos. 33-36451 and 811-6158).
(8) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 and Amendment No. 16 to its Registration Statement on
Form N-1A filed November 29, 1995. (File Nos. 33-36451 and 811-6158)
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public reofferring
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 reofferring 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 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 that the opinion of Dickstein, Shapiro
& Morin, L.L.P. with respect to the federal income tax consequences of the
reorganization will be filed by Post-Effective Amendment to this Registration
Statement.
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, thereto duly authorized, all in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 16th day of April, 1996.
THE VIRTUS FUNDS
BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
April 16, 1996
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
NAME TITLE DATE
By:/s/ C. Grant Anderson
C. Grant Anderson Attorney In Fact April 16, 1996
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Edward C. Gonzales* President, Treasurer
(Principal Financial and
Accounting Officer) and
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.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 17.2
BLANCHARD AMERICAN EQUITY FUND
SPECIAL MEETING OF SHAREHOLDERS JUNE 21, 1996
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned shareholders of
Blanchard American Equity Fund hereby appoint C. Grant Anderson, Patricia F.
Conner, Patricia L. Godlewski, Suzanne W. Land, and Gia C. Albanowski or any
of them, true and lawful attorneys, with the power of substitution of each, to
vote all shares of Blanchard American Equity Fund which the undersigned is
entitled to vote, at the Special Meeting of Shareholders to be held on June
21, 1996, at Federated Investors Tower, Pittsburgh, Pennsylvania, at 2:00 p.m.
(Eastern Time), and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The attorneys
named will vote the shares represented by this proxy in accordance with the
choices made on this ballot. IF NO CHOICE IS INDICATED AS TO ANY ITEM, THIS
PROXY WILL BE VOTED AFFIRMATIVELY ON THAT MATTER.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
BLANCHARD AMERICAN KEEP THIS PORTION FOR YOUR RECORDS
EQUITY FUND DETACH AND RETURN THIS PORTION ONLY
VOTE ON PROPOSAL
FOR AGAINST ABSTAIN1. TO APPROVE OR DISAPPROVE AN AGREEMENT
AND PLAN OF REORGANIZATION PROVIDING FOR
- - --- --- ---
THE TRANSFER OF THE ASSETS OF BLANCHARD AMERICAN
EQUITY FUND TO THE INVESTMENT SHARES OF THE STYLE
MANAGER: LARGE CAP FUND OF THE VIRTUS FUNDS.
Please sign EXACTLY as your name(s) appear above. When signing as attorney,
executor, administrator, guardian, trustee, custodian, etc., please give full
title as such. If a corporation or partnership, please sign the full name by
an authorized officer or partner. If stock is owned jointly, all parties
should sign.
Exhibit 11
FEDERATED ADMINISTRATIVE SERVICES
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
April 12, 1996
The Trustees of
The Virtus Funds
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
The Virtus Funds, a Massachusetts business trust ("Trust"), proposes to
issue shares of beneficial interest representing interests in a separate
portfolio of securities known as The Style Manager: Large Cap Fund (such
shares of beneficial interest being herein referred to as "Shares") in
connection with the acquisition of the assets of Blanchard American Equity
Fund, pursuant to the Agreement and Plan of Reorganization dated April 12,
1996, ("Agreement"), filed as a exhibit to the registration statement of the
Trust 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 Trust, 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 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.
Based upon the foregoing, it is my opinion that:
1. The Trust is duly organized and validly existing pursuant to the
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
Agreement and the Declaration of Trust upon receipt of consideration
sufficient to comply with the provisions of Article III, Section 3, of the
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 hereby consent to the filing of 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,
FEDERATED ADMINISTRATIVE
SERVICES
By: /s/ C. Grant Anderson
Exhibit 14.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
The Virtus Funds on Form N-14 of our report dated November 17, 1995, appearing
in the Annual Report on Form N-1A of The Style Manager: Large Cap Fund
(formerly The Stock Fund) for the year ended September 30, 1995 and to the
reference to us under the heading "Independent Auditors" in the
Prospectus/Proxy Statement, which is a part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
Exhibit 14.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and the
use in the Statement of Additional Information of the Blanchard American
Equity Fund (one of the portfolios of the Blanchard Group of Funds, hereafter
referred to as the "Fund") dated August 7, 1995, which Prospectus and
Statement of Additional Information are incorporated by reference in the
Combined Proxy Statement/Prospectus and related Statement of Additional
Information constituting parts of this registration statement on Form N-14
(the "Registration Statement"), of our report dated June 20, 1995, relating to
the financial statements and financial highlights appearing in the April 30,
1995 Annual Report to Shareholders of the Fund, which is also incorporated by
reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" and "Independent Accountants"
in the Prospectus dated August 7, 1995.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
Exhibit 17.1
Rule 24f-2 Notice
THE VIRTUS FUNDS
(formerly, The Medalist Funds)
(Fund Name)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1933 Act No. 33-36451
(i) fiscal period for which notice is filed September 30, 1995
(ii) The number or amount of securities of the
same class or series, if any, which had
been registered under the Securities Act
of 1933, other than pursuant to Rule 24f-2
but which remained unsold at October 1, 1994,
the beginning of the Registrant's fiscal
period -0-
(iii) The number or amount of securities,
if
any, registered during the fiscal period
of this notice other than pursuant to
Rule 24f-2 -0- -0-
(iv) The number or amount of securities
sold during the fiscal period of this
notice 4,061,678,027
(v) The number or amount of securities sold
during the fiscal period of this notice
in reliance upon registration pursuant
to Rule 24f-2 (see attached Computation
of Fee) 4,061,678,027
WITNESS the due execution hereof this 16th day of November, 1995.
By: /s/ C. Grant Anderson
C. Grant Anderson
Assistant Secretary
COMPUTATION OF FEE
1.Actual aggregate sale price of Registrant's
securities sold pursuant to Rule 24f-2 during
the fiscal period for which the 24f-2 notice
is filed (see Section v) ................... $4,230,495,871
2.Reduced by the difference between:
(a) actual aggregate redemption price
of such securities redeemed by the
issuer during the fiscal period for
which the 24f-2 notice is filed $4,173,701,519
(b) actual aggregate redemption price
of such redeemed securities
previously applied by the issuer
pursuant to Section 24e(2)(a) for
the fiscal period for which the
24f-2 notice is filed -0- $4,173,701,519
Total amount upon which the fee calculation specified
in Section 6(b) of the Securities Act of 1933 is
based......................................... $56,794,352
FEE SUBMITTED (1/29 of 1% of Total amount) . $11,359
FEDERATED ADMINISTRATIVE
SERVICES
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
412-288-1900
November 16, 1995
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, 1995, pursuant
to the Trust's registration statement filed with the Securities and Exchange
Commission ("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, 1995, 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
