BLANCHARD GROUP OF FUNDS
BLANCHARD GLOBAL GROWTH FUND
SUPPLEMENT TO PROSPECTUS DATED AUGUST 7, 1995.
1. Please delete all disclosure under the sub-section entitled "Blanchard
Global Growth Fund" beginning on page 10 and replace it with the following:
"The Fund seeks to provide long-term capital growth. Current income is
incidental to the Fund's objective. The Fund attempts to achieve its
objective through the implementation of the strategy outlined below.
The Fund's investment polices reflect VCM's opinion that the world
economic system is characterized by various cycles affecting, among
other things, business activities, inflation, interest rates,
currencies, and price levels and that by shifting its assets among the
six investment sectors, the Fund can take advantage of investment
opportunities created by such cycles. VCM believes that within each
cycle, certain investment sectors offer more investment opportunities
than others. Naturally, there can be no guarantee that VCM can predict
business cycles with 100% accuracy or that the objective of the Fund
can by achieved.
When Fund management believes that market conditions warrant a
temporary defensive position, it may invest up to 100% of the Fund's
assets in cash, including foreign currencies, short-term instruments
such as commercial paper, bank certificates of deposit, bankers'
acceptances, or repurchase agreements for such securities and
securities of the U.S. Government and its agencies and
instrumentalities.
VCM has identified the following six strategic investment sectors
which have generally responded, both positively and negatively, to
almost all major economic trends. A percentage of the Fund's assets
need not be allocated into all sectors. The following illustrations
indicate, in VCM's opinion, in what economic circumstances the six
investment sectors might approach the Fund's maximum permitted
allocation levels. The Fund may have zero percent allocated to any
sector when deemed appropriate by Mellon Capital Management
Corporation ("MCM"), the Fund's Portfolio Adviser.
PERCENTAGE OF TOTAL
ASSETS OF THE FUND IN
EACH SECTOR
SECTORS MAXIMUM
U.S. Equities Sector 65%
Foreign Equities Sector 65%
U.S. Fixed Income Sector 65%
Foreign Fixed Income Sector 65%
Precious Metals Securities Sector25%
Emerging Markets Sector 15%
MCM will actively allocate Fund assets, through investments in the
U.S. Equities, Foreign Equities, U.S. Fixed Income and Foreign Fixed
Income Sectors, across the major debt and equity markets of the world,
overweighting sectors that MCM believes are undervalued. MCM may also
allocate Fund assets to the Precious Metals Sector and the Emerging
Markets Sector in an attempt to further diversify portfolio holdings,
protect against increases in inflation and enhance overall returns.
MCM will monitor currency exposure, and such exposure will be actively
hedged as currencies become overvalued.
It is possible that an overlapping of investments among the six
investment sectors may occur. For example investments in U.S. equity
securities are not limited only to the U. S. Equities sector as the
Precious Metals Securities may invest in common stocks of U.S.
precious metals-related companies as well. Therefore, if the U.S.
Equities sector was at its maximum allocation of 65% of the Fund's
assets, and the Precious Metals Securities had investments in U.S.
common stocks of precious metals companies, the total assets of the
Fund invested in U.S. equity securities could exceed 65%.
U.S. EQUITIES, FOREIGN EQUITIES, U.S. FIXED INCOME AND FOREIGN FIXED
INCOME SECTORS. Within the four U.S. and foreign equities and income
sectors, MCM will use a highly disciplined process to determine the
percentage of the Fund's assets which will be from time-to-time
allocated among each U.S. and foreign country's markets, based upon
MCM's assessment of risk and the degree by which each such market is
currently undervalued. (The foreign countries which will be included
within the Foreign Equities and the Foreign Fixed Income Sectors are
the following: Australia, Austria, Belgium, Canada, Denmark, France,
Finland, Germany, Hong Kong, Ireland, Italy, Japan, the Netherlands,
New Zealand, Norway, Singapore/Malaysia, South Africa, Spain, Sweden,
Switzerland and the United Kingdom. This list may be modified from
time-to-time to conform to the list of countries included in the
Morgan Stanley Capital International World Index [the "Morgan Stanley
Index"]).
In estimating the relative attractiveness of each asset class, MCM
will take into account various factors. Common stocks will be
evaluated using a "dividend-discount" model. This model provides an
expected return of the relevant common stock index of each market in
which the Fund may invest (i.e., the Standard & Poor's 500 Composite
Stock Price Index* [the "S&P 500 Index"] for the U.S. Equities Sector,
and the separate country indexes comprising the Morgan Stanley Index
for the Foreign Equities Sector) based upon earnings for companies
whose stocks are included in such Indexes. The expected bond return is
that expected to be produced by long-term bonds with credit risks
similar to bonds rated Aa by Moody's Investors Service, Inc. or AA by
Standard & Poor's Corporation.
Once expected return and volatility (risk) estimates are developed for
each asset class within the four U.S. and foreign equity and fixed
income sectors, MCM will attempt to identify apparent imbalances in
the relative prices of the securities of each market, using a computer
model.
* "Standard & Poor's(R)," "S&P(R)," and "S&P 500(R)" and "Standard &
Poor's 500" are trademarks of McGraw Hill, Inc. and have been licensed
for use by MCM.
The Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's ("S&P"). S&P makes no representation or warranty, express or
implied, to the owners of the Fund or any member of the public
regarding the advisability of investing in securities generally or in
the Fund particularly or the ability of the S&P 500 Index to track
general stock market performance. S&P's only relationship to MCM is
the licensing of certain trademarks and trade names of S&P and of the
S&P 500 Index which is determined, composed and calculated by S&P
without regard to MCM or the Fund. S&P has no obligation to take the
needs of MCM or the owners of the Fund into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not
responsible for and has not participated in the determination of the
prices and amount of the Fund or the timing of the issuance or sale of
the Fund or in the determination or calculation of the equation by
which the Fund is to be converted into cash. S&P has no obligation or
liability in connection with the administration, marketing or trading
of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY
FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MCM,
OWNERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY
OF SUCH DAMAGES.
To implement its allocation strategy, MCM will invest in the following
securities: (i) in the U.S. Equity Sector, MCM will invest in a
diversified portfolio of common stocks which seeks to track the
performance of the S&P 500 Index; (ii) in the U.S. Fixed Income
Sector, MCM will invest in a diversified portfolio of U.S. fixed
income obligations which seeks to track the performance of the Lehman
Long-Term Treasury Index; (iii) in the Foreign Equities Sector, MCM
will invest in a diversified portfolio of common stocks which seeks to
track the performance of individual country segments of the Morgan
Stanley Index; (iv) and in the Foreign Fixed Income Sector, MCM will
invest in a portfolio of Foreign Government fixed income obligations
which seeks to track the individual country segments of the Salomon
Brothers World Government (5+) Bond Index.
PRECIOUS METALS SECURITIES SECTOR. Precious metals securities include
securities of metal mining producer and non-producer companies that
are engaged in (i) the exploration, refining and development of gold,
silver, palladium, and platinum; (ii) the manufacture or production of
products incorporating such precious metals, (for example, jewelry,
photographic supplies and medical equipment and supplies); or (iii)
the marketing of precious metals or precious metals products. Such
marketing companies may be in the industries named above or in
separate industries that fall into the category of wholesale-retail
trade. A company will be considered to be "engaged in" such activity
if it derives more than 50% of its revenues from or devotes more than
50% of its assets to such activity.
In particular, MCM may invest in (1) publicly-traded common stocks,
(2) securities convertible into common stocks, such as convertible
preferred stock, convertible debentures, convertible rights and
warrants (to the extent permissible by the Fund's investment
policies), and (3) debt securities of such companies, all of which are
believed by MCM to have the potential for appreciation.
EMERGING MARKETS SECTOR. The Fund may invest in emerging country
equity securities, which would include common stock, preferred stock
(including convertible preferred stock), bonds, notes and debentures
convertible into common or preferred stock, stock purchase warrants
and rights, equity interests in trusts and partnerships and American,
Global or other types of Depository Receipts of companies; (i) the
principal securities market for which is an emerging country; (ii)
that alone or on a consolidated basis derive 50% or more of their
annual revenue from either goods produced, sales made or services
performed in emerging countries; or (iii) that are organized under the
laws of, and with a principal office in , an emerging country.
Determinations as to eligibility will be made by MCM based upon
publicly available information and inquiries made to the companies.
An emerging country is any country that the International Bank for
Reconstruction and Development (more commonly known as the World Bank)
has determined to have a low or middle income economy. There are
currently over 130 countries which are considered to be emerging
countries, approximately 40 of which currently have stock markets.
These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most
nations located in Western Europe. Currently investing in many
emerging countries is not feasible or may involve unacceptable
political risks. The Emerging Markets Sector will focus its
investments on those emerging market countries in which MCM believes
the economies are developing strongly and in which the markets are
becoming more sophisticated.
In addition to the normal determinants of interest rates, inflation,
economic growth and currency movements, country selections and
weightings in emerging growth markets are determined by developmental
trends, credit ratings, the political environment, market liquidity,
progress towards privatization and the degree of foreign investor
interest. In addition to emphasizing industries which are crucial to
the development trend in a country and assessing financial reporting
standards and the availability of public information, stock selection
is based on a fundamental analysis of specific criteria including (i)
quality of management; (ii) stock fundamentals (strong earnings growth
and profit potential, positive cash flow, sound balance sheet,
geographical sales and profit spread, and good marketability in
shares); and (iii) price and timing.
Depository Receipts may not necessarily be denominated in the same
currency as the underlying securities into which they may be
converted. In addition , the issuers of the stock of unsponsored
Depository Receipts are not obligated to disclose material information
in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depository
Receipts.
OPTIONS AND FUTURES. With respect to all sectors, MCM may utilize
stock and bond futures and options, currency hedging, and other
investment techniques described under "Certain Investment Strategies
and Policies - Options and Futures " and in the Fund's Statement of
Additional Information, subject to the limitations set forth therein."
2. Please delete all disclosure under the sub-section entitled "Blanchard
Global Growth Fund" beginning on page 28 and replace it with the following:
"Mellon Capital Management Corporation is the Portfolio Adviser to the
Fund. MCM was established in 1983, and provides investment advisory
services to investment companies, pension plans, foundations,
endowments and other institutions located both in the U.S. and abroad.
As of September 30, 1995, MCM had over $40 billion of assets under
management. MCM, a wholly owned indirect subsidiary of Mellon Bank
Corporation, is located at 595 Market Street, Suite 3000, San
Francisco, California 94105.
The Fund's portfolio manager is Charles J. Jacklin. Mr. Jacklin has
performed this duty since May 28, 1996. Mr. Jacklin manages and
develops global asset allocation strategies, and develops and
implements MCM's value-added investment strategies. Prior to joining
MCM, he served on the finance faculties of the Stanford University and
University of Chicago Schools of Business. Mr. Jacklin has also served
as Senior Staff Economist for Financial Markets and Banking for the
President's Council of Economic Advisers, and had primary
responsibility for all matters related to financial markets and
banking. He has published a number of articles on finance and
investment in academic research journals, and is an associate editor
for the Review of Quantitative Finance and Accounting. Mr. Jacklin
holds a Ph.D. in Finance from Stanford University.
The Sub-Advisory Contract. The New Sub-Advisory Contract provides that
MCM shall pay all expenses incurred by it and its staff in connection
with the performance of its services under the New Sub-Advisory
Contract, including the payment of salaries of all officers and
employees who are employed by it. VCM will pay MCM an annual fee not
to exceed .375% of the Fund's average daily net assets up to $100
million; .35% on net assets between $100 million and $150 million; and
.325% on net assets in excess of $150 million. (The Trust pays VCM an
annual fee not to exceed 1.00% of the Fund's average daily net assets
up to $150 million; .875% on net assets between $150 million and $300
million; and .75% on net assets in excess of $300 million.)
The New Sub-Advisory Contract provides that MCM shall not be liable
for any error of judgment or mistake of law or for any loss suffered
by VCM or the Trust in connection with the matters to which the New
Sub-Advisory Contract relates, provided that nothing in the New Sub-
Advisory Contract shall be deemed to protect or purport to protect MCM
against any liability to VCM or the Trust to which MCM would otherwise
be subject by reason of willful malfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason
of MCM's reckless disregard of its obligation and duties under the New
Sub-Advisory Contract."
3. Please delete the first paragraph under the sub-section entitled
"Blanchard Worldwide Emerging Markets Fund" on page 32 and replace it with
the following:
"VCM has retained Martin Currie Inc., a member of the Martin Currie
Group to provide portfolio advisory services for the Equity Securities
sector of the Fund. Based in Edinburgh, the Martin Currie Group is one
of Scotland's leading international equity houses and has experience
and expertise in emerging markets. The Martin Currie Group currently
manages over $5.5 billion in global assets and has been involved in
managing investment portfolios for over 100 years. Martin Currie Inc.,
incorporated in 1978, is an investment adviser registered with the SEC
and currently manages over $1.5 billion in global assets.
Currently, the Martin Currie Group operates its investment business
through four companies: in North America, through Martin Currie Inc.,
and in the U.K., Martin Currie Investment Management, Martin Currie
Unit Trusts and Martin Currie Private Clients. All are wholly-owned
subsidiaries of Martin Currie Limited.
An asset allocation committee headed by Mr. James Fairweather, a
director and senior portfolio manager with Martin Currie, with more
than 10 years of experience as a portfolio manager, coordinates the
company's investments in emerging markets. The committee determines
asset allocation and country weighting for emerging markets and Mr.
"Fairweather, together with Mr. Tristan Clube (also a director and
senior portfolio manager), select stocks in conjunction with members
of regional investment teams."
4. Please delete the first paragraph under the sub-section entitled
"Blanchard Precious Metals Fund, Inc." on page 32 and replace it with the
following:
"VCM has retained Cavelti Capital Management, Ltd., of Toronto, Canada
to provide portfolio advisory services to the Fund. Cavelti Capital
Management, Ltd. is a Canadian money management firm specializing in
bullion and precious metals mining shares and is a registered
investment adviser with the SEC. Peter C. Cavelti, the company's
President, has extensive investment experience in the field of
precious metals and the firm's clients include government agencies,
financial institutions, mining companies and Canadian mutual funds."
5. Please add "BGGF" to the list of Funds included in parentheses following
each of the sub-sections entitled "U.S. Government Securities" and
"Investment Grade Fixed Income Securities," under the section entitled
"Addition Investment Information" which begins on page 44; and in each of
the sub-sections entitled "Options on Portfolio Securities," "Futures
Contracts and Options on Futures Contracts," "Options on Foreign
Currencies," and "Forward Foreign Currency Exchange Contracts" under the
section entitled "Certain Investment Strategies and Policies - Options and
Futures Transactions" which begins on page 48.
May 29, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
PITTSBURGH, PA 15222-3779
Cusip 093265106
G01687-06 (5/96)
BLANCHARD GROUP OF FUNDS
BLANCHARD GLOBAL GROWTH FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 7, 1995.
1. Please delete the fourth paragraph under the sub-section entitled
"Purchase and Sale of Options and Futures on Stock Indices" on page 4 and
replace it with the following:
" If Mellon Capital Management Corporation ("MCM"), the FUND's
portfolio adviser, expects general stock market prices to rise, they
might purchase a call option on a stock index or a futures contract
on that index as a hedge against an increase in prices on particular
equity securities they want ultimately to buy. If in fact the stock
index does rise, the price of the particular equity securities
intended to be bought may also increase, but that increase would be
offset in part by the increase in the value of the FUND's index option
or futures contract resulting from the increase in the index. If, on
the other hand, MCM expects general stock market prices to decline,
the value of some or all of the equity securities in the FUND's
portfolio may also be expected to decline, but that decrease would be
offset in part by the increase in the value of the FUND's position in
put options acquired as a hedge against a potential decline."
2. Please delete the fifth paragraph under the sub-section entitled
"Forward Foreign Currency Exchange Contracts" beginning on page 8 and
replace it with the following:
"When MCM believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, it may enter
into a forward contract to sell an amount of foreign currency
approximating the value of some or all of the FUND's portfolio
securities denominated in such foreign currency. The forecasting of
short-term currency market movement is extremely difficult and the
successful execution of a short-term hedging strategy is highly
uncertain. Under normal circumstances consideration of the prospect
for currency parities will be incorporated into the longer term
investment decisions made with regard to overall strategies. However,
the Trustees of the FUND believe that it is important to have the
flexibility to enter into such forward contracts when MCM determines
that the best interests of the FUND will be served."
3. Please delete Items 8 and 9 under the section entitled "Investment
Restrictions" beginning on page 14 and replace them with the following:
"8. The FUND may not purchase or sell commodity contracts, except for
stock, bond, currency and other financial futures contracts. (see
"Investment Objective and Policies - Forward Foreign Currency Exchange
Contracts").
9. The FUND may not buy or sell any securities or other property on
margin, except for such short term credits as are necessary for the
clearance of transactions, and except for margin payments in
connection with the use of stock, bond, currency and other financial
futures contracts; and the FUND may not engage in short sales."
4. Please delete the first five paragraphs under the section entitled
"Portfolio Transactions" on page 16 and replace them with the following:
"All orders for the purchase or sale of portfolio securities are
placed on behalf of the FUND by MCM subject to the supervision of VCM
and the Trustees and pursuant to authority contained in the Investment
Advisory Contract and the Sub-Advisory Agreement between the FUND and
VCM and VCM and MCM. In selecting such brokers or dealers, MCM will
consider various relevant factors, including, but not limited to the
best net price available, the size and type of the transaction, the
nature and character of the markets for the security to be purchased
or sold, the execution efficiency, settlement capability, financial
condition of the broker-dealer firm, the broker-dealer's execution
services rendered on a continuing basis and the reasonableness of any
commissions.
In addition to meeting the primary requirements of execution and
price, brokers or dealers may be selected who provide research
services, or statistical material or other services to the FUND or to
MCM for the FUND's use. Those services may include economic studies,
industry studies, security analysis or reports, sales literature and
statistical services furnished either directly to the FUND or to MCM.
Such allocation shall be in such amounts as VCM shall determine and
MCM shall report regularly to VCM who will in turn report to the
Trustees on the allocation of brokerage for such services. The
Trustees must determine that such services are reasonable and
necessary to the FUND's normal operations.
The receipt of research from broker-dealers may be useful to MCM in
rendering investment management services to their other clients, and
conversely, such information provided by brokers or dealers who have
executed orders on behalf of MCMs' other clients may be useful to MCM
in carrying out their obligations to the FUND.
MCM is authorized, subject to its best efforts to obtain best price
and execution, to place portfolio transactions with brokerage firms
that have provided assistance in the distribution of shares of the
FUND and are authorized to use Federated Securities Corp. (the
"Distributor"), and MCM or its affiliated broker-dealers on an agency
basis, to effect a substantial amount of the portfolio transactions
which are executed on the New York or American Stock Exchanges,
Regional Exchanges and Foreign Exchanges where relevant, or which are
traded in the Over-the-Counter market. Any profits resulting from
brokerage commissions earned by the Distributor as a result of FUND
transactions will accrue to the benefit of the shareholders of the
Distributor who are shareholders of VCM. The Investment Advisory
Contract does not provide for any reduction in the advisory fee as a
result of profits resulting from brokerage commissions effected
through the Distributor. In addition, the Sub-Advisory Agreement
between VCM and MCM does not provide for any reduction in the advisory
fees as a result of profits resulting from brokerage commissions
effected through MCM or its affiliated brokerage firms.
The Trustees have adopted certain procedures incorporating the
standards of Rule 17e-1 issued under the Investment Company Act of
1940 (the "1940 Act") which requires that the commissions paid the
Distributor or to MCM or its affiliated broker-dealers must be
"reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a
comparable period of time." The Rule and the procedures also contain
review requirements and require VCM to furnish reports to the
Trustees and to maintain records in connection with such reviews."
5. Please delete the first two paragraphs and the accompanying table under
the section entitled "Sector Management Services" beginning on page 30 and
replace them with the following:
"Pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement")
between VCM and MCM, VCM has delegated to MCM the authority and
responsibility to make and execute decisions for the FUND within the
framework of the FUND's investment policies, subject to review by VCM
and the Board of Trustees of the FUND. Under the terms of the Sub-
Advisory Agreement, MCM has discretion to purchase and sell
securities, except as limited by the FUND's investment objective,
policies and restrictions.
The Sub-Advisory Agreement provides for the payment to MCM, by VCM,
an annual fee based on the FUND's daily net assets. For a detailed
description of the Sub-Advisory Agreement see "Portfolio Advisory
Services" in the FUND's prospectus."
6. Please delete the first two paragraphs under the section entitled
"Global Allocation Strategist" on page 32 and replace them with the
following:
"Under the terms of the New Sub-Advisory Contract, subject to the
supervision of VCM and the Trust's Board, MCM reviews, evaluates and
allocates the percentages in which the total assets of the FUND will
be divided among it investment sectors.
For the fiscal years ended April 30, 1995, 1994, and 1993, the prior
manager paid the FUND's prior Global Allocation Strategist $78,701,
$75,352, and $83,114, respectively."
May 29, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
PITTSBURGH, PA 15222-3779
Cusip 093265106
