BLANCHARD PRECIOUS METALS FUND INC, 485APOS, 1995-06-08

BLANCHARD PRECIOUS METALS FUND INC
485APOS, 1995-06-08

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As filed with the Securities and Exchange Commission on June 8, 1995

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

--------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 9 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]

--------------

Amendment No. 12

BLANCHARD PRECIOUS METALS FUND, INC.
(Exact Name of Registrant as Specified in Charter)

41 Madison Avenue
New York, N.Y. 10010
(Address of Principal Executive Office) (Zip Code)

Registrant's Telephone Number, including Area Code: (212) 779-7979

Michael I. Freedman
President
Blanchard Precious Metals Fund, Inc.
41 Madison Avenue
New York, N.Y. 10010
(Name and Address of Agent for Service)

Copy to:
Carl Frischling, Esq. and
Susan Penry-Williams, Esq.
Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel
919 Third Avenue
New York, N.Y. 10022

It is proposed that this filing will become effective:

[ ] Immediately upon filing [ ] on (date) pursuant to
pursuant to paragraph (b) paragraph (b)

[X] 60 days after filing [ ] on (date) pursuant to
pursuant to paragraph (a)(1) paragraph (a)(1)

[ ] 75 days after filing [ ] on (date) pursuant to
pursuant to paragraph (a)(2) of paragraph (a)(2) rule 485.

Registrant has registered an indefinite number of Shares pursuant to Rule
24f-2. Pursuant to paragraph (b)(1) of Rule 24f-2, Registrant filed on
June 29, 1994 a Rule 24f-2 Notice for the fiscal year ended April 30, 1994.
________________________________________________________________________________

<PAGE>

BLANCHARD PRECIOUS METALS FUND, INC.
Registration Statement on Form N-1A
CROSS REFERENCE SHEET

Form N-1A
Item Number
Prospectus
Part A Prospectus Caption Page Number
- ------ ------------------ -----------
1. Cover Page Cover
2. Highlights; Fee Table 2; 5
3. Financial Highlights 6
4. The Fund's Investment Objectives
and Policies; Other Information 7;30
5.(a)(b) The Manager and the Management
Agreement; Portfolio Advisory Services 16; 17
(c) Distribution Agreement and Marketing Plan 26
(d) Custodian, Transfer Agent and
Dividend Disbursing Agent 30
(e) The Manager and the Management Agreement 16
(f) Brokerage Allocation 26
5A. Management's Discussion of Fund Performance N/A
6.(a) Other Information 30
(b-d) *
(e) Cover Page; Shareholder Inquiries Cover; 31
(f)(g) Dividends, Capital Gains
Distributions and Tax Matters 28
7.(a)(b) Purchase of Shares 18
(c) Shareholder Services 20
(d) Purchase of Shares 18
(e-f) Distribution Agreement and Marketing Plan
8. Redemption of Shares 21
9. *

Statement of
Additional
Statement of Additional Information
Part B Information Caption Page Number
- ------ ------------------- ------------
10. Cover Page Cover
11. Table of Contents Cover
12. *
13.(a) Investment Objective and Policies 2
(b-c) Investment Restrictions 17
(d) *

<PAGE>

Statement of
Additional
Form N-1A Statement of Additional Information
Item Number Information Caption Page Number
- ----------- ----------------------- ------------

14. The Fund's Directors and Executive
Officers 38
15. *
16.(a)(b) Manager and Management Agreement 36
(c) *
(d) *
(e) Manager and Management Agreement 36
(f) Distribution Agreement and Marketing
Plan 41
(g) *
(h) See Prospectus
(i) *
17.(a) Portfolio Transactions 22
(b) *
(c) Portfolio Transactions 22
(d) *
(e) *
18. See Prospectus
19.(a) See Prospectus
(b) Computation of Net Asset Value 19
(c) *
20. Dividends, Capital Gains
Distributions and Tax Matters 24
21. Distribution Agreement and Marketing
Plan 41
22. Performance Information 21
23. Financial Statements A-1

Part C Information required to be included
in Part C is set forth under the
appropriate Item, so numbered, in
Part C to this Registration Statement.

- -----------------
* Not Applicable

<PAGE>

- --------------------------------------------------------------------------------
LOGO

THE BLANCHARD
GROUP OF FUNDS

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779

Blanchard Funds (the "Trust"), which currently consists of ten investment
portfolios, and Blanchard Precious Metals Fund, Inc., which currently consists
of one investment portfolio (each portfolio individually referred to as a "Fund"
and collectively as the "Funds") are open-end management investment companies,
which offer separate investment alternatives for different investor needs.
Virtus Capital Management, Inc. is the Funds' overall investment adviser. There
is no guarantee that the Funds will achieve their investment objectives.

Highlights ................................................................. 3
Fee Table .................................................................. 5
Financial Highlights ...................................................... 6
The Funds' Investment Objectives and Policies ............................. 10
Management of the Funds ................................................... 26
Portfolio Advisory Services ............................................... 28
How to Invest ............................................................. 32
Investor Services ......................................................... 34
How to Redeem ............................................................. 36
Distribution of Shares of the Funds ....................................... 37
Tax Matters ............................................................... 39
Performance Information ................................................... 41
Additional Information About the Funds .................................... 43
Additional Investment Information ......................................... 44
Certain Investment Strategies and Policies ................................ 48
Risk Factors and Special Considerations ................................... 56
Appendix A-Description of Bond Ratings .................................... A-1

---------------

Please read this Prospectus carefully and retain it for future reference. A
copy of each Fund's Statement of Additional Information, dated July , 1995, has
been filed with the Securities and Exchange Commission (the "SEC") and is
incorporated herein by reference. The Statements of Additional Information are
available upon request to the Funds at 1-800-723-9512.

Investment products offered through Signet Financial Services, Inc. are not
deposits, obligations of, or guaranteed by Signet Bank, and are not insured by
FDIC or any Federal agency. In addition, they involve risk, including possible
loss of principal invested. Member NASD.

---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURI-
TIES 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 REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated July , 1995

- --------------------------------------------------------------------------------

<PAGE>

The Funds' investment objectives and policies are summarized below.
See "The Funds' Investment Objectives and Policies" for
a more complete discussion.

Blanchard Global Growth Fund ("BGGF") seeks to provide long-term capital
growth. As worldwide investment and economic trends change rapidly, the flexible
investment strategy of the Fund permits it to follow a global allocation
strategy that contemplates shifts among strategic market sectors. These include
the following: U.S. Equities; Foreign Fixed Income; Foreign Equities; Precious
Metals Securities and Bullion; U.S. Fixed Income; and Emerging Markets.

Blanchard American Equity Fund ("BAEF") seeks to provide long-term growth of
capital. The Fund invests primarily in equity securities, consisting of common
stocks and securities having the characteristics of common stocks, such as
convertible preferred stocks, convertible debt securities and warrants. In
pursuing its investment objective of long-term growth of capital, the Fund will
invest at least 65% and under normal circumstances expects to invest at least
80% of its assets in equity securities of companies of various sizes 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-Stock Index.

Blanchard Precious Metals Fund, Inc. ("BPMF") seeks to provide long-term
capital appreciation and preservation of purchasing power through investments in
physical precious metals, such as gold, silver, platinum and palladium, and in
securities of companies involved with precious metals. A secondary objective of
the Fund is to reduce the risk of loss of capital and decrease the volatility
often associated with precious metals investments by changing the allocation of
its assets from precious metals securities to physical precious metals and/or
investing in short-term instruments and government securities during periods
when the Fund's portfolio manager believes the precious metals markets may
experience declines.

Blanchard Short-Term Global Income Fund ("BSTGIF") seeks to produce high
current income with minimum risk of principal and relative stability of net
asset value. The Fund seeks to achieve its objective by investing primarily in a
portfolio of debt obligations rated in the four highest rating categories of
nationally recognized rating services, denominated in the U.S. dollar and
various foreign currencies, which have average remaining maturities not
exceeding three years.

Accordingly, it will seek investment opportunities in foreign, as well as
domestic, securities markets. The Fund is designed for investors who seek higher
yield than a money market fund and less fluctuation in net asset value than a
longer-term bond fund.

Blanchard Short-Term Bond Fund ("BSTBF") seeks to provide a high level of
current income consistent with preservation of capital by investing primarily in
a broad range of short-term debt securities. The Fund will normally maintain a
dollar-weighted average portfolio maturity of three years or less. The Fund
intends to invest primarily in investment-grade securities.

Blanchard Flexible Tax-Free Bond Fund ("BFTFBF") seeks to provide a high
level of current interest income exempt from Federal income tax consistent with
the preservation of principal. The Fund invests primarily in bonds of varying
maturities issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies, authorities and instrumentalities, the interest from which, in the
opinion of bond counsel for the issuer, is exempt from Federal income tax. The
Fund has no restrictions on the maturities of bonds that it may purchase.
Rather, it retains the flexibility to lengthen or shorten the overall maturity
of its portfolio based on its portfolio adviser's outlook on interest rate
movements, as it attempts to reduce any price volatility. The Fund invests
primarily in high quality, investment-grade bonds.

2
<PAGE>

Blanchard 100% Treasury Money Market Fund ("BTMMF") seeks to offer the
highest level of current income as is consistent with the preservation of
capital and maintenance of liquidity, by investing exclusively in short-term,
direct obligations of the U.S. Treasury. The Fund will not invest in repurchase
agreements, certificates of deposit of commercial banks or savings and loan
institutions, nor will it invest in obligations issued or guaranteed by U.S.
Government agencies or instrumentalities, or in corporate debt securities.
Portfolio securities of the Fund are considered by many to be among the safest
investments available. However, shares of this Fund are neither insured nor
guaranteed by the U.S. Government. There is no assurance that the Fund will be
able to maintain a stable net asset value of $1.00 per share.

Blanchard Flexible Income Fund ("BFIF") seeks to provide high current income
while seeking opportunities for capital appreciation. The Fund is designed for
fixed-income investors with a long-term investment horizon. The Fund invests in
different fixed income securities markets: U.S. Government Securities,
Investment Grade Fixed Income Securities, High Yield Securities and
International Fixed Income Securities. In seeking its objective of high current
income, the Fund also takes into consideration preservation of capital.

Blanchard Worldwide Emerging Markets Fund ("BWEMF") seeks to provide capital
appreciation and current income by investing primarily in equity and fixed
income securities in emerging markets around the world. The Fund is designed for
investors who seek an easy way to capitalize on opportunities in developing
countries. While investments in emerging markets offer potential for substantial
gains, they also entail risks that may not be present in developed markets.
These markets are growing rapidly, but many are still young and relatively
small. Therefore, investors can expect to see volatility and reduced liquidity
at times, which is why investments in emerging markets are best suited for
investors with a longer investment horizon.

HIGHLIGHTS

Fund Management

Virtus Capital Management, Inc. ("VCM") provides the overall investment
advisory services necessary for the Funds' operations. As of April 30, 1995, VCM
had more than $ billion in assets under management. VCM selected,
continually monitors and evaluates the Funds' Portfolio Advisers. The Portfolio
Advisers are responsible for the selection of each Fund's portfolio investments.

VCM receives monthly compensation from each Fund based on the amount of
assets under management. VCM, not the Fund, pays the fees of each Portfolio
Adviser pursuant to a sub-advisory agreement. See "Management of the Trust" and
"Portfolio Advisory Services".

How to Invest and Redeem

You may purchase shares directly from Federated Securities Corp. (the
"Distributor") who is each Fund's principal distributor. You may also purchase
shares from broker-dealers who have entered into a dealer agreement with the
Distributor.

The minimum amount required to open an account in any of the Funds (other
than BTMMF) is $3,000 ($2,000 for qualified retirement plans, such as IRAs and
Keoghs). The minimum initial investment requirement for BTMMF is only $1,000.
The minimum subsequent investment requirement for all Funds is $200. There is no
fee for additional investments made to existing accounts, nor is there a fee
charged when redeeming shares, sometimes called a back-end load. Each Fund
(other than BTMMF) has also adopted a Distribution and Marketing Plan which
permits the reimbursement of distribution expenses by the Fund on an annual
basis. See "How to Invest" and "Distribution of Shares of the Funds".

3
<PAGE>

You may redeem your shares on any business day at the next determined net
asset value calculated after the Transfer Agent has received the redemption
request in proper form. See "How to Redeem".

Each Fund reserves the right to close to further new investments if such
Fund's Portfolio Adviser believes that the Fund's size may hamper their
effectiveness in managing the portfolio. In this event, no new investments will
be accepted until further review. Shareholders who have established accounts
prior to the closure date will be allowed to add to their accounts.

Investor Services and Privileges

The Funds offer certain investor services and privileges that may be suited
to your particular investment needs, including free Telephone Exchange
Privileges, Investment and Withdrawal Plans and various Retirement Plans. See
"Investor Services".

Dividends

The growth funds intend to declare dividends at least annually from net
investment income. The income funds intend to declare dividends monthly or
quarterly from net investment income. Dividends are automatically reinvested in
additional Fund shares at net asset value on the payment date and are reflected
in the statements we send you, unless you elect to receive them in cash, in
which case we will send you a quarterly check. See "Tax Matters".

Special Considerations

BTMMF is a diversified fund, and the other Funds are non-diversified funds.
Non-diversified Funds may be invested in a limited number of issues; thus, there
may be greater risk in an investment in these Funds other than in diversified
investment companies. Moreover, there are potential risks associated with
certain of the Funds' investments and additional risk considerations that may be
associated with certain techniques and strategies employed by the Funds,
including those relating to investments in foreign securities and futures and
options transactions. Such risks may not be incurred by other investment
companies which have similar investment objectives, but which do not use these
techniques and strategies.

Blanchard Funds is organized as a Massachusetts business trust and the
Blanchard Precious Metals Funds, Inc. is organized as a Maryland corporation. In
each state, nomenclature varies. For convenience, in this Prospectus, you will
be referred to as "shareholders," your Fund shares as "shares" and your
directors or trustees as "Board Members." In addition, the portfolio advisers,
sector managers and the allocation strategist will be collectively referred to
as "Portfolio Advisers".

4
<PAGE>

FEE TABLE

For a better understanding of the expenses you will incur when investing in
the Funds, a summary based on the year ended April 30, 1994 is set forth below.
There is no sales commission on any purchase of Fund shares.

Shareholder Transaction Expenses BGGF BTMMF BSTGIF BFIF BSTBF BWEMF BAEF BFTFBF BPMF
---- ----- ------ ---- ----- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales Commission on
Purchase of Shares .................. NONE NONE NONE NONE NONE NONE NONE NONE NONE

Sales Commission on
Reinvestment of Dividends ........... NONE NONE NONE NONE NONE NONE NONE NONE NONE

Sales Commission on
Redemption of Shares ................ NONE NONE NONE NONE NONE NONE NONE NONE NONE

Annual Fund Operating
Expenses
(as a % of average net assets)

Management Fees (See
"Management of the Trust") .......... 1.00% .50% .75% .75%1 .75%1 1.25% 1.10% .75% 1.00%

12b-1 Fees ............................ .75%4 NONE .25%2 .25%2 .25%2 .50%3 .50%3 .25%2 .75%4

Other Expenses
(See "Management of the Trust")5 .... .86% .36% .44% .41% .45% 1.32% 1.41% .75% .71%

Total Fund Operating Expenses ......... 2.61% .86% 1.44% 1.41% 1.45% 3.07% 3.01% 1.75% 2.46%

Example:

You would pay the following expenses
on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at
the end of each time period

1 year .............................. $ 52 $ 9 $ 40 $ 39 $ 15 $ 56 $ 56 $ 18 $ 50

3 years ............................. 107 28 71 70 46 121 119 56 103

5 years ............................. 165 48 104 103 80 188 185 96 157

10 years ............................ 322 106 198 195 174 367 362 208 307
</TABLE>

This example should not be considered a representation of past or future
expenses, and actual expenses may be greater or less than those shown. In
addition, the 5% annual return should not be considered representative of past
or future returns, and actual returns may be greater or less than the
illustration above.

- ----------------------
1. VCM and the Distributor have conditioned their right to receive a portion of
any earned but deferred fees and expenses based upon these Funds reaching and
maintaining a certain level of net assets. See "Management of the Funds."

2. As a result of distribution fees of .25% per annum of the Fund's average
daily net assets, a shareholder who has been in the Fund for 29 years may pay
more than the economic equivalent of the maximum front-end sales charges
permitted by the Rules of the National Association of Securities Dealers,
Inc.

3. As a result of distribution fees of .50% per annum of the Fund's average
daily net assets, a shareholder who has been in the Fund for 14.5 years may
pay more than the economic equivalent of the maximum front-end sales charges
permitted by the Rules of the National Association of Securities Dealers,
Inc.

4. As a result of distribution fees of .75% per annum of the Fund's average
daily net assets, a shareholder who has been in the Fund for 9.6 years may
pay more than the economic equivalent of the maximum front-end sales charges
permitted by the Rules of the National Association of Securities Dealers,
Inc.

5. Other Expenses include, among other costs, custodian, transfer agent, legal
and auditing fees.

5
<PAGE>

FINANCIAL HIGHLIGHTS

(For a Share Outstanding throughout each Period)

The following selected per share data and ratios, insofar as they relate to
each of the years in the period ended April 30, 1994, have been audited by Price
Waterhouse LLP, independent accountants. The related financial statements and
unqualified report of independent accountants thereon for the five years ended
April 30, 1994 are included in each Fund's Statement of Additional Information.
This information should be read in conjunction with the financial statements and
notes thereto. Further information about the Funds' performance is contained in
each Funds' annual report, which may be obtained without charge by writing to
the address or calling the number set forth on the cover page of this
Prospectus.

BLANCHARD GLOBAL GROWTH FUND

<TABLE>
<CAPTION>
Dividends
to
Total Share- Distribu-
Realized from holders tions to Ratio Ratio of
and Invest- from Share- Total Net Net Asset Net Net
Net Asset Invest- Unrealized ment Invest- holders Dividends Asset Total at End of Expenses Investment
Year Value at ment Gain (Loss) Income ment from and Value at Invest- Year to Income to Port-
Ended Beginning Income on invest Opera- Income Realized Distri- End ment (000 Average Average folio
April 30 of Period --Net ments--Net tions --Net Gains--Net butions of Period Return omitted) Net Assets Net Assets Turnover
- -------- --------- ------- ----------- ------ ------- ---------- ------- --------- ------ --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 ..... $10.00 $ .03 $1.29 $1.32 $ 0 $ (1.28) $ (1.28) $10.04 12.91% $109,805 2.61% .67% 166.0%
1993 ..... 9.92 .25 .32 .57 (.30) (.19) (.49) 10.00 6.08% 84,780 2.40% 1.72% 138.0%
1992 ..... 9.64 .33 .26 .59 (.31) O (.31) 9.92 6.24% 128,047 2.31% 2.31% 108.6%
1991 ..... 9.62 .30 .135 .435 (.2075) (.2075) (.415) 9.64 4.61% 193,593 2.36% 2.84% 78.3%
1990 ..... 10.11 .30 .09 .39 (.375) (.505) (.88) 9.62 3.74% 233,300 2.28% 2.86% 88.4%
1989 ..... 9.68 .22 .49 .71 (.10) (.18) (.28) 10.11 7.54% 244,048 2.29% 2.27% 85.2%
1988 ..... 10.51 .14 (.21) (.07) (.12) (.64) (.76) 9.68 (.57%) 246,569 2.28% 1.42% 119.8%
1987(a) .. 8.00 .01 2.50 2.51 - - - 10.51 31.38%d 149,018 3.10%(b)(c) .34%(b)(c) 69.7%

<FN>
- ----------
(a) Represents period from June 1, 1986 (commencement of the Fund's operations) to April 30, 1987.
(b) Net of expense reimbursement.
(c) Annualized.
(d) Not annualized.
</FN>
</TABLE>

BLANCHARD 100% TREASURY MONEY MARKET FUND

1994 .... $1.00 $.03 - $.03 $(.03) - $(.03) $1.00 2.76% $230,790 .41% 2.80%
1993 .... 1.00 .03 - .03 (.03) - (.03) 1.00 3.42% 164,974 .08%(c) 3.27%(c)
1992 .... 1.00 .04 - .04 (.04) - (.04) 1.00 4.60% 57,847 .86%(c)(d) 4.52%(c)(d)
1991 .... 1.00 .07 - .07 (.07) - (.07) 1.00 6.80% 38,472 1.11%(c)(d) 6.62%(c)(d)
1990 .... 1.00 .08 - .08 (.08) - (.08) 1.00 8.11% 44,906 1.04%(d) 7.63%(d)
1989(b) . 1.00 .02 - .02 (.02) - (.02) 1.00 1.67% 24,833 .42%(a)(d) 9.12%(a)(d)

<FN>
- -----------
(a) Annualized.
(b) Represents period from February 24, 1989 (commencement of the Fund's operations) to April 30, 1989.
(c) Net of expenses borne by Sheffield Management Company (the "prior manager").
(d) The net expense ratio to average net assets and investment income ratio to average net assets would have been
.93% and 2.29% respectively for the year ended April 30, 1994, .92% and 2.43% respectively, for the year ended
April 30, 1993, 1.46% and 3.92%, respectively, for the year ended April 30, 1992, 1.23% and 6.50%, respectively,
for the year ended April 30, 1991, 1.16% and 7.51%, respectively, for the year ended April 30, 1990, and 3.50% and
6.05%, respectively, for the period ended April 30, 1989, if the management fee had not been waived and other
expenses had not been borne by the prior manager.
</FN>
</TABLE>

6
<PAGE>

BLANCHARD SHORT-TERM GLOBAL INCOME FUND

1994 .... $1.85 $.12 (.06) .06 (.12)(4) - (.12) $1.79 3.12% $ 535,141 1.44% 6.41% 327%
1993 .... 1.89 .13 (.04) .09 (.13) - (.13) 1.85 4.94% 699,182 1.44%** 6.97%** 610%
1992 .... 1.95 .17** (.06) .11 (.17) - (.17) 1.89 5.85% 1,240,563 1.32%**(2) 8.50%**(2) 412%
1991* 1.97 .06** (.02) .04 (.06) - (.06) 1.95 2.15%(3) 230,233 .38%**(1)(2) 11.30%**(1)(2) 63%
<FN>
- ----------
* Represents period from January 8, 1991 (commencement of the Fund's operations) to April 30, 1991.
** Net of fees waived by the prior manager and Sheffield Investments, Inc. (the "prior distributor") and expenses borne
by the prior manager.
(1) Annualized.
(2) The net expense ratio to average net assets and investment income ratio to average net assets would have been
1.41% and 8.41%, respectively, for the year ended April 30, 1992 and 2.23% and 9.45%, respectively, for the period
ended April 30,1991 if the management and distribution fees had not been waived and other expenses had not
been borne by the prior manager.
(3) Not annualized.
(4) Includes $.10 designated as a tax basis return of capital.
</FN>
</TABLE>

BLANCHARD FLEXIBLE INCOME FUND

Realized Dividends Distri-
and to butions
Unrealized Share- to
Gain Total holders Share- Net Net Ratio of
(Loss) from from holders Total Asset Asset Ratio of Net
Net Asset Invest- on Invest- Invest- from Dividends Value Total at end Net Investment
Year Value at ment Invest- ment ment Realized and at Invest- of Year Expenses Income to
Ended Beginning Income ments Income Income Gains Distri- End of ment (000 to Average Average Net Portfolio
April 30 of Period --Net --Net Operations --Net --Net butions Period Return omitted) Net Assets Assets Turnover
- -------- --------- ------ ------- ---------- ------- -------- --------- ------ ------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 .... $5.09 $ .40 $(.17) $ .23 $(.36) $(.11)(4) $(.47) $4.85 4.11% $550,254 1.30% 7.10% 346%
1993 .... 5.00 .21 .09 .30 (.21) .00 (.21) 5.09 6.17%(3) 315,844 .20%*(1)(2) 9.02%*(1)(2) 129%
<FN>
- ----------
* Net of fees deferred and expenses absorbed.
(1) Annualized.
(2) The ratios of expenses to average net assets and investment income-net to average net assets would have been
1.41% and 6.99%, respectively, for the period ended April 30, 1994 and 1.59% and 7.62%, respectively, for the period
ended April 30, 1993, if a portion of the Fund's expenses had not been deferred and absorbed.
(3) Not annualized.
(4) Includes $.03 designated as a tax bases return of capital.
</FN>
</TABLE>

7
<PAGE>

BLANCHARD SHORT-TERM BOND FUND

Realized Dividends Distri-
and to butions
Unrealized Share- to
Gain Total holders Share- Net Net Ratio of
(Loss) from from holders Total Asset Asset Ratio of Net
Net Asset Invest- on Invest- Invest- from Dividends Value Total at end Net Investment
Year Value at ment Invest- ment ment Realized and at Invest- of Year Expenses Income to
Ended Beginning Income ments Income Income Gains Distri- End of ment (000 to Average Average Net Portfolio
April 30 of Period --Net --Net Operations --Net --Net butions Period Return omitted) Net Assets Assets Turnover
- -------- --------- ------ ------- ---------- ------- -------- --------- ------ ------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 ... $3.00 .17 (.06) .11 (.17) (.01) (.18) $2.93 3.72% $42,381 .63%(1)(2) 5.64%(1)(2) 212%
1993 ... $3.00 0.00(3) 0.00(3) 0.00(3) 0.00(3) (0.00)(3) (0.00)(3) $3.00 0.15% 2,000 3.03%(1) 3.89%(1) 36%
<FN>
- ------------
(1) Annualized.
(2) The ratios of expenses to average net assets and net investment income to average net assets would have been
2.05% and 4.22%, respectively, for the year ended April 30, 1994, and 2.10% and 4.15%, respectively, for the period
ended April 30, 1993, if a portion of the Fund's expenses had not been voluntarily deferred and absorbed by the prior
manager and prior distributor.
(3) Less than one cent per share.
(4) Not annualized.
</FN>
</TABLE>

BLANCHARD WORLDWIDE EMERGING MARKETS FUND

<FN>
- -----------
(a) Represents period from March 1, 1994 (commencement of the Fund's operations) to April 30, 1994.
(b) Annualized.
(c) The ratios of expenses to average net assets and net investment (loss) income to average net assets would have
been 4.42% and (1.45%) respectively, for the period ended April 30, 1994 if a portion of the Fund's expenses had not
been voluntarily waived and absorbed by the prior manager.
(d) Less than one cent per share.
(e) Not annualized.
</FN>
</TABLE>

8
<PAGE>

BLANCHARD AMERICAN EQUITY FUND

Realized Dividends Distri-
and to butions
Unrealized Share- to
Gain Total holders Share- Net Net Ratio of Ratio of
(Loss) from from holders Total Asset Asset Net Net
Net Asset Invest- on Invest- Invest- from Dividends Value Total at end Expenses Investment
Year Value at ment Invest- ment ment Realized and at Invest- of Year to Income to Port-
Ended Beginning Income ments Income Income Gains Distri- End of ment (000 Average Net Average Net folio
April 30 of Period --Net --Net Operations --Net --Net butions Period Return omitted) Assets Assets Turnover
- -------- --------- ------ ------ ---------- ------- -------- --------- ------ ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 ... $ 9.10 $(.20)(DD) $ .52 $ .32 - - - $9.42 3.52% $13,970 3.00% (2.04%)(1) 97%
1993 ... 10.00 (.03)(DD) (.87) (.90) - - - 9.10 (9.0%)(3) 31,148 3.13%*(1)(2) (1.66%)*(1)(2) 49%
<FN>
- ------------
* Net of expense reimbursement.
(1) The ratios of expenses to average net assets and net investment income to average net assets would have been
3.00% and (2.05%), respectively for the year ended April 30, 1994, and 3.73% and (2.26%), respectively, for the
period ended April 30, 1993, if a portion of the Fund's expenses had not been waived and absorbed.
(2) Not annualized.
(DD) Calculated based on average shares outstanding.
</FN>
</TABLE>

BLANCHARD FLEXIBLE TAX-FREE BOND FUND

BLANCHARD PRECIOUS METALS FUND, INC.

Realized Dividends Distri-
and to butions
Unrealized Share- to
Gain Total holders Share- Net Net Ratio of Ratio of
(Loss) from from holders Total Asset Asset Net Net
Net Asset Invest- on Invest- Invest- from Dividends Value Total at end Expenses Investment
Year Value at ment Invest- ment ment Realized and at Invest- of Year to Income to Port-
Ended Beginning Income ments Income Income Gains Distri- End of ment (000 Average Net Average Net folio
April 30 of Period --Net --Net Operations --Net --Net butions Period Return omitted) Assets Assets Turnover
- -------- --------- ------ ------ ---------- ------- -------- --------- ------ ------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 ... $6.83 $(.11)(f) $2.01(f) $1.90 - - - $8.73 27.8% $68,092 2.46% (1.21%) 174%
1993 ... 5.04 (.08)(f) 1.87B:(f) 1.79 - - - 6.83 35.5% 32,636 3.24% (1.46%) 66%
1992 ... 5.29 (.09)(f) (.16)(f) (.25) - - - 5.04 (4.7%) 20,900 3.09% (1.57%) 62%
1991 ... 6.30 (.08)(f) (.93)(f) (1.01) - - - 5.29 (16%) 24,924 3.05% (1.28%) 57%
1990 ... 7.19 (.03)(f) (.725)(f) (.755) (.03) (.105) (.135) 6.30 (10.9%) 31,539 2.95% (.40%) 56%
1989(c). 8.00 .02 (.83) (.81) - - - 7.19 (10.2%) 25,837 3.99%(a)(b)(d) .77%(a)(b)(e) 21%
<FN>
- --------------
(a) Net of expense reimbursement.
(b) Annualized.
(c) Represents period from June 22, 1988 (commencement of the Fund's operations) to April 30, 1989.
(d) During the first year (1989), the net expense ratio to average net assets would have been 4.03%, if a portion of the
12b-1 distribution and management fees had not been waived.
(e) The investment income net ratio to average net assets would have been .72%, if a portion of the 12b-1 distribution
and management fees had not been waived.
(f) Calculated based on average shares outstanding--prior years' amounts restated for comparative purposes.
</FN>
</TABLE>

9
<PAGE>

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

The investment objectives and policies of each Fund are described below.
Specific investment techniques that may be employed by the Funds are described
in a separate section of this Prospectus and in each Fund's Statement of
Additional Information. Our investment objectives and certain policies, except
as noted, are fundamental and can only be changed by vote of a majority of the
outstanding shares of a particular Fund. We may not always achieve our
objectives, but will follow the investment standards described below.

Blanchard Global Growth Fund

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 policies reflect VCM's opinion that the U.S. 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
be 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 the Global Allocation Strategist deems it appropriate.

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 and Bullion Sector ............. 65%
Emerging Markets Sector ................................... 15%

Each sector is managed by a separate sector portfolio manager ("Sector
Managers"). Generally, the services of the Sector Managers are not readily
available to most individual investors because they manage primarily very large
private or institutional accounts. The Global Allocation Strategist of the Fund
determines what percentage of the Fund's total assets are to be allocated into
the individual sectors within

10
<PAGE>

the maximum percentages set forth above and makes changes in allocation
percentages as investment and economic conditions change. Accordingly, the Fund
will not be managed as a balanced portfolio and during the course of a business
cycle the Fund may be invested in as few as two sectors. The strategy is to
shift percentage allocation among the six investment sectors at the most
advantageous time and price. VCM has intentionally separated the asset
allocation function from the investment selection function. It has sought to
identify and select specialists in each of the six investment sectors, as well
as the allocation function, who have demonstrated success in their particular
area of expertise.

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 and
Bullion sector 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 and
Bullion sector 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 Sector. The Sector Manager, Shufro, Rose & Ehrman. The
Allocation Strategist will increase the allocation in the U.S. Equities sector
to near the maximum level during periods of strong corporate earnings, stable
economic growth, low interest rates, and low or declining inflation rates. The
Allocation Strategist will reduce the allocation for this sector to near the
minimum level during periods of rapidly rising or high interest rates, abruptly
declining inflation, or uncertain economic conditions.

In addition, the Sector Manager may invest in undervalued companies that may
have profit potential regardless of overall economic conditions. Undervalued
companies are, in the opinion of the Sector Manager, companies whose balance
sheet, management ability, and product line or service are worth more on a
collective basis than the market value of the company. The U.S. Equities sector
is expected to perform well during periods of declining interest rates, average
or high corporate profits and stable economic conditions. It will be invested
primarily in common stocks of companies traded on national exchanges in the
United States, and secondarily in preferred stocks or convertible securities
traded on such exchanges. Securities are selected based on fundamental research
of the earning power and management of companies and industries. Major emphasis
is placed on stocks of companies considered by the U.S. Equities Sector Manager
to have potential for long-term capital appreciation.

Foreign Equities Sector. The Sector Manager, Fiduciary International, Inc.,
invests in publicly-traded equity securities of companies domiciled outside of
the United States. This sector invests in non-U.S. companies whose securities
are traded on exchanges located in the countries in which the issuers are
principally based, including companies located in: Australia, Austria, Belgium,
Canada, Denmark, France, Finland, Germany, Hong Kong, Italy, Japan, Mexico, the
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United
Kingdom. The sector will maintain investments in a minimum of five countries.

When the Foreign Equities Sector Manager 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. It may also enter into such
contracts to protect against loss between trade and settlement dates resulting
from changes in foreign currency exchange rates. Such contracts will also have
the effect of limiting any gains to the Fund between trade and settlement dates
resulting from changes in such rates. These contracts will be purchased for
hedging purposes only. The decision to increase or decrease the percentage
allocation to this strategic sector will depend on a combination of the
following

11
<PAGE>

factors: (1) specific opportunities in individual issues; (2) favorable
economic, political and business conditions in individual countries; and (3)
timely participation in specific worldwide industry groups, such as automobiles,
electronics, oils, etc., irrespective of their location.

While the pursuit of foreign currency gain for U.S. dollar-based investors
is not a primary objective of this sector, currency profits may occur if
investments in this sector take place during a period of dollar depreciation.
For example, during periods of declining U.S. dollar exchange values, it may be
possible to benefit from the decline by purchasing short-term foreign currency
denominated instruments, as well as foreign currency denominated equities and
bonds. There are certain risks in foreign securities that may not be present in
domestic investments.

U.S. Fixed Income Sector. As fixed income securities have historically shown
the greatest appreciation during periods of falling interest rates, the Sector
Manager, Investment Advisors, Inc., intends to increase the allocation
percentage in this sector during such periods. Conversely, the Sector Manager
intends to de-emphasize this sector during periods of stable or rising interest
rates. In the event of generalized worldwide deflation, similar to that
experienced during the 1930's, the Sector Manager intends to increase the
allocation of government securities in this sector to the maximum.

This sector of the Fund invests in:

1. Corporate debt obligations rated at the time of purchase within the four
highest investment grades assigned by Moody's, or Standard & Poor's. While
obligations in these categories are generally deemed to have adequate to very
strong protection of principal and interest, those rated within the lowest of
these categories (i.e., Baa by Moody's and BBB by Standard & Poor's) may have
speculative characteristics as well and may be more likely to experience a
weakened capacity to make principal and interest payments during times of
changing economic conditions or other circumstances than higher grade
obligations. For a description of the ratings used by Moody's and Standard &
Poor's, see Appendix A to this Prospectus.

2. Securities of, or guaranteed by, the United States Government, its
agencies or instrumentalities.

3. Securities (payable in United States dollars) of, or guaranteed by, the
government of Canada or of a province of Canada or any instrumentality or
political subdivision thereof, such securities not to exceed 25% of the Fund's
total assets.

Foreign Fixed Income Sector. The Foreign Fixed Income Sector Manager,
Fiduciary International, Inc., will purchase rated or unrated fixed income
securities which, in its opinion, equate generally to United States standards of
"investment grade" obligations. U.S. investment grade obligations are generally
considered to be obligations of issuers having an issue of bonds rated within
the four highest quality grades as determined by a nationally recognized
statistical rating organization such as Moody's or Standard & Poor's. The Fund
invests in publicly-traded common stocks of companies engaged in the
exploration, refining, development, manufacture, production of marketing or
precious metals. As fixed income securities have historically shown the greatest
appreciation during periods of falling interest rates, the Sector Manager
intends to increase the allocation percentage in this sector during such
periods. Conversely, the Sector Manager intends to de-emphasize this sector
during periods of stable or rising interest rates. The Sector Manager intends to
maintain, in normal circumstances, a substantial portion of the Foreign Fixed
Income sector's assets in high quality debt obligations denominated in a range
of foreign currencies. This sector may engage in futures and options
transactions to the extent permissible under the Fund's current investment
guidelines.

Precious Metals Securities and Bullion Sector. Prices of bullion and common
stocks of precious metals-related companies have generally tended to rise during
periods of accelerating inflation, and, to a

12
<PAGE>

lesser extent, during periods of social, political and financial instability.
The Sector Manager, Cavelti Capital Management, Ltd., intends to increase the
allocation in the Precious Metals Securities and Bullion sector when it
perceives that inflation is beginning to accelerate. The Sector Manager also
intends to increase the allocation, although probably to a lesser extent than
during strong inflationary periods, when destabilizing financial, political or
social conditions arise outside of the United States. During periods of low
inflation, stable economic and political conditions, and low or declining
interest rates, it is likely that demand for precious metals will be low, the
potential for appreciation small, and the risk of price erosion large;
therefore, the allocation for this sector would tend to be close to the minimum
level during these periods.

While the Fund's investment policy is not to invest its assets in any one
industry, it may invest up to 65% of its assets in this sector of the portfolio
during strong inflationary periods, and to a lesser extent, during periods when
social, political and financial instability warrant taking such a position. For
the purposes of this sector, the definition of Precious Metals Securities is
"publicly-traded common stocks of metal mining producer and non-producer
companies that are engaged in the exploration, refining and development of gold,
silver, palladium, and platinum; other companies that are engaged in the
manufacture or production of products incorporating such precious metals, for
example, jewelry, photographic supplies and medical equipment and supplies; and
companies that are engaged in 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.

As so defined, the Fund may invest up to 65% of its assets in the Precious
Metals Securities and Bullion sector provided that not more than 25% of the
Fund's assets will be in any of the individual industries named above, as such
industries are defined in the SIC/SEC Industries Code, and further provided that
not more than 10% of the Fund's assets in Physical Precious Metals Investments,
which are defined as gold, silver, platinum, palladium, through holdings, in
bullion or precious metals certificates or storage receipts representing
precious metals.

In particular, the Sector Manager 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 the Sector Manager to have the
potential for appreciation. Where the Precious Metals Securities and Bullion
Sector Manager deems it appropriate, the Fund may, for purposes of this sector,
engage in certain hedging transactions with options listed on foreign exchanges.

Emerging Markets Sector. Emerging countries overall have experienced a
higher gross domestic product ("GDP") growth rate than industrialized countries
in the last ten years. The Sector Manager, Martin Currie Inc., believes that
emerging countries, as a group, will continue to experience growth rates in
excess of those experienced by industrialized countries, and therefore will
allocate up to a maximum of 15% of the Fund's net assets in this sector.

In addition to the normal determinants of interest rates, inflation,
economic growth and currency movements, country selections and weighings 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

13
<PAGE>

balance sheet, geographical sales and profit spread, and good marketability in
shares); and (iii) price and timing.

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 the Sector Manager believes the economies are developing
strongly and in which the markets are becoming more sophisticated.

An emerging country equity security is defined as 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 trading market
for which is in 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 the Sector Manager based upon
publicly available information and inquiries made to the companies.

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.

While the foregoing represent economic scenarios that often occur, markets
are not entirely predictable,and do not always react in the same way to the same
economic stimuli. Therefore, there is no assurance that such patterns will
always occur in a standardized and predictable format. Consideration of
historical patterns of economic and market interaction is only one of the
factors that will be used when making allocation and investment decisions. The
selection of investments for the Fund also will be guided by research and
investment data. We can provide no assurance that the premises on which this
investment strategy is based will prove to be correct or that the Fund will
actually achieve its objective.

Blanchard American Equity Fund

The investment objective of the Fund is to provide long-term growth of
capital. The Fund's Portfolio Adviser is Provident Investment Counsel, Inc. The
Fund will invest in equity securities, consisting of common stocks and
securities having the characteristics of common stocks, specifically convertible
preferred stocks,convertible debt securities and warrants. The Fund will invest
at least 65% and under normal circumstances expects to invest at least 80% of
its assets in such equity securities. In selecting investments for the Fund, the
Portfolio Adviser will select equity securities of companies of various sizes
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-Stock
Index. It is expected that approximately half of the equity securities in which
the Fund will invest will be listed and traded on the New York Stock Exchange,
and the remainder will be traded on the National Association of Securities
Dealers' NASDAQ system or are otherwise traded over the counter. The Portfolio
Adviser supports its selection of individual securities

14
<PAGE>

through intensive research and used qualitative and quantitative discipline to
determine when securities should be sold.

Short-Term Investments. During those times when the Portfolio Adviser does
not believe that substantially all of the Fund's assets should be invested in
equity securities, all or part of the Fund's assets may be invested temporarily
in short-term investments. Under normal market conditions, it is expected that
investments in such short-term instruments may range from zero (fully invested)
to 30% of the Fund's assets. The short-term investments that may be purchased by
the Fund consist of high equality debt obligations maturing in one year or less
from the date of purchase, such as U.S. government securities, certificates of
deposit, bankers' acceptances and commercial paper. High quality means the
obligations have been rated at least A-1 by Standard & Poor's or Prime-1 by
Moody's, or have an outstanding issue of debt securities rated at least A by
Standard & Poor's or Moody's, or are of comparable quality in the opinion of the
Portfolio Adviser. Short-term investments also include repurchase agreements
with respect to the high quality debt obligations listed above. See "Repurchase
Agreements" below.

Blanchard Precious Metals Fund, Inc.

The Fund's primary investment objective is to provide you long-term capital
appreciation and preservation of purchasing power through investments in
physical precious metals and securities of companies involved with precious
metals. A secondary objective is to reduce the risk of loss of capital and
decrease the volatility often associated with precious metals investments by
changing the allocation of the Fund's assets from Precious Metals Securities to
Physical Precious Metals Investments and/or investing in short-term instruments
and government securities during periods when the Portfolio Adviser, Cavelti
Capital Management Ltd., believes the precious metal is markets may experience
declines.

For purpose of this Fund, the term "Precious Metals Securities" refers to
the debt and equity securities of domestic and foreign companies listed on
domestic and foreign exchanges which are directly involved in the exploration,
development, mining, refining, manufacturing, dealing or marketing of precious
metals or precious metals products. A company will be considered to be "involved
in" such activity if it derives more than 50% of its revenues from or devotes
more than 50% of its assets to such activity. The Fund 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 the
Portfolio Adviser to have the potential for appreciation. In addition, when the
Portfolio Adviser believes that market conditions warrant, the Fund may invest
up to 100% of its assets in certain short-term instruments.

The Fund may, from time to time, invest up to 5% of its assets in unrated
foreign debt securities which are judged by the Portfolio Adviser to be of at
least comparable quality to lower-rated U.S. debt securities (usually defined as
Baa or lower by Moody's or BBB or lower by Standard & Poor's. The selection of
unrated foreign debt securities will depend to a great extent on the credit
analysis performed by the Portfolio Adviser. Since it is possible that the Fund
could have up to 100% of its total assets in equity securities of domestic and
foreign companies directly involved in the exploration, development, mining,
refining, manufacturing, dealing or marketing of precious metals or precious
metals products, the Fund may be subject to greater risks and greater market
fluctuations than funds with a more diversified general equity portfolio.

The Fund may invest up to 49% of its total assets in physical precious metal
of gold, silver, platinum or palladium through holdings in bullion or precious
metals certificates or storage receipts representing the physical metals. When
the Fund invests in precious metals certificates and storage receipts, it
receives certificates evidencing ownership of specific amounts of precious
metals bullion, instead of taking physical possession of the bullion represented
by the certificate. The Fund relies on the issuers of such documents to maintain
the underlying precious metal on deposit. A default by any of the issuers could
expose the Fund to

15
<PAGE>

loss of the metal on deposit. Although purchasing certificates from institutions
where the certificate is 100% backed by physical precious metals in the
possession of the institutions or by entering into such transactions only with
banks, brokers, dealers and clearinghouses which have assets of over $1 billion
and in the Portfolio Adviser's opinion, have a high degree of creditworthiness.
The creditworthiness of the issuers will be monitored by the Portfolio Adviser
on an ongoing basis.

The Fund will not invest in coins. The Fund may purchase contracts for
forward delivery of physical precious metals. Forward contracts for precious
metals are contracts between the Fund and institutions dealing in precious
metals for the future receipt or delivery of metals at a price fixed at the time
of the transaction. While some of the Fund's investments may earn interest or
dividends, the Fund is not designed for investors seeking income. The Fund's
investment strategy calls for different approaches to the precious metals
markets in different economic and investment conditions.

As Precious Metals Securities have historically out-performed the price of
the physical metals during periods of generally rising precious metals prices,
the Fund will ordinarily tend to emphasize Precious Metals Securities over
Physical Precious Metals Investments during such periods. However, to the extent
that the current behavior of precious metals markets does not conform to
historical patterns at any given time, investments of the Fund will be placed in
those markets believed by the Portfolio Adviser to have the most promising
potential for appreciation. Conversely, during periods of stable or falling
precious metals prices, physical precious metals have generally held their value
better than Precious Metals Securities. Therefore, during those periods, the
Fund will tend to emphasize investments in Physical Precious Metals Investments.

As the Fund can invest in all four precious metals; gold, silver, platinum
and palladium, the Portfolio Adviser will attempt to capitalize on price
differentials in the metals markets. Although the Portfolio Adviser believes
that prices of gold, silver, platinum or palladium generally tend to move in the
same direction at the same time, with gold often setting the pace, experience
has proven that this is not always the case. The Fund, therefore, may emphasize
some metals over others when the Portfolio Adviser believes it is advisable to
do so. There is no assurance that the Portfolio Adviser's forecasts of precious
metals prices and the resulting allocation of the Fund's assets among precious
metals or between Precious Metals Securities and Physical Precious Metals
Investments will always be correct.

When the Portfolio Adviser believes that precious metals prices may suffer
declines, it may protect against market risk by increasing the Fund's cash
position. Under normal conditions, the Fund will have at least 65% of its total
assets invested in Precious Metals Securities and Physical Precious Metals
Investments. Under other circumstances, the Fund may invest up to 100% of its
assets in short-term instruments, including commercial paper, bank certificates
of deposit, bankers' acceptances and securities of the U.S. Government and its
agencies and instrumentalities as well as in cash and cash equivalents dominated
in foreign currency.

The Portfolio Adviser believes that precious metals and securities of
precious metals related companies continue to offer excellent prospects for
capital appreciation and protection of your purchasing power, during any
economic environment, and especially during periods of inflation, as well as
periods of political and economic instability. The market for precious metals is
worldwide; therefore, precious metals prices are subject to many political,
social and economic influences, often resulting in high volatility. See
"Investment Techniques and Associated Risks-Precious Metals and Precious Metals
Securities" for further details.

As physical precious metals earn no income, appreciation in the market price
of gold and other precious metals is the sole manner in which the Fund is able
to realize gains on these investments. Furthermore, the Fund encounters storage
and transaction costs in connection with its ownership of physical precious
metals

16
<PAGE>

which are higher than those attendant to the purchase, holding and disposition
of more traditional types of investments.

The production and marketing of gold and precious metals may be affected by
the action of certain governments and changes in existing governments. For
example, the mining of gold is highly concentrated in a few countries. Economic
and political conditions prevailing in these countries may have a direct effect
on the production and marketing of newly produced gold and sales of central bank
gold holdings. It is expected that a majority of gold mining companies in which
the Fund will invest will be located within the United States and Canada. For a
further discussion on this subject, including certain risk considerations and
limitations regarding investments in South African issuers, see "Investment
Techniques and Associated Risks-Precious Metals and Precious Metals Securities."

Blanchard Short-Term Global Income Fund

The Fund's objective is to provide high current income with minimum risk of
principal and relative stability of net asset value. To achieve this objective,
the Portfolio Adviser, Lombard Odier International Portfolio Management Limited,
will invest primarily in a portfolio of debt obligations rated in the four
highest rating categories of nationally recognized rating services denominated
in various currencies, which have average remaining maturities to exceeding
three years (as the useful life of individual pools of assets underlying certain
obligations in which the Fund may invest may at times be of a shorter duration
than the stated maturity of the obligation itself, the Fund may consider the
useful life of such underlying assets as the maturity of the obligation owned by
the Fund). The Fund may also invest up to 10% of its assets in securities rated
Ba by Moody's or BB by Standard & Poor's (or if unrated, determined by the
Portfolio Adviser to be of equivalent quality), in repurchase agreements, cash
or cash equivalents or such other debt instruments as is consistent with its
investment objective. In addition, the Fund is authorized, for the purpose of
increasing its yield or hedging its currency exposure, to engage in any one or
more of the specialized investment techniques and strategies described below
under the caption "Certain Investment Techniques and Policies".

The Fund will seek investment opportunities in foreign, as well as domestic,
securities markets. While the Fund normally will maintain a substantial portion
of its assets in debt securities denominated in foreign currencies, it is
anticipated that, in normal circumstances, the Fund's assets will include
securities in at least three countries, including the United States. The Fund is
designed for the investor who seeks a higher yield than a money market Fund and
less fluctuation in net asset value than a longer term bond fund. There can be
no assurance that the Fund's yield will at all times exceed that of a money
market fund. To the extent domestic short-term interest rates are higher than
domestic long-term or foreign short or long-term interest rates, and the Fund is
not substantially invested in U.S. Dollar denominated money market instruments,
the Fund's yield may not be higher than that of a money market fund.

In pursuing its investment objective, the Fund seeks to minimize credit risk
and fluctuations in net asset value by investing only in short-term debt
obligations. Although the Fund may invest in debt obligations having average
remaining maturities of up to three years, it reserves the right to invest
without limitation in debt obligations having substantially short remaining
maturities during times of rapidly changing currency exchange rates or other
uncertain market or economic conditions, or in anticipation of such times. The
Fund also reserves the right to invest in floating and variable rate demand
obligations that provide for a periodic adjustment in the interest rate paid on
the obligation and/or permit the holder to demand payment upon a specified
number of days' notice of the unpaid principal balance accrued interest either
from the issuer or by drawing on a bank letter of credit, a guarantee or
insurance issued with respect to such obligation.

The Fund's portfolio is managed in accordance with a global investment
strategy, which means that the Fund's investments will be allocated among
securities denominated in the U.S. Dollar and the currencies of

17
<PAGE>

a number of foreign countries and, within each such country, among different
types of debt securities. The Fund's exposure with respect to each currency is
adjusted based on Fund management's perception of the most favorable markets an
issuers. In this regard, the percentage of assets invested in securities of a
particular country or denominated in a particular currency will vary in
accordance with Fund management's assessment of the relative yield and
appreciation potential of such securities and the relationship of a country's
currency to the U.S. Dollar. Fundamental economic strength, credit quality and
interest rate trends are the principal factors considered by Fund management in
determining whether to increase or decrease the emphasis placed upon a
particular type of security or industry sector within the Fund's investment
portfolio. The Fund will not invest more than 25% of its total assets in debt
obligations denominated in a single currency other than the U.S. Dollar.

The attractive returns currently available from short-term foreign currency
denominated debt obligations can be adversely affected by changes in exchange
rates. The Portfolio Adviser believes that the use of foreign currency hedging
techniques, including "crosshedges", can help protect against declines in the
U.S. Dollar value of income available for distribution to shareholders and
declines in the net asset value of the Fund's shares resulting from adverse
changes in currency exchange rates. For example, the return available from
securities denominated in a particular foreign currency would diminish in the
event the value of the U.S. Dollar increased against such currency. Such a
decline could be partially or completely offset by an increase in value of a
crosshedge involving a forward currency contract, where such contract is
available on terms more advantageous to the Fund than a contract to sell the
currency in which the position being hedged is denominated. It is the Portfolio
Adviser's belief that crosshedges can therefore provide significant protection
of net asset value in the event of a general rise in the U.S. Dollar against
foreign currencies. However, a crosshedge cannot protect completely against
exchange rate risks, and if Fund management is incorrect in its judgment of
future exchange rate relationships, the Fund could be in a less advantageous
position than if such a hedge had not been established.

In addition to the U.S. Dollar, such currencies include, among others, the
Australian Dollar, the Austrian Schilling, British Pound Sterling, Canadian
dollar, Danish Kroner, Dutch Guilder, European Currency Unite ("ECU"), Finnish
Markka, French Franc, German Mark, Italian Lira, Japanese Yen, New Zealand
Dollar, Norwegian Kroner, Portuguese Escudo, Spanish Peseta, Swedish Krona and
the Swiss Franc. An issuer of debt securities purchased by the Fund may be
domiciled in a country other than the country in whose currency the instrument
is denominated.

The Fund seeks to minimize investment risk by primarily limiting its
portfolio investments to debt securities rated no lower than Baa by Moody's or
BBB by Standard & Poor's. However, the Fund may invest up to 10% of its assets
in securities rated Ba by Moody's or BB by Standard & Poor's (or, if unrated,
determined by the Portfolio Manager to be of equivalent quality). Accordingly,
with respect to the debt securities and other investments described above, the
Fund's portfolio consists only of: (i) debt securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; (ii) obligations issued
or guaranteed by a foreign government or any of its political subdivision,
authorities, agencies, or instrumentalities, or by supranational entities (which
are described below) (collectively referred to as "Foreign Government
Obligations"), which are rated no lower than Ba by Moody's or BB by Standard &
Poor's or, if unrated, determined by Fund management to be of equivalent
quality; (iii) corporate debt securities rated no lower than Ba by Moody's or BB
by Standard & Poor's or, if unrated, determined by Fund management to be of
equivalent quality; (iv) certificates of deposit and banker's acceptances issued
or guaranteed by, or time deposits maintained at banks, including foreign
branches or subsidiaries of U.S. depository institutions ("Eurodollar"
obligations) or U.S. branches or subsidiaries of foreign depository institutions
("Yankeedollar" obligations) or foreign branches or subsidiaries of foreign
depository institutions, having total assets of

18
<PAGE>

more than $500 million and determined by Fund management to be of high quality;
(v) commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2
by Moody's, Fitch-1 or Fitch-1 by Fitch Investors Services, Inc., Duff 1 or Duff
2 by Duff & Phelps Inc. or, if not rated, issued by U.S. or foreign companies
having outstanding debt securities rated AAA, AA or A by Standard & Poor's, or
Aaa Aa or A by Moody's and determined by Fund management to be of high quality,
and loan participation interests having a remaining term of or not exceeding one
year in loans extended to such companies by commercial banks or other commercial
lending institutions whose long-term debt and commercial paper is rated AAA or
AA by Standard & Poor's or Aaa or Aa by Moody's ("a High Quality Rating"); (vi)
repurchase agreements with respect to the paper foregoing debt securities; and
(vii) futures contracts, options on futures contracts, options on foreign
currencies, options on portfolio securities, and forward foreign currency
exchange contracts. To minimize investment risk, the Fund may only invest (a) up
to 25% of its assets in securities rated no lower than A by Moody's or Standard
& Poor's (or, if unrated, determined by the Portfolio Adviser to be of
equivalent quality); (b) up to 10% of its assets in securities rated no lower
than Ba by Moody's or BB by Standard & Poor's (or, if unrated determined by the
Portfolio Manager to be of equivalent quality); and (up to 10% of its assets in
any such Foreign Government Obligations issued in any one country. The medium to
lower-rated and unrated Foreign Government Obligations in which the Fund invests
tend to offer higher yields than higher-rated securities with the same
maturities. Debt obligation rated lower than A by Standard & Poor's or Moody's
tend to have speculative characteristics and generally involve more risk of loss
of principal and income than higher-rate securities. For a description of the
various ratings used by the ratings agencies, see Appendix A.

The Fund may invest without limitation in commercial paper which is indexed
to certain specific foreign currency rates. The terms of such commercial paper
provide that its principal amount is adjusted upwards or downwards (but not
below zero) at maturity to reflect change in the exchange rate between two
currencies while the obligation is outstanding. The Fund will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereof in that currency, but the
amount of principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between the two specified currencies
between the date the instrument is issued and the date the instrument matures.
While such commercial paper entails the risk of loss of principal, the potential
for realizing gains as a result of changes in foreign currency exchange rates
enables the Fund to hedge (or crosshedge) against a decline in the U.S. Dollar
value of investments denominated in foreign currencies while providing an
attractive money market rate of return. The Fund will purchase such commercial
paper for hedging purposes only, not for speculation. The staff of the SEC is
currently considering whether the purchase of this type of commercial paper
would result in the issuance of a "senior security" within the meaning of the
Investment Company Act of 1940 (the "1940 Act"). The Portfolio Adviser believes
that such investments do not involve the creation of such a senior security but
nevertheless has undertaken, pending the resolution of this issue by the staff,
to establish a segregated account with respect to the Fund's investments in this
type of commercial paper and to maintain in such account cash not available for
investment or U.S. Government Securities or other liquid high quality debt
securities having a value equal to the aggregate principal amount on outstanding
commercial paper of this type held by the Fund.

The Fund may invest in debt securities issued by the supranational
organizations such as: the World Bank, which was chartered to finance
development projects in developing member countries; the European Community,
which is a twelve-nation organization engaged in cooperative economic
activities; the European Coal and Steel Community, which is an economic union of
various European nations' steel and coal industries; the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian and

19
<PAGE>

Pacific regions; and other such organizations, including the European Investment
Bank and the Inter-American Development Bank. The foregoing entities and other
such supranational organizations are not considered by the Fund or its
management to be "banks" for purposes of computing investment restrictions
regarding non-diversification or concentration policies and, as a result, the
debt securities issued by such supranational organizations will not be included
as banks for determination of compliance with the percentage limitations of such
investment policies.

The Fund may invest in debt securities denominated in the ECU, which is a
"basket" consisting of specified amounts of the currencies of certain of the
twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community to reflect changes in relative values of the underlying
currencies. The Portfolio Adviser does not believe that such adjustments will
adversely affect holders of ECU-denominated obligations or the marketability of
such securities. European supranational, in particular, issue ECU-dominated
obligations.

Blanchard Short-Term Bond Fund

The investment objective of the Fund is to provide a high level of current
income consistent with preservation of capital by investing primarily in
short-term investment grade debt securities. The Fund's Portfolio Adviser is
OFFITBANK. The Fund is designed for investors seeking higher yields than are
available from money market funds, but who also want more price stability than
is offered by longer-term bond funds. Under normal market conditions, the Fund
will invest at least 80% of its assets in a broad range of U.S. debt securities
of all types. The Fund may invest up to 20% of the value of its assets in
securities of foreign issuers denominated in foreign currency and not publicly
traded in the United States.

Under normal market conditions, at least 65% of the value of the Fund's
assets will be invested in investment-grade bonds, which are considered to be
those rated at least Baa by Moody's or at least BBB by Standard & Poor's or, if
unrated, deemed to be of comparable quality by the Portfolio Adviser. The Fund
may invest up to 35% of its assets in lower-quality debt securities if the
Portfolio Adviser deems that such securities present attractive investment
opportunities. The Fund will not invest in debt securities rated lower than Caa
by Moody's and CCC by Standard & Poor's, or, if unrated, of comparable quality
in the Portfolio Adviser's opinion. Debt securities rated Baa by Moody's and BBB
by Standard & Poor's are considered investment grade obligations which lack
outstanding investment characteristics and may have speculative characteristics
as well. Debt securities rated Caa by Moody's and CCC by Standard & Poor's are
considered to have predominantly speculative characteristics with respect to
capacity to pay interest and repay principal and to be of poor standing. See
"Risk Factors-Lower Quality Debt Securities" below for a discussion of certain
risks, and Appendix A.

Although it is intended that the average maturity of the Fund's portfolio
will be three years or less, the Fund retains the flexibility to increase the
average maturity to up to five years in times when abnormal market conditions
warrant temporary measures. Accordingly, the Fund's average maturity may vary,
based on the Portfolio Adviser's analysis of interest rate trends and other
data. In general, the Fund's average maturity will tend to be shorter when the
Portfolio Adviser expects interest rates to rise and longer when it expects
interest rates to decline. The Fund may invest in individual securities with
terms to maturity of greater than five years if the Fund's portfolio contains
sufficient short-term securities so that the weighted average maturity complies
with the above-stated policy. As the useful life of individual pools of assets
underlying certain obligations in which the Fund may invest may at times be of a
shorter duration than the stated maturity of the obligation itself, the Fund may
consider the useful life of such underlying assets as the maturity of the
obligation owned by the Fund.

20
<PAGE>

Under normal market conditions, the Fund does not expect to have a
substantial portion of its assets invested in money market instruments. However,
when the Portfolio Adviser determines that adverse market conditions exist, the
Fund may adopt a temporary defensive posture and hold cash or invest its entire
portfolio in money market instruments. In addition, during times of
international political or economic uncertainty, most or all of the Fund's
investments may be made in the U.S. and denominated in U.S. dollars. To the
extent the Fund is so invested, the Fund's investment objective may not be
achieved.

The Fund will invest in bonds, notes, mortgage securities, asset-backed
securities, government and government agency obligations, zero coupon securities
and convertible securities, and short-term obligations such as banker's
acceptances, certificates of deposit, repurchase agreements and commercial
paper, in any proportion that the Portfolio Adviser determines is appropriate
and in the best interest of shareholders. The Fund may invest in U.S. Government
securities and in options, futures contracts and repurchase transactions with
respect to such securities. See "Additional Investment Information".

The Fund may invest up to 20% of its assets in international securities
consisting of debt obligations and other fixed-income securities, in each case
denominated in non-U.S. currencies or composite currencies, including: debt
obligations issued or guaranteed by foreign national, provincial, state,
municipal or other governments with taxing authority or by their agencies or
instrumentalities; debt obligations of supranational entities (described below);
debt obligations of the U.S. Government issued in non-dollar securities; and
debt obligations and other fixed-income securities of foreign and U.S. corporate
issuers (non-dollar denominated).

When investing in international securities, the Fund is not limited to
purchasing debt securities rated at the time of purchase by Moody's or Standard
& Poor's. However, the Fund is limited to the extent that it may not invest more
than 35% of its assets in lower quality debt securities. In making international
securities investments, the Portfolio Adviser may consider, among other things,
the relative growth and inflation rates of different countries. The Portfolio
Adviser may also consider expected changes in foreign currency exchange rates,
including the prospects for central bank intervention, in determining the
anticipated returns of securities denominated in foreign currencies. The
Portfolio Adviser may further evaluate, among other things, foreign yield curves
and regulatory and political factors, including the fiscal and monetary policies
of such countries.

The Fund may invest, without limitations, in unrated debt securities issued
by foreign governments, their agencies and instrumentalities, where the foreign
government, its agency or instrumentality is rated less than Baa by Moody's or
less than BBB by Standard & Poor's, provided, however, that the Portfolio
Adviser has determined through its own credit analysis that the credit
characteristics of any such unrated security are equivalent to those of a
security rated at least Baa by Moody's or BBB by Standard & Poor's. To the
extent that the Portfolio Adviser has not made any such determination, such
unrated debt securities will be deemed to have the rating assigned by Moody's or
Standard & Poor's to the governmental entity. To the extent that such securities
are deemed to be rated less than Baa by Moody's or less than BBB by Standard &
Poor's, investment in such securities will be subject to the overall 35%
limitation on investment in lower quality debt securities.

The obligations of foreign governmental entities, including supranational
issuers, have various kinds of government support. Obligations of foreign
governmental entities include obligations issued or guaranteed

21
<PAGE>

by national, provincial, state or other governments with taxing power or by
their agencies. These obligations may or may not be supported by the full faith
and credit of a foreign government.

Supranational entities include international organizations designated or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Steel and Coal Community, the Asian
Development Bank and the Inter-American Development Bank. The governmental
agencies, or "stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make additional capital
contributions if the supranational entity is unable to repay its borrowings.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by members at the
entity's call), reserves and net income. The Fund does not have a policy of
concentrating investments in supranational entities.

Blanchard Flexible Tax-Free Bond Fund

The Fund's investment objective is to provide a high level of current
interest income exempt from Federal income tax consistent with the preservation
of principal. The Fund will invest at least 65% of its assets in municipal
bonds, except when maintaining a temporary defensive position. The Fund's
Portfolio Adviser is The United States Trust Company of New York.

The Fund invests in municipal obligations which are determined by the
Portfolio Adviser to present minimal credit risks. As a matter of fundamental
policy, except during temporary defensive periods, the Fund will maintain at
least 80% of its assets in tax-exempt obligations, including the alternative
minimum tax. (This policy may not be changed without the vote of the holders of
a majority of the Fund's outstanding shares.) However, from time to time on a
temporary defensive basis due to market conditions, the Fund may hold uninvested
cash reserves or invest in taxable obligations in such proportions as, in the
opinion of the Portfolio Adviser, prevailing market or economic conditions may
warrant. Uninvested cash reserves will not earn income. Interest income from
certain short-term holdings may be taxable to shareholders as ordinary income.

The municipal obligations purchased by the Fund will consist of: (1)
municipal bonds rated "A" or better by Moody's or by Standard & Poor's or, in
certain instances, municipal bonds with lower ratings if they are deemed by the
Portfolio Adviser to be comparable to A-rated issues; (2) municipal notes rated
"MIG-2" or better ("VMIG-2" or better in the case of variable rate notes) by
Moody's or "SP-2" or better by Standard & Poor's and (3) municipal commercial
paper rated "Prime-2" or better by Moody's or "A-2" (collectively, "Municipal
Obligations"). If not rated, securities purchased by the Fund will be of
comparable quality to the above ratings as determined by the Portfolio Adviser
under the supervision of the Board Members. A discussion of Moody's and Standard
& Poor's rating categories is contained in Appendix A. The Fund may purchase and
sell municipal bond index and interest rate futures contracts as a hedge against
changes in market condition. See "Risks" below.

The Fund may also invest in securities issued by money market funds which
are investment companies that invest in high-quality, short-term securities and
that determine their net asset value per share based on the amortized cost or
penny-rounding method. Such securities will be acquired by the Fund within the
limits prescribed by the 1940 Act. By investing in shares of money market funds,
the Fund pays a portion of the operating and management expenses of such money
market funds, as well as its own operating and management expenses. Investors
should consider the tax consequences of an investment by the Fund in money
market funds distributing taxable income. However, it is a policy of the Fund to
maximize the percentage of distributions to shareholders that are not subject to
Federal income taxes.

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<PAGE>

Blanchard 100% Treasury Money Market Fund

The Fund seeks to provide the highest level of current income as is
consistent with the preservation of capital and maintenance of liquidity. The
Portfolio Adviser for the Fund is HSBC Asset Management Americas Inc. (formerly
known as Marinvest, Inc.). The Fund attempts to achieve its investment objective
by investing exclusively in U.S. dollar denominated, short-term obligations of
the U.S. Treasury maturing in 13 months or less with a dollar weighted average
portfolio maturity of 90 days or less, provided that such obligations are deemed
to present minimal credit risks pursuant to procedures adopted by the Board
Members. The Fund will not invest in repurchase agreements, certificates of
deposit of commercial banks or savings and loan associations, nor will it invest
in obligations issued or guaranteed by agencies or instrumentalities of the U.S.
Government (such as the Federal Savings and Loan Insurance Corp., the
Export-Import Bank of the United States, the Farmer's Home Administration, the
Federal Farm Credit Bureaus, etc.), or in corporate debt securities. Although
the Fund's shares are not insured or guaranteed by the U.S. Government, the
Treasury obligations in which the Fund invests are general obligations of the
U.S. Government, which are believed by many to be among the safest investments
available with respect to credit risk. The Treasury obligations in which the
Fund will invest may not yield as high a level of current income as longer term
or lower grade securities which generally have less liquidity and experience
greater price fluctuation.

Blanchard Flexible Income Fund

The investment objective of the Fund is to provide high current income while
seeking opportunities for capital appreciation. The Portfolio Adviser for the
Fund is OFFITBANK. The Fund intends to invest in the following fixed income
securities markets:

U.S. Government Securities. This consists of debt obligations of the U.S.
Government and its agencies and instrumentalities and related options, futures
contracts and repurchase agreements.

Investment Grade Fixed Income Securities. This consists of investment grade
fixed income securities, including mortgage related and asset backed securities.

High Yield Securities. This consists of higher yielding (and, therefore,
higher risk), lower rated U.S. corporate fixed income securities.

International Fixed Income Securities. This consists of obligations of
foreign governments, their agencies and instrumentalities and other fixed income
securities denominated in foreign currencies or composite currencies including:
debt obligations issued or guaranteed by foreign national, provincial, state,
municipal or other governments with taxing authority or by their agencies or
instrumentalities; debt obligations of supranational entities (see discussion in
"Blanchard Short Term Bond Fund" above); debt obligations of the U.S. Government
issued in non-dollar securities; and debt obligations and other fixed income
securities of foreign and U.S. corporate issuers (non-dollar denominated). The
Fund is not limited to purchasing debt securities rated at the time of purchase
by Moody's or Standard & Poor's.

The Fund may invest in any country where the Portfolio Adviser sees
potential for high income. It presently expects to invest primarily in
non-dollar denominated securities of issuers in the industrialized Western
European countries; in Canada, Japan, Australia and New Zealand; and in Latin
America. In making international fixed income securities investments, the
Portfolio Adviser may consider, among other things, the relative growth and
inflation rates of different countries. The Portfolio Adviser may also consider
expected changes in foreign currency exchange rates, including the prospects for
central bank intervention, in determining the anticipated returns of securities
denominated in foreign currencies. The Portfolio Adviser

23
<PAGE>

may further evaluate, among other things, foreign yield curves and regulatory
and political factors, including the fiscal and monetary policies of such
countries. The Fund may also invest up to 25% of its assets in the fixed income
securities of issuers in emerging market countries. It is the policy of the Fund
not to invest more than 10% of its assets in any one emerging market country,
except that the Fund may invest up to 15% of its assets in fixed income
securities of issuers in Mexico. For additional information on each of these
securities markets see "Additional Investment Information."

The Portfolio Adviser believes that the ability to invest the Fund's assets
among these markets, as opposed to investing in any one, may enable the Fund to
enhance current income and increase opportunities for capital appreciation while
taking risk to principal into consideration. The Fund may invest up to 35% of
its assets in lower quality fixed income securities. There is no limit on the
percentage of Fund assets invested in any of the fixed income markets except for
High Yield Securities which is limited to 35%, and further limited to the extent
of any lower quality fixed income securities held in the International Fixed
Income Securities portfolio. At least 65% of the Fund's total assets generally
will be invested in income producing securities; however, the Fund expects that
substantially all of its total assets will be invested in income-producing
securities, together with certain futures, options and foreign currency
contracts and other investments described below. When the Portfolio Adviser
determines that adverse market conditions exist, the Fund may adopt a temporary
defensive posture and hold cash or invest its entire portfolio in money market
instruments. In addition, during times of international political or economic
uncertainty, most or all of the Fund's investments may be made in the U.S. and
denominated in U.S. dollars. For a complete discussion of the types of
investments in which the Fund will invest-see "Additional Investment
Information" below.

Blanchard Worldwide Emerging Markets Fund

The Fund is designed for investors wishing to participate in the investment
opportunities available in smaller, emerging markets around the world. The
Portfolio Adviser for the Equity Securities sector of the Fund is Martin Currie
Inc. The Portfolio Adviser for the Fixed Income Securities sector of the Fund is
OFFITBANK. The Portfolio Advisers believe that the economies of these emerging
markets will continue to have among the world's fastest rates of economic growth
over the next decade. In many instances, the growth in these countries is
brought on by a move away from governmental intervention in the marketplace, and
an aggressive move towards free market capitalism. Their development is enhanced
by a high degree of infrastructure development brought about by increased trade,
accelerating demand for consumer products and a growing middle class. Generally,
these economies are characterized by large, hard-working labor pools, low labor
costs and a growing middle class.

Many companies in these emerging market countries are experiencing rising
productivity and profit growth due to increased focus on higher value added,
increased demand for their products from internal and external markets, more
profitable product lines and enhanced capital investment in technology. In
addition, because many governments are opening capital markets to foreign
investors, foreign capital is beginning to be attracted to these countries,
further fueling growth to levels which are generally higher than in the U.S. and
other more developed countries. As a result, the stock markets in many of these
emerging market countries have, in recent years, outperformed our own.

Additionally, the Fund is able to invest in emerging market fixed income
securities. The Portfolio Advisers' believe that this will be advantageous to
investors for three reasons: (1) shareholders will receive income distributions,
when available, on a quarterly basis, (2) the Fund may seek capital appreciation
from its fixed income component, and (3) by diversifying the Fund's portfolio
between both equities and fixed income, the Fund expects to be able to enjoy the
risk-reducing benefit of diversifying between asset classes. When an emerging
market is less developed, and therefore carries more risk, emerging market
issuers

24
<PAGE>

have to offer higher yields on fixed income securities in order to attract the
capital needed to continue to develop. Once an emerging market issuer has shown
the ability to service its debt, it may be able to reduce yields, thereby
providing existing holders of its fixed income securities with opportunities for
capital appreciation.

Investing directly in foreign securities is usually impractical for
individual investors. Investors frequently find it difficult to arrange
purchases and sales, and to obtain current market, industry or economic data.
The Portfolio Advisers' experience in emerging market investing, coupled with
the convenience and service advantages associated with a U.S. based mutual fund,
including free telephone transfers and liquidations, shareholder services,
professional management and diversification between a broad basket of
securities, may make the Fund a more appropriate emerging markets investment
vehicle for individual investors.

The investment objective of the Fund is capital appreciation and current
income. The Fund's investment objective is deemed fundamental and may not be
changed without shareholder approval. The Fund seeks to achieve its objective by
investing primarily in equity and fixed income securities in emerging markets
around the world. There can be no assurance that the Fund's investment objective
will be achieved.

The proportions invested in each of the Fund's two portfolio sectors will be
varied from time to time in accordance with Fund management's interpretation of
economic conditions and investment opportunities. Under normal circumstances,
however, the Fund expects to maintain a minimum of 65% in equity and
equity-related securities. To the extent that the Fund's assets are not invested
in securities of issuers whose principal activities are in emerging markets, the
remainder of the assets maybe invested in: (i) equity or fixed income securities
of corporate or governmental issues located in industrialized countries; and
(ii) money market instruments.

An emerging market is any country that the World Bank has determined to have
a low or middle income economy and may include every country in the world except
the United States, Australia, Canada, Japan, New Zealand and most countries
located in Western Europe such as Belgium, Denmark, France, Germany, Great
Britain, Italy, the Netherlands, Norway, Spain, Sweden and Switzerland. Under
normal conditions, the Fund will invest at least 65% of its total assets in
securities of issuers whose principal activities are in emerging markets.
However, for temporary defensive purposes, the Portfolio Advisers may invest
less than 65% of the Fund's assets in securities of issuers whose principal
activities are in emerging markets, in which case the Fund may invest in U.S.
Treasury securities and high quality fixed income securities.

The Fund may invest indirectly in emerging markets by investing in other
investment companies. Due to restrictions on direct investment by foreign
entities in certain emerging market countries, investment in other investment
companies may be the most practical or the only manner in which the Fund can
invest in the securities markets of certain emerging market countries. Such
investments may involve the payment of premiums above the net asset value of
such issuers' portfolio securities, are subject to limitations under the 1940
Act, are constrained by market availability and may constitute passive foreign
investment companies for Federal income tax purposes. As a shareholder in an
investment company, the Fund would bear its ratable share of that investment
company's expenses, including its advisory and administration fees. The
Portfolio Advisers have agreed to waive their management (advisory) fees with
respect to the portion of the Fund's assets invested in shares of other open-end
investment companies. The Fund would continue to pay its own management fees and
other expenses with respect to its investments in shares of a closed-end
investment company.

The Portfolio Adviser for Fixed Income Securities may invest all of the
fixed income sector's total assets in lower-quality fixed income securities if
the Portfolio Adviser deems that such high yield/high risk securities present
attractive investment opportunities. Most fixed income securities in emerging
markets, even

25
<PAGE>

government obligations, are rated lower than investment grade by U.S. rating
services. "Investment grade" fixed income securities are those rated within the
four highest ratings categories of Standard & Poor's or Moody's or, if a
security is unrated, determined to be of comparable quality. Securities rated
BBB by Standard & Poor's and Baa by Moody's are investment grade fixed income
securities but may have speculative characteristics. Many emerging market fixed
income securities are not rated by U.S. ratings agencies. Investment in
non-investment grade fixed income securities involves a high degree of risk and
can be speculative. See "Risk Factors and Special Considerations" for a
discussion of certain risks. For temporary defensive purposes, the Portfolio
Advisers may invest less than 65% of the Fund's assets in securities of issuers
whose principal activities are in emerging markets, in which case the Fund may
invest in U.S. Treasury securities and high quality fixed income securities.

The Fund may invest up to 15% of its total assets in repurchase agreements,
borrow money and enter into forward foreign currency exchange contracts and
foreign currency futures contracts, as well as purchase put or call options on
foreign currency. See "Certain Investment Strategies and Policies".

MANAGEMENT OF THE FUNDS

Board of Trustees/Directors. The Board of Trustees and the Board of
Directors (the "Boards" or the "Board Members") are responsible for managing the
business affairs of the Funds and for exercising all of the powers of the Funds
except those reserved for the shareholders. The Executive Committee of the
Boards handle the Boards' responsibilities between meetings of the Boards.

Investment Adviser. VCM is responsible for managing the Funds and overseeing
the investment of their assets, subject at all times to the supervision of the
Board Members. In addition, VCM selects, monitors and evaluates the Portfolio
Advisers. VCM will review the Portfolio Advisers' performance records
periodically, and will make changes if necessary, subject to Board Member and
Shareholder approval.

Advisory Fees. VCM receives an annual investment advisory fee at annual
rates equal to percentages of the relevant Fund's average net assets as follows:

Blanchard Global Growth Fund- 1.00% of the first $150 million of average
daily net assets, .875% of the Fund's average daily net assets in excess of $150
million but not exceeding $300 million and .75% of the Fund's average daily net
assets in excess of $300 million. Blanchard 100% Treasury Money Market Fund-.50%
of the first $500 million of the Fund's average daily net assets, .475% of the
Fund's average daily net assets in excess of $500 million but not exceeding $1
billion, plus .45% of the Fund's average daily net assets in excess of $1
billion; Blanchard Short-Term Global Income Fund-.75%; Blanchard American Equity
Fund-1.10%; Blanchard Precious Metals Fund, Inc. -1% of the first $150 million
of the Fund's average daily net assets, .875% of the Fund's average daily net
assets in excess of $150 million but not exeeding $300 million and .75% of the
Fund's average daily net assets in excess of $300 million. Blanchard Flexible
Income Fund-.75%; Blanchard Short-Term Bond Fund-.75%; Blanchard Flexible
Tax-Free Bond Fund-.75% and Blanchard Worldwide Emerging Markets Fund-1.25%.

The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of the applicable percentage
applied to the daily net assets of the Fund.

The investment advisory contract provides for the voluntary waiver of
expenses by VCM from time to time. VCM can terminate this voluntary waiver of
expenses at any time with respect to a Fund at its sole discretion. VCM has also
undertaken to reimburse the Funds for operating expenses in excess of
limitations established by certain states.

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<PAGE>

VCM's Background. Virtus Capital Management, Inc., a Maryland corporation
formed in 1995, is a wholly owned subsidiary of Signet Banking Corporation.
Signet Banking Corporation is a multi-state, multi-bank holding company which
has provided investment management services since 1956. VCM, which is a
registered investment adviser, manages, in addition to the Funds, The Virtus
Funds, three equity common trust funds with $39 million in assets and three
fixed income common trust funds with $221 million in assets.

For the fiscal year ended April 30, 1994 the prior manager received from
each Fund a monthly fee at the following annual rates: BFIF, BSTBF, BSTGIF and
BFTFBF each paid the prior manager .75% of their average daily net assets;
BWEMF paid the prior manager 1.25% of its average daily net assets; BPMF paid
the prior manager 1.00% of its average daily net assets; BAEF paid the prior
manager 1.10% of its average daily net assets; BGGF paid the prior manager 1.00%
of its average daily net assets; and BTMMF paid the prior manager .50% of its
average daily net assets. Some of these fees are higher than the fees charged by
many investment companies because of the complexity of managing these types of
Funds.

[VCM has conditioned its right to receive a portion of any earned but
deferred fees from BFIF and BSTBF and to receive reimbursement for absorbed
expenses (measured on a rolling two-year period, starting from the date the
portion of the fee is deferred and/or the expenses are absorbed) upon these
Funds reaching and then maintaining the following specified levels of net assets
for a period of 30 continuous days (excluding assets exchanged into a Fund after
June 1, 1993 from other funds in the Blanchard Group of Funds), provided that
such reimbursement would not cause the Fund's expenses in such year to exceed
1.75%:]

Specified Level of Conditional Portion of Earned But
Fund's Net Assets Deferred Fees to be Received
------------------ ---------------------------------

BFIF $600 million 20%
$630 million 20%
$660 million 20%
$690 million 20%
$720 million 20%
----
100%

BSTBF $ 50 million 25%
$ 60 million 25%
$ 70 million 25%
$ 80 million 25%
----
100%

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<PAGE>

PORTFOLIO ADVISORY SERVICES

The Portfolio Advisers.

To provide portfolio advisory services for the Funds, VCM has entered into
sub-advisory agreements with the Portfolio Advisers set forth below. The
Portfolio Advisers have extensive experience in investing and managing large
private and institutional accounts. Under the terms of each sub-advisory
agreement, the Portfolio Adviser has discretion to purchase and sell securities
for that Fund, except as limited by such Fund's investment objective, policies
and restrictions. Although each Portfolio Adviser's activities are subject to
general oversight by VCM and the Board Members, selection of specific securities
in which the Fund may invest are made by the Portfolio Adviser.

Blanchard Global Growth Fund

Shufro Rose & Ehrman ("Shufro") manages the U.S. Equities Sector of the
Fund. Shufro is a registered investment adviser. Founded in 1938, Shufro is a
member of the New York and American Stock Exchanges. It is among the oldest of
those firms specializing in the management of investment portfolios. As of
December 31, 1993, Shufro managed assets of more than $1.3 billion from private
and institutional accounts.

Shufro's investment philosophy is one of "fundamentals". This involves
selecting securities backed by assets, finances and current earning power.
Shufro's principals conduct research as well as portfolio management, including
examination of source materials such as annual and other corporate reports,
published speeches by the company officers, and other pertinent data. In
addition, Shufro's principals conduct visits to companies to attain depth of
understanding not achieved solely through inspection of written materials.
Robert Weiss, a General Partner of Shufro, with more than 30 years of experience
as a portfolio manager, is responsible for the day-to-day management of this
sector's portfolio.

The Foreign Equities Sector and the Foreign Fixed Income Sector are managed
by Fiduciary International, Inc., a New York corporation that was organized in
1982 as Fir Tree Advisers, Inc. Fiduciary International, Inc. has also been
chosen by the Fund to perform the duties of Global Allocation Strategist.
Fiduciary International, Inc. is a wholly-owned subsidiary of Fiduciary
Investment Corporation, which, in turn, is a wholly-owned subsidiary of
Fiduciary Trust Company International. Fiduciary Trust Company International was
chartered in 1931 as a New York State bank and is headquartered in New York
City. This sector is managed by a committee headed by Mr. Jeremy H. Biggs, Vice
Chairman and Chief Investment Officer.

The U.S. Fixed Income Sector is managed by Investment Advisers, Inc. of
Minneapolis, Minnesota, a registered investment adviser established in 1947. As
of December 31, 1993, it managed over $13 billion in assets. Investment
Advisers, Inc. furnishes investment advice to pension and profit sharing trusts,
religious, educational, and charitable trusts, investment companies,
municipalities and individuals. Larry R. Hill, an Executive Vice President of
Investment Advisers, Inc., with more than 10 years of experience as a Fixed
Income Portfolio Manager, is responsible for the day-to-day management of this
sector's portfolio.

The Precious Metals Securities and Bullion Sector Manager is managed by
Cavelti Capital Management, Ltd., of Toronto, Canada. 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. Cavelti Capital Management, Ltd. also acts as Portfolio Adviser to
BPMF.

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<PAGE>

Martin Currie Inc., a member of the Martin Currie Group, manages the
Emerging Markets sector. 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 $4 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 $900 million in
global assets.

Currently, the Martin Currie Group operates its investment business through
four companies. In North America, Martin Currie Inc. (the Sector Manager), and
in the U.K., Martin Currie Investment Management, Martin Currie Unit Trusts and
Martin Currie Private Clients all 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 weighing
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. Martin Currie Inc.
also acts as portfolio adviser to BWEMF.

VCM has chosen Fiduciary International, Inc. to act as the Global Allocation
Strategist for the Fund. As such, Fiduciary International has a global
allocation committee headed by Mr. Jeremy H. Biggs, Vice Chairman and Chief
Investment Officer, whose role is to review, evaluate and allocate the
percentages in which the total assets of the Fund will be divided among its six
investment sectors, subject to review by VCM and its Board Members. The
allocations for each sector may be changed at any time. Allocations will vary
depending on a variety of factors, such as economic and market conditions,
interest rates, currency fluctuations, inflationary or deflationary
expectations, geopolitical circumstances and other factors. The ability of the
Fund to achieve its investment objective will be dependent in part on the
success of the Global Allocation Strategist in anticipating the onset, duration
and termination of broad economic cycles. Failure to anticipate the onset or
termination of such cycles could result in the assets of the Fund being
disproportionately weighted toward one sector at the expense of another.

VCM feels that Fiduciary International, Inc. is uniquely qualified for the
job of Global Allocation Strategist. Fiduciary International, Inc. is a
registered investment adviser with the SEC and has been engaged in the business
of providing investment advisory services since 1982. In addition to its role as
Global Allocation Strategist, Fiduciary International, Inc. has been chosen to
manage the Foreign Fixed Income and Foreign Equities sectors of the Fund.

Fiduciary International, Inc. was founded in 1931 and currently manages over
$24 billion in global assets for large institutional and corporate accounts as
well as those of wealthy individuals. Clients include the United Nations pension
fund, Princeton University and Duke University. Mr. Jeremy H. Biggs, Vice
Chairman and Chief Investment Officer of Fiduciary International, Inc., oversees
the portfolio allocation process for the Fund. Mr. Biggs is a graduate of Yale
University and has done postgraduate work at the London School of Economics. Mr.
Biggs has extensive experience in global investing and in finance. Mr. Biggs is
supported by a team of researchers and analysts.

Fiduciary International, Inc.'s method of security analysis includes credit
analysis to gauge the creditworthiness of issuers of securities, analysis of
economic background, industry analysis, balance sheet and income statement
analysis and assessment of the macro-economic environment and the outlook for
the currencies in the countries where the companies operate. In addition,
Fiduciary International, Inc.

29
<PAGE>

may use outside sources of information, including economic consultants,
technical industry specialists and market technicians.

The Sub-Advisory Agreements. The sub-advisory agreements between VCM and the
Sector Managers provide for payment by VCM of annual fees, payable to the Sector
Managers on a monthly basis. The aggregate of fees payable to the Sector
Managers for the services they provide, as a group, equals approximately 35% of
the management fees paid to VCM by the Fund. For a detailed description of the
sub-advisory agreements and of the Fund's expenses, see "Management of the
Trust" in the Fund's Statement of Additional Information.

Blanchard Short-Term Global Income Fund

VCM has retained Lombard Odier International Portfolio Management Limited,
Norfolk House, 13 Southampton Place, London WC1A 2AJ, England ("Lombard Odier")
to provide portfolio advisory services to the Fund. Lombard Odier is the
institutional investment management arm of Geneva-based Lombard Odier & Cie, one
of the oldest and largest private Swiss banks, founded in 1798. The Lombard
Odier Group currently manages well in excess of $15 billion and has nearly 200
years experience in global fixed income investment management. Lombard Odier is
registered as an investment adviser with the SEC. Paul Abberley, a Director of
Lombard Odier, has more than 8 years of experience as a portfolio manager and is
responsible for the day-to-day management of the Fund's portfolio.

The Portfolio Adviser has retained WLO Global Management, as sub-adviser, to
assist in the investment management of the Fund pursuant to a Sub-Advisory
Agreement, and subject to the direction of the Manager, the Portfolio Adviser
and the Board of Trustees of the Fund. Under the Sub-Advisory Agreement, the
Sub-Adviser has primary responsibility for providing investment advice to the
Fund and managing the domestic (U.S.) investment of the Fund's assets, while the
Portfolio Adviser retains responsibility for international investments.

WLO Global Management, a partnership between the Lombard Odier and Western
Asset groups of companies, was established in 1992 to offer international and
global fixed income portfolio management services to U.S. plan sponsors and
foreign institutions. WLO Global Management is registered with the Securities
and Exchange Commission as an investment adviser. WLO Global Management is
structured to combine the proven expertise of two independent yet mutually
compatible firms: Western Asset (for U.S. domestic fixed-income management) and
Lombard Odier (for non-dollar fixed income management).

The California-based partner, Western Asset Management International, is
registered with the Securities and Exchange Commission as an investment adviser.
As of December 31, 1993, the Group managed $11 billion of U.S. fixed-income
assets.

The Sub-Advisory Agreement. The sub-advisory agreement between VCM and
Lombard Odier provides for the payment by VCM to Lombard Odier of a monthly fee
at the annual rate of .35% of the first $10 million of the Fund's average daily
net assets; .30% of the next $10 million of average daily net assets; .25% of
the next $10 million of average daily net assets; .20% of the next $10 million
of average daily net assets; and .15% of average daily net assets in excess of
$40 million.

30
<PAGE>

Blanchard Short-Term Bond Fund
Blanchard Flexible Income Fund

VCM has retained OFFITBANK, 520 Madison Avenue, New York, New York 10022
(the "Sub-Adviser") to provide portfolio advisory services to the Fund.
OFFITBANK, a New York State chartered trust bank, is the continuation of the
business of Offit Associates, Inc., a registered investment adviser founded in
December, 1982. The firm converted to a trust bank in July, 1990. The core
business of OFFITBANK is portfolio management for institutions, non-profit
organizations and wealthy family groups. OFFITBANK specializes in fixed income
management and offers its clients a complete range of fixed income investments
in capital markets throughout the world. OFFITBANK currently manages in excess
of $4.0 billion in assets. Jack D. Burks, Managing Director of OFFITBANK, has
over 10 years of experience in Fixed Income Portfolio Management and is
responsible for the day-to-day management of the Funds' portfolio.

The Sub-Advisory Agreements. The sub-advisory agreements between VCM and
OFFITBANK, provides for the payment by VCM to OFFITBANK of a monthly fee at the
annual rate of .30% of the first $25 million of each Fund's average daily net
assets; .25% of the next $25 million of average daily net assets; and .20% of
average daily net assets in excess of $50 million.

Blanchard Flexible Tax-Free Bond Fund

VCM has retained The United States Trust Company of New York ("U.S. Trust")
to provide portfolio advisory services to the Fund. U.S. Trust, a New York State
chartered bank and trust company established in 1853, currently manages in
excess of $26 billion in assets. U.S. Trust is a financial services company that
specializes in asset management, private banking, fiduciary and securities
services. Kenneth J. McAlley, an executive vice president of U.S. Trust, has
over ten years of expertise in Municipal Obligation portfolio management and is
responsible for the day-to-day management of the Fund's Portfolio. Mr. McAlley
is a nationally recognized expert in municipal bond investment strategy and has
been favorably profiled in publications such as Barrons, Forbes and Financial
World.

The Sub-Advisory Agreement. Pursuant to the sub-advisory agreement between
VCM and U.S. Trust, VCM has agreed to pay U.S. Trust a monthly fee at the annual
rate of .20% of the Fund's average daily net assets.

Blanchard American Equity Fund

VCM has retained Provident Investment Counsel, 300 North Lake Avenue,
Pasadena, California 91101-4922, as the Portfolio Adviser to provide portfolio
advisory services. The Portfolio Adviser is a corporation that traces its
origins to an investment partnership formed in 1951. The Portfolio Adviser
currently manages over $10 billion and has nearly 40 years experience in equity
management. The Portfolio Adviser is registered as an investment adviser with
the SEC. Jeffrey Miller, a Managing Director of Provident, has more than 20
years of experience as a portfolio manager and is responsible for the day-to-day
management of the Fund's portfolio.

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<PAGE>

The Sub-Advisory Agreement. The sub-advisory agreement between VCM and
Provident, provides for the payment by VCM to Provident of a monthly fee at the
annual rate of .50% of the first $150 million of the Fund's average daily net
assets; .45% of the next $100 million of average daily net assets; .40% of the
next $150 million of average daily net assets; and .35% of average daily net
assets in excess of $400 million.

Blanchard Worldwide Emerging Markets Fund

Martin Currie Inc. provides portfolio advisory services for the Equity
Securities sector of the Fund. For a discussion of Martin Currie Inc. see
"Blanchard Global Growth Fund" above.

OFFITBANK provides portfolio advisory services for the Fixed Income
Securities sector of the Fund. For a discussion of OFFITBANK see "Blanchard
Short-Term Bond Fund" above.

The Sub-Advisory Agreements. Pursuant to the sub-advisory agreement between
VCM and Martin Currie, VCM, not the Fund, has agreed to pay Martin Currie a
monthly fee at the annual rate of .50% of the first $150 million of the equity
sector's average daily net assets and .40% of the sector's average daily net
assets in excess of $150 million. Pursuant to the sub-advisory agreement between
VCM and OFFITBANK, VCM, not the Fund, has agreed to pay OFFITBANK a monthly fee
at the annual rate of .45% of the first $150 million of the fixed income
sector's average daily net assets and .35% of the sector's average daily net
assets in excess of $150 million.

Blanchard Precious Metals Fund, Inc.

Cavelti Capital Management, Ltd. provides portfolio advisory services for
the Fund. For a discussion of Cavelti Capital Management, Ltd. see "Blanchard
Global Growth Fund" above.

The Sub-Advisory Agreement. The sub-advisory agreement between VCM and
Cavelti provides for payment by VCM of annual fees, payable to Cavelti on a
monthly basis. For the services provided by Cavelti, VCM pays a fee of .30% of
the average daily net assets of the Fund on the first $150 million, plus .2625%
of the Fund's average net assets in excess of $150 million but less than $300
million, plus .225% of the Fund's average net assets in excess of $300 million.

HOW TO INVEST

You may purchase shares of any Fund from Federated Securities Corp., the
Funds' principal Distributor. You may also purchase shares from broker-dealers
who have entered into a dealer agreement with the Distributor at net asset value
which is computed once daily for BAEF and BTMMF as of the close of the New York
Stock Exchange (currently 4:00 p.m., New York time) and for the other Funds as
of the close of the options exchanges (normally 4:15 P.M. New York time). If
your order is received after the above times, your shares will be purchased at
the net asset value on the next business day. Each Fund's net asset value per
share is determined by dividing the value of that Fund's net assets by the total
number of its shares outstanding. Each Fund determines the net asset value of
its shares on each day that the New York Stock Exchange is open for business and
on such other days as there is sufficient trading in its securities to affect
materially its net asset value per share.

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<PAGE>

For all Funds other than BTMMF the minimum initial investment requirement is
$3,000 and the minimum initial investment requirement for qualified pension
plans (IRAs, Keoghs, etc.) is $2,000. If you open a Retirement Plan with any
Fund before December 31, 1994, you will not be charged the account opening fee.
The minimum initial investment in BTMMF is $1,000 which is reduced to $500 for
qualified pension plans. The minimum investment requirement for additional
investments in all of the Funds is at least $200 per investment. (The foregoing
minimum investment requirements may be modified or waived at any time at our
discretion.)

Purchases By Mail

To purchase shares of a Fund by mail, simply send a completed Application
(included with this Prospectus or obtainable from the Fund), to the Blanchard
Group of Funds, c/o Mutual Funds Service Company, P.O. Box 2798, Boston,
Massachusetts 02208-2798, together with a check payable to the Blanchard Group
of Funds in payment for the shares. Mutual Funds Service Company is an affiliate
of United States Trust Company of New York. If you need assistance in completing
the application, call us at 1-800-829-3863. Our investor services
representatives are here to help you.

All purchases must be made in U.S. dollars and checks must be drawn on a
United States bank. Payment for shares may be not be made by third party checks,
however, second party checks are acceptable when properly endorsed. We reserve
the right to limit the number of checks for one account processed at one time.
If your check does not clear, your purchase will be cancelled and you could be
liable for any losses or fees incurred. Payments transmitted by check are
accepted subject to collection at full face amount.

Your purchase order becomes effective when it is received in proper form by
the Fund's Transfer Agent. A purchase order will not become effective until it
is received in proper form by the Transfer Agent.

Purchases By Wire. You may also purchase shares by bank wire. For opening
new accounts in this manner, please call us toll free at 1-800-829-3863 before
wiring your funds, and furnish the following information: the account
registration and address, and your taxpayer identification number (for
individuals, a Social Security number). When making additional investments by
wire to your existing accounts, please provide your account numbers. You must
include your name and telephone number, the amount being wired and the name of
the wiring bank with both new and existing account purchases. Initial purchases
by wire must be followed by a completed Application within seven days.

You should instruct your bank to wire Federal funds: United States Trust
Company of New York, 114 West 47th Street, New York, New York 10036 ABA
#021001318 Credit Account #20-7324-2, indicating the name of the Fund, your
account number and the account registration.

Automatic Investment Plans. Regular monthly purchases of shares may be made
by direct deposit of Social Security and certain other government checks into
your account. Fund shares may be purchased at regular intervals selected by you
by automatic transferral of funds from a bank checking account that you may
designate. All such purchases require a minimum of $100 per transaction. Call or
write our investor services department for information and forms required to
establish these Plans.

Electronic Funds Transfers (EFT)--Subsequent investments may be made by
electronic transfer of

33
<PAGE>

funds from an account maintained in a bank or other domestic financial
institution that is an Automated Clearing House member (ACH). To enroll in this
program, you must file an application with the Blanchard Group of Funds by
calling 1-800-829-3863. You may begin transferring funds under the program only
after 15 days from the date your EFT Application is received by the transfer
agent, Mutual Funds Service Co. You must direct the institution to transmit
immediately available funds through the Automated Clearing House to U.S. Trust
Co. of New York ABA #021001318 CR A/C #20-7324-2 with instructions to credit
your Fund account. The instructions must specify your Fund account registration
and your Fund account number. Redemption proceeds will be on deposit in your
designated account at an Automated Clearing House member bank ordinarily two
days after receipt of the redemption request.

Direct deposit of monthly dividends or systematic disbursements from your
account will be on deposit in your designated account at an Automated Clearing
House member bank ordinarily two days after a dividend payment or disbursement
is effected.

General Information

All ordinary income, dividends and capital gain distributions, if any, are
automatically reinvested at net asset value in additional Fund shares unless we
receive written notice from you, at least 30 days prior to the record day of
such distribution, requesting that your dividends and distributions be
distributed to you in cash. See "Tax Matters".

We reserve the right to suspend the offering of any Fund shares for a period
of time. We also reserve the right to reject any purchase order.

No share certificates will be issued for shares unless requested in writing.
In order to facilitate redemptions and transfers, most shareholders elect not to
receive certificates. Shares are held in unissued form by the Transfer Agent.
Shares for which certificates have been issued cannot be redeemed, unless the
certificates are received together with the redemption request in proper form.
Share certificates are not issued for fractional shares.

INVESTOR SERVICES

Automatic Withdrawal Plan

If you purchase $10,000 or more of Fund shares, you may establish an
Automatic Withdrawal Plan to authorize a specified dollar amount to be paid
periodically to a designated payee. Under this Plan, all income dividends and
capital gains distributions will be reinvested in shares in your account at the
applicable payment dates' closing net asset value.

Your specified withdrawal payments are made monthly or quarterly (on or
about the 10th day) in any amount you choose, but not less than $100 per month
or $300 quarterly. Please note that any redemptions of your shares, which may
result in a gain or loss for tax purposes, may involve the use of principal, and
may eventually use up all of the shares in your account. Such payments do not
provide a guaranteed annuity and may be terminated for any shareholder by a Fund
if the value of the account drops below $10,000 due to transfer or redemption of
shares. In a such a case, the shareholder will be notified that the withdrawal
payments will be terminated. The cost of administering the Automatic Withdrawal
Plan for the benefit of shareholders is a Fund expense.

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<PAGE>

Retirement Plans

We offer a Prototype Pension and Profit Sharing Plan, including Keogh Plans,
IRAs SEP-IRA Plans, IRA Rollover Accounts and 403(b) Plans. Plan support
services are available by calling us at 1-800-829-3863.

Exchange Privilege

You may exchange your Fund shares for shares of another Fund in the
Blanchard Group of Funds on the basis of relative net asset values per share at
the time of exchange. No fees are charged when you exchange from one Fund to
another within the Blanchard Group of Funds. Before making an exchange, you
should read the Prospectus concerning the Fund into which your exchange is being
made.

To request an exchange by telephone, simply call 1-800-462-9102, prior to
4:00 P.M. New York time. Exchanges can be made in this manner only after you
have completed and sent to the Transfer Agent the telephone exchange
authorization form that is included on the New Account Application accompanying
this Prospectus and only if your account registration has not changed within the
last 30 days.

It is the Funds' policy to mail to you at your address of record, within
five business days after any telephone call transaction, a written confirmation
statement of the transaction. All calls will be recorded for your protection. As
a result of the Funds' policy, neither a Fund nor its transfer agent will be
responsible for any claims, losses or expenses for acting on telephone
instructions that they reasonably believe to be genuine. Since you may bear the
risk of loss in the event of an unauthorized telephone transaction, you should
verify the accuracy of telephone transactions immediately upon receipt of your
confirmation statement.

Exchanges can only be made between accounts with identical account
registration and in states where shares of the other Funds are qualified for
sale. We do not place any limit on the number of exchanges that may be made and
charge no fee for affecting an exchange. The dollar amount of an exchange 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. We
may modify or suspend the Exchange Privilege at any time upon 60 days' written
notice.

Any exchange of shares is, in effect, a redemption of shares in one Fund and
a purchase of the other fund. You should consider the possible tax effects of an
exchange. To prevent excessive trading between Funds to the disadvantage of
other shareholders, we reserve the right to modify or terminate this Privilege
with respect to any shareholder.

Check-Writing Privilege. If you are a shareholder of BSTGIF, BFIF, BSTBF or
BTMMF (other than IRAs, Keoghs and other qualified pension plan shareholders),
you may elect a service which allows you to write an unlimited number of checks,
at no charge, in any amount of $250 or more which will clear through the
Transfer Agent. If the amount of your check exceeds the value of the shares in
your account, your check will be returned and a $10 fee deducted from your
account. You may not use the Check-Writing Privilege to close out your account
as you will not be able to ascertain the exact account balance of your account
on the date your check clears. To close out your account completely, you should
use the telephone or mail redemption procedures described below. Stop orders may
be placed on checks for a fee of $10. For further information on this service,
call the Distributor.

The payee of a check may cash or deposit it in a bank, however checks cannot
be presented in person at a branch office of the Transfer Agent for cash. When a
check is presented to the Transfer Agent for payment,

35
<PAGE>

it will cause the Fund to redeem a sufficient number of shares to cover the
amount of the check. You will continue to earn daily income until the check is
presented to the Transfer Agent for payment.

A completed Purchase Application must be received by the Transfer Agent
before the Withdrawal Plan, Exchange or Check-Writing Privileges may be used.

HOW TO REDEEM

You may redeem your shares on any business day at the next determined net
asset value calculated after your redemption request has been accepted by the
Transfer Agent as described below.

By Telephone. You may redeem your shares by telephone if you call the Funds'
Transfer Agent at 1-800-462-9102, prior to 4:15 P.M., New York time (4:00 P.M.
New York time for BAEF and BTMMF). All calls will be recorded. Redemptions of
Fund shares can be made in this manner only after you have executed and filed
with the Transfer Agent the telephone redemption authorization form which may be
obtained from your Fund or the Transfer Agent.

You may elect on the telephone redemption authorization form to have a
redemption in any amount of $250 or more mailed either to your registered
address, to your bank account, or to any other person you may designate. Should
you wish to review these instructions, simply complete and file a new telephone
redemption authorization form. There is no charge for this service. Neither your
Fund nor the Transfer Agent will be responsible for any claims, losses or
expenses for acting on telephone instructions that they reasonably believe to be
genuine. See "Investor Services--Exchange Privilege," for additional information
with respect to losses resulting from unauthorized telephone transactions.

You may also request, by placing a call to the applicable telephone number
set forth above, redemption proceeds to be wired directly to the bank account
that you have designated on the authorization form. The minimum amount that may
be redeemed in this manner is $1,000. A check for proceeds of less than $1,000
will be mailed to your address of record. The Funds do not impose a charge for
this service. However, the proceeds of a wire redemption may be subject to the
usual and customary charges imposed by United States Trust Company of New York
for the wiring of funds.

Under extraordinary market conditions, it may be difficult for you to redeem
your shares by telephone. Under these circumstances, you should consider
redeeming your shares by mail, as described below.

By Mail. All other redemption requests should be made in writing to the
Blanchard Group of Funds, c/o Mutual Funds Service Company (an affiliate of
United States Trust Company of New York), P.O. Box 2798, Boston, Massachusetts
02208-2798, the Funds' Transfer Agent. Where share certificates have been
issued, the certificates must be endorsed and must accompany the redemption
request. Signatures on redemption request for amounts in excess of $25,000 and
endorsed share certificates submitted for redemption must be accompanied by
signature guarantees from any eligible guarantor institution approved by the
Transfer Agent in accordance with its Standards, Procedures and Guidelines for
the Acceptance of Signature Guarantees ("Signature Guarantee Guidelines").
Eligible guarantor institutions generally include banks, broker-dealers, credit
unions, national securities exchanges, registered securities association,
clearing agencies and savings associations. All eligible guarantor institutions
must participate in the Securities Transfer Agents Medallion Program ("STAMP")
in order to be approved by the Transfer Agent pursuant to the Signature
Guarantee Guidelines. Copies of the Signature Guarantee Guidelines and

36
<PAGE>

information on STAMP can be obtained from the Transfer Agent at (800) 462-9102.
Signatures on redemption requests for any amount must be guaranteed (as
described above) if the proceeds are not to be paid to the registered owner at
the registered address, or the registered address has changed within the
previous 60 days. The letter of instruction or a stock assignment must specify
the account number and the exact number of shares or dollar amount to be
redeemed. It must be signed by all registered shareholders in precisely the same
way as originally registered. The letter of instruction must also include any
other supporting legal documents, if required, in the case of estates, trusts,
guardianships, custodianships, corporations, partnerships, pension or profit
sharing plans, or other organizations.

General Information.

Your redemption request becomes effective when it is received in proper form
by the Funds' Transfer Agent prior to 4:00 P.M. New York time for BAEF and BTMMF
and prior to 4:15 P.M., New York time, for the other Funds or your redemption
will occur on the following business day. We will make payment for redeemed
shares within seven days after receipt by the Transfer Agent. However, we may
delay the forwarding of redemption proceeds on shares which were recently
purchased until the purchase check has cleared, which may take up to 15 days or
more. We may suspend the right of redemption when the New York Stock Exchange is
closed or when trading on the Exchange is restricted, and under certain
extraordinary circumstances in accordance with the rules of the SEC. Due to the
relatively high cost of handling small investments, we reserve the right upon 60
days' written notice to redeem, at net asset value, the shares of any
shareholder whose account has a value of less than $1,000, other than as a
result of a decline in the net asset value per share. We do not presently
contemplate making such involuntary redemptions and will not redeem any shares
held in tax-sheltered retirement plans in this category. We also reserve the
right upon notice to shareholders to charge a fee for any services provided
herein that are currently free of charge.

DISTRIBUTION OF SHARES OF THE FUNDS

Federated Securities Corp. is the principal distributor for shares of the
Funds. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.

Distribution Plan. According to the provisions of a distribution plan
adopted pursuant to Investment Company Act Rule 12b-1, the distributor may
select brokers and dealers to provide distribution and administrative services
as to shares of the Funds. The distributor may also select administrators
(including financial institutions, fiduciaries, custodians for public funds and
investment advisers) to provide administrative services. Administrative services
may include, but are not limited to, the following functions: providing office
space, equipment, telephone facilities, and various personnel including
clerical, supervisory, and computer, as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as each Fund reasonably requests for its shares.

Brokers, dealers, and administrators will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined

37
<PAGE>

from time to time by the Board of Trustees, provided that for any period the
total amount of fees representing an expense to the Trust shall not exceed an
annual rate of .25 of 1% of the average daily net assets of shares of BSTGIF,
BFIF, BSTBF and BFTFBF; .50 of 1% of the average daily net assets of shares of
BGIF, BCGF, BWEMF and BAEF; and .75 of 1% of the average daily net assets of
shares of BGGF and BPMF held in the accounts during the period for which the
brokers, dealers, and administrators provide services. Any fees paid by the
distributor with respect to shares of a Fund pursuant to the distribution plan
will be reimbursed by the Trust from the assets of the shares of that Fund.

The distributor will, periodically, uniformly offer to pay cash or
promotional incentives in the form of trips to sales seminars at luxury resorts,
tickets or other items to all dealers selling shares of the Funds. Such payments
will be predicated upon the amount of shares of the Funds that are sold by the
dealer. Such payments, if made, will be in addition to amounts paid under the
distribution plan and will not be an expense of a Fund.

Administrative Arrangements. The distributor may pay financial institutions
a fee based upon the average net asset value of shares of their customers
invested in the Trust for providing administrative services. This fee, if paid,
will be reimbursed by VCM and not the Trust.

Glass-Steagall Act. The Glass-Steagall Act prohibits a depository
institution (such as a commercial bank or a savings and loan association) from
being an underwriter or distributor of most securities. In the event the
Glass-Steagall Act is deemed to prohibit depository institutions from acting in
the administrative capacities described above or should Congress relax current
restrictions on depository institutions, the Board of Trustees will consider
appropriate changes in the administrative services.

State securities laws governing the ability of depository institutions to
act as underwriters or distributors of securities may differ from
interpretations given to the Glass-Steagall Act and, therefore, banks and
financial institutions may be required to register as dealers pursuant to state
law.

Administrative Services. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate each Fund. Such services include shareholder
servicing and certain legal and accounting services. Federated Administrative
Services provides these at an annual rate as specified below:

Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Trust
------------------ ---------------------------

.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at least
$75,000 per Fund. Federated Administrative Services may voluntarily waive a
portion of its fee.

Expenses of the Funds

Each Fund pays all of its own expenses and its allocable share of the
Trust's expenses.

The Trust's expenses for which holders of shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust; Trustees fees; auditors'

<PAGE>

fees; the cost of meetings of Board members; legal fees of the Trust;
association membership dues and such nonrecurring and extraordinary items as may
arise.

Each Fund's expenses for which holders of shares may pay their allocable
portion include, but are not limited to: registering each Fund and shares of the
Fund; investment advisory services; taxes and commissions; custodian fees;
insurance premiums; auditors' fees; and such nonrecurring and extraordinary
items as may arise.

Brokerage Transactions. Subject to the supervision of the Board Members and
VCM, decisions to buy and sell specific securities for a Fund are made by its
Portfolio Adviser. The Portfolio Advisers are authorized, subject to most
favorable price and execution, to place portfolio transactions with brokerage
firms that provide assistance in the distribution of Fund shares and/or supply
research. The Board Members have also authorized the Funds to allocate brokerage
to the Portfolio Advisers or an affiliated broker-dealer as well as to use the
Distributor, on an agency basis, or affiliates thereof, to effect portfolio
transactions which are executed on United States and foreign stock exchanges or
which are traded in the over-the-counter market. The Funds have adopted certain
procedures incorporating the standards of Rule 17e-1 of the 1940 Act, which
require that the commissions paid to a Portfolio Adviser or the Distributor or
to 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." From time to time, a Fund may purchase
portfolio securities directly from dealers acting as principals, underwriters or
market makers. As these transactions are usually conducted on a net basis, no
brokerage commissions are paid by that Fund. Transactions are allocated to
various dealers selected by VCM or the Portfolio Advisers primarily on the basis
of prompt execution of orders at the most favorable prices. Transactions may be
allocated based on the sale of Fund shares. The Funds have determined that the
foregoing arrangements are in the best interest of the Funds' shareholders. See
"Portfolio Transactions" in each Fund's Statement of Additional Information for
further information.

TAX MATTERS

Each Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including the requirements with respect to diversification
of assets, distribution of income and sources of income. It is each Fund's
policy to distribute to its shareholders all of their investment income (net of
expenses) and any capital gains (net of capital losses) in accordance with the
timing requirements imposed by the Code, so that each Fund will satisfy the
distribution requirement of Subchapter M and not be subject to Federal income
taxes or the 4% excise tax. If a Fund fails to satisfy any of the Code
requirements for qualification as a regulated investment company, it will be
taxed at regular corporate tax rates on all of its taxable income (including any
capital gains) without any deduction for distributions to shareholders, and
distributions to you will be taxable as ordinary dividends (even if derived from
the Fund's net long-term capital gains) to the extent of the Fund's current and
accumulated earnings and profits.

Distributions by a Fund of the excess, if any, of its net long-term capital
gain over its net short-term capital loss that are designated as capital gain
dividends are taxable to shareholders as long-term capital gains, regardless of
the length of time a shareholder has held his shares. The Blanchard 100%
Treasury Money Market Fund will be managed in a way so that it will not have any
long-term capital gains or losses. Distributions by a Fund of its net investment
income and the excess, if any, of its net short-term capital gain over its net
long-term capital loss are taxable to shareholders as ordinary income. Depending
on a Fund's investments, part or all of such ordinary income dividends could be
treated as: (1) dividends attributable to interest from obligations of the
United States Government ("U.S. Government Interest Dividends") that would be
exempt from state and local taxes; (2) dividends attributable to qualifying
dividends ("Qualifying

<PAGE>

Dividends") that for corporate shareholders would qualify for the 70%
dividends-received deduction; or (3) dividends attributable to municipal
obligations that would be excluded from regular federal tax and partially exempt
from state and local tax ("Exempt Interest Dividends").

A portion of such dividends from the Blanchard Precious Metals Fund,
Blanchard Global Growth Fund, and Blanchard American Equity Fund may be
Qualifying Dividends. However, this portion cannot exceed the aggregate amount
of Qualifying Dividends from domestic corporations received by such Funds during
the year, and substantially less than 100% of the ordinary income dividends paid
by such Funds may qualify for the deduction.

Distributions by the Blanchard Flexible Tax-Free Bond Fund of its tax-exempt
interest income (net of expenses) that are designated as Exempt Interest
Dividends should be excluded from gross income for federal income tax purposes.
However, you are required to report the receipt of Exempt Interest Dividends,
together with other tax-exempt interest, on your federal income tax return. In
addition, Exempt Interest Dividends may be subject to the federal alternative
minimum tax and to state and local income tax, and will be taken into account in
determining the portion, if any, of Social Security benefits received which must
be included in gross income for federal income tax purposes.

Distributions by the Blanchard 100% Treasury Money Market Fund are U.S.
Government Interest Dividends. The laws of most states exempt from personal
income taxes U.S. Government Interest Dividends from the Fund, which are
attributable to interest on United States Treasury obligations. The Fund will
advise you each year of the percentage of the Fund's ordinary income dividends
which are attributable to U.S. Government Interest Dividends.

Investment income that may be received by the Blanchard Short-Term Global
Income Fund, Blanchard Short-Term Bond Fund, Blanchard Precious Metals Fund,
Blanchard Global Growth Fund, Blanchard Flexible Income Fund, and Blanchard
Worldwide Emerging Markets Fund from sources within foreign countries may be
subject to foreign taxes withheld at the source. The United States has entered
into tax treaties with many foreign countries which entitle such Funds to a
reduced rate of, or exemption from, taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the amount of a
Fund's total assets to be invested in various countries is not known. If more
than 50% of the value of a Fund's total assets at the close of its taxable year
consist of stock or securities of foreign corporations, such Fund may elect to
"pass through" to its shareholders the amount of foreign taxes paid by the Fund.
If the Fund so elects, each shareholder would be required to include in gross
income, even though not actually received, his pro rata share of the foreign
taxes paid by the Fund, and would be treated as having paid his pro rata share
of such foreign taxes and therefore be allowed to either deduct such amount in
computing taxable income or use such amount (subject to various Code
limitations) as a foreign tax credit against federal income tax.

Distributions to you will be treated in the same manner for federal income
tax purposes whether you elect to receive them in cash or reinvest them in
additional shares. In general, you take distributions into account in the year
in which they are made. However, you are required to treat certain distributions
made during January as having been paid by a Fund and received by you on
December 31 of the preceding year. A statement setting forth the federal income
tax status (i.e., U.S. Government Interest Dividends, Qualifying Dividends,
Exempt Interest Dividends, or net capital gain dividends) of all distributions
made (or deemed made) during the year will be sent to you promptly after the end
of each year. If you purchase shares of a Fund just prior to the record date,
you will be taxed on the entire amount of the dividend received, even though the
net asset value per share on the date of such purchase may have reflected the
amount of such dividend.

<PAGE>

Upon the sale or redemption of shares of a Fund, you will recognize gain or
loss in an amount equal to the difference between the proceeds of the sale or
redemption and your adjusted tax basis in the shares. Any loss realized upon a
taxable disposition of shares within six months from the date of their purchase
will be disallowed to the extent of any exempt-interest dividends received on
the shares and, to the extent not disallowed, will be treated as long-term
capital loss to the extent of any capital gain dividends received on such
shares. All or a portion of any loss realized upon a taxable disposition of
shares of a Fund may be disallowed if other shares of the Fund are purchased
within thirty days before or after such disposition.

If you are a non-resident alien or foreign entity shareholder, ordinary
income dividends paid to you generally will be subject to United States
withholding at a rate of 30% (or a lower rate under an applicable treaty). If
you are a non-United States shareholder, we urge you to consult your own tax
advisor concerning the applicability of United States withholding tax.

Under the back-up withholding rules of the Code, you may be subject to 31%
withholding of federal income tax on ordinary income dividends, capital gain
dividends, and redemption payments made by the Funds. In order to avoid this
back-up withholding, you must provide the Fund with a correct taxpayer
identification number (which, if you are an individual, is usually your Social
Security number), and certify that you are a corporation or otherwise exempt
from or not subject to back-up withholding.

The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, you should also review the more detailed
discussion of federal income tax considerations relevant to the Funds that is
contained in the Funds' Statement of Additional Information. In addition, you
should consult with your own tax advisor as to the tax consequences of
investments in the Funds.

PERFORMANCE INFORMATION

Advertisements and communications to investors regarding the Funds may cite
certain performance and ranking information and may make performance comparisons
to other Funds or to relevant indices, as described below. In addition, the
Funds' Portfolio Advisers and other outside analysts may, from time to time,
report on the market outlook for their investments as well as comment on the
historical reasons for these investments including as a hedge against inflation.
The Funds' performance may be calculated both in terms of total return and on
the basis of current yield over any period of time and may include a computation
of a Fund's distribution rate.

Total Return. Cumulative total return data is computed by considering all
elements of return, including reinvestment of dividends and capital gains
distribution, over a stated period of time. Cumulative total return figures are
not annualized and represent the aggregate percentage or dollar value change
over the period in question.

Average annual return will be quoted for at least the one, five and ten year
periods ending on a recent calendar quarter (or if such periods have not yet
elapsed, at the end of a shorter period corresponding to the life of a Fund for
performance purposes). Average annual total return figures are annualized and,
therefore, represent the average annual percentage change over the period in
question.

Yield Information. The term "yield" refers to the income generated by an
investment over a one-month or 30-day period. This income is computed by
dividing the net investment income per share earned during such period by the
maximum public offering price per share on the last day of the period, and then
annualizing such 30-day (or one month) yield in accordance with a formula
prescribed by the SEC which

<PAGE>

provides for compounding on a semi-annual basis. The Funds may also quote
tax-equivalent yield, which shows the taxable yield that an investor would have
to earn before taxes to equal a Fund's tax-free yield. The tax-equivalent yield
is calculated by dividing a Fund's tax-exempt yield by the result of one minus
any combination of the stated federal, state, or city tax rate. If only a
portion of a Fund's income is tax-exempt, only that portion is adjusted in the
calculation.

Distribution Rate. The Funds may also quote distribution rates and/or
effective distribution rates in sales literature or other shareholders
communications. A Fund's distribution rate is computed by dividing the most
recent monthly distribution per share annualized by dividing the distribution
rate by the ratio used to annualize the distribution and reinvesting the
resulting amount for a full year on the basis of such ratio. The effective
distribution rate will be higher than the distribution rate because of the
compounding effect of the assumed reinvestment. A Fund's distribution rate may
differ from its yield because the distribution rate may contain net investment
income and other items of income (such as returns of capital), while yield
reflects only earned interest and dividend items of income.

Comparative Results. From time to time in advertisements or sales material,
a Fund may discuss its performance rating and may be compared to the performance
of other mutual funds or mutual fund indexes as published by widely recognized
independent mutual fund reporting services such as Lipper Analytical Services,
Inc., CDA and Morningstar, Inc. A Fund may also discuss the past performance and
ranking of its Portfolio Adviser, and compare its performance to various
investment indexes. The Funds may use performance information as reported in
publications of general interest, national, financial and industry publications
such as Forbes or Money Magazine and various investment newsletters such as
Donoghue's Money Letter. In addition, the Funds may compare their total return
to the total return of indexes of U.S. markets or world markets, to that of
other mutual funds, individual country indexes, or other recognized indexes.

From time to time, the Funds may provide information on certain markets or
countries and specific equity securities and quote published editorial comments
and/or information from newspapers, magazines, investment newsletters and other
publications such as The Wall Street Journal, Money Magazine, Forbes, Barron's,
USA Today and Mutual Fund Investors. We may also compare the historical returns
on various investments, performance indexes of those investments or economic
indicators. In addition, the Funds may reprint articles about a Fund and provide
them to prospective shareholders. The Distributor may also make available
economic, financial and investment reports to shareholders and prospective
shareholders. In order to describe these reports, the Funds may include
descriptive information on the reports in advertising literature sent to the
public prior to the mailing of a prospectus. Performance information may be
quoted numerically or may be presented in a table, graph, chart or other
illustration. It should be noted that such performance ratings and comparisons
may be made with funds which may have different investment restrictions,
objectives, policies or techniques than the Funds, and that such other funds or
market indicators may be comprised of securities that differ significantly from
the Funds' investments.

Performance information will vary from time to time and past results are not
necessarily representative of future results. You should remember that a Fund's
performance is a function of portfolio management in selecting the type and
quality of securities in which a Fund may invest, and is affected by operating,
distribution and marketing expenses.

ADDITIONAL INFORMATION ABOUT THE FUNDS
Blanchard Funds

Blanchard Funds is a Massachusetts business trust organized on January 24,
1986 (the "Trust"), which currently consists of ten series. All of the series
are non-diversified series of the Trust other than

<PAGE>

BTMMF which is diversified. Under Massachusetts law, the Trust and its series
are generally not required to hold annual or special shareholder meetings.
However, special meetings of shareholders may be held for such purposes as
electing trustees, changing fundamental policies, approving an investment
management/advisory agreement or approving a distribution and marketing plan, if
any, and, at the request of the shareholders, to replace trustees. Shareholders
holding 10% or more of the Trust's outstanding shares may call a special meeting
of shareholders. Shareholders may remove trustees from office whenever not less
than two-thirds of the outstanding shares either present a written declaration
to the Transfer Agent or vote at a meeting called for this purpose. In certain
circumstances, shareholders shall be given access to a list of the names and
addresses of all other shareholders, the number of shareholders and the cost of
mailing a request to them.

Blanchard Precious Metals Fund

BPMF is a non-diversified investment company organized as a Maryland
corporation on June 1, 1987. As such, no annual or special meetings of Fund
shareholders will be held except as may be required by the Maryland General
Corporation Law or the 1940 Act, or as the Board of Directors of the Fund may
determine.

A director of the Fund generally may be removed by the holders of not less
than a majority of the Fund's outstanding shares. In addition, the directors of
the Fund will promptly call a meeting of shareholders for any purpose or
purposes, including to vote on whether to remove any director(s) when requested
to do so in writing by record holders of not less than 10% of the outstanding
shares of the Fund. Finally, in certain circumstances, shareholders shall be
given access to a list of the names and addresses of all other shareholders or
be informed by the Fund of the number of shareholders and the cost of mailing
their request.

All Funds

Shares of each series represent shares of beneficial interest. Shares of
BPMF represent shares of common stock. Each share has equal rights with respect
to voting matters of that series or of BPMF. In the event of dissolution or
liquidation of a series or of BPMF, holders of shares will receive pro rata,
subject to the rights of creditors, the proceeds of the sale of the assets less
its liabilities. There are no preemptive or conversion rights applicable to the
shares of a Fund. Shares of a Fund, when issued, will be fully paid,
non-assessable and transferable. The Board Members may create additional series
of shares without shareholder approval. BPMF and each series of the Trust is
individually responsible only for its own expenses and operating costs and
incurs no liability with respect to the expenses and costs of any other series
or for BPMF, other than those which affect the Blanchard Group Funds as a group
and are allocated among the series and/or BPMF based upon their relative average
net assets during the year. There is a remote possibility that one Fund might
become liable for any misstatement in the Prospectus about another Fund.

This Prospectus omits certain information contained in the registration
statement as filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. Each Fund's Statement of Additional
Information included in this registration statement may be obtained without
charge from your Fund.

No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the
Statements of Additional Information, and information or representations not
herein contained, if given or made, must not be relied upon as having been
authorized by a Fund. This Prospectus does not constitute an offer or
solicitation in any jurisdiction in which such offering may not lawfully be
made.

The Code of Ethics of the Investment Adviser and the Funds prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Funds'

<PAGE>

planned portfolio transactions. The objective of the Code of Ethics of both the
Funds and Investment Adviser is that their operations be carried out for the
exclusive benefit of the Funds' shareholders. Both organizations maintain
careful monitoring of compliance with the Code of Ethics.

Counsel and Independent Accountants. The firm of Kramer, Levin, Naftalis,
Nessen, Kamin & Frankel, 919 Third Avenue, New York, New York 10022 is legal
counsel for the Funds. Price Waterhouse LLP, 1177 Avenue of the Americas, New
York, New York 10036, has been appointed the independent accountants for the
Funds.

Custodian, Transfer Agent and Dividend Disbursing Agent. United States Trust
Company of New York, 770 Broadway, New York, New York 10003, is the Funds'
Custodian, Transfer Agent and Dividend Disbursing Agent.

Shareholder Inquiries. Shareholder inquiries concerning the status of an
account or information concerning the Funds should be directed to the Distibutor
at 41 Madison Avenue, 24th Floor, New York, New YOrk 10010, or calling
1-800-829-3863, or to the Transfer Agent at P.O. Box 2798, Boston, Massachusetts
02208-2798, or by calling 1-800-462-9102.

ADDITIONAL INVESTMENT INFORMATION

Municipal Obligations (BFTFBF)

The two principal classifications of Municipal Obligations which may be held
by the Fund are "general obligation" securities and "revenue" securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit, and taxing power for the payment of principal and interest.
Revenue securities are payable only from the revenues derived from a particular
facility or class of facilities, or in some cases, from the proceeds of a
special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenues currencies and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity revenue bonds
is usually directly related to the credit standing of the corporate user of the
facility involved.

The Fund's portfolio may also include "moral obligation" securities, which
are normally issued by special-purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligation from
current revenues, it may draw on a reserve fund the restoration of which is a
moral commitment, but not a legal obligation of the state or municipality which
created the issuer. There is no limitation on the amount of moral obligation
securities that may be held by the Fund.

The Fund may also purchase custodial receipts evidencing the right to
receive either the principal amount or the periodic interest payments or both
with respect to specific underlying Municipal Obligations ("Stripped Municipal
Obligations"). In a typical custodial receipt arrangement, an issuer or a third
party owner of Municipal Obligation deposits such obligations with a custodian
in exchange for two classes of custodial receipts. The two classes have
different characteristics, but, in each case, payments on the two classes are
based on payments received on the underlying Municipal Obligations. One class
has the characteristics of a typical auction mechanism. This class' interest
rate generally is expected to be below the coupon rate of the underlying
Municipal Obligations and interest rate adjustments. The second class bears
interest at a rate that exceeds the interest rate typically borne by a security
of comparable quality and maturity; this rate also is adjusted, but in this case
inversely to changes in the rate of interest of the first class. If the interest
rate on the first class exceeds the coupon rate of the underlying Municipal
Obligations, its interest rate will exceed the rate paid on the second class. In
no event will the aggregate interest paid with respect to the two classes exceed
the interest paid by the underlying Municipal Obligations. The value of the
second class and similar securities should be expected to fluctuate more than
the value of a Municipal Obligation of comparable quality and maturity and their
purchase by the Fund should increase the volatility

<PAGE>

of its net assets value and, thus, its price per share. These custodial receipts
are sold in private placements.The Fund also may purchase directly from issuers,
and not in a private placement, Municipal Obligations having the same
characteristics as the custodial receipts. The Fund intends to purchase Stripped
Municipal Obligations only when the yield thereon will be exempt from Federal
income tax to the same extent as interest on the underlying Municipal
Obligations. Stripped Municipal Obligations are considered illiquid securities
subject to the 10% limit described in "Investment Limitations" in the Statement
of Additional Information. The Fund may purchase and sell municipal bond index
and interest rate future contracts as a hedge against changes in market
condition. See "Risks" below.

U.S. Government Securities (BSTBF, BFIF, BAEF)

The term "U.S. Government Securities" refers to debt securities denominated
in U.S. dollars issued or guaranteed by the U.S. Government, by various of its
agencies, or by various instrumentalities established or sponsored by the U.S.
Government. Certain of these obligations including U.S. Treasury bills, notes
and bonds, mortgage participation certificates guaranteed by the Government
National Mortgage Association ("GNMA") and Federal Housing Administration
debentures, are supported by the full faith and credit of the United States.
Other U.S. Government Securities issued or guaranteed by Federal agencies or
government sponsored enterprises are not supported by the full faith and credit
of the United States. These securities include obligations supported by the
right of the issuer to borrow from the U.S. Treasury, such as obligations of
Federal Home Loan Banks, and obligations supported only by the credit of the
instrumentality, such as Federal National Mortgage Association bonds. When
purchasing securities in the U.S. Government market, the Portfolio Advisers may
take full advantage of the entire range of maturities of U.S. Government
Securities and may adjust the average maturity of the investments held in the
portfolio from time to time, depending on its assessment of relative yields of
securities of different maturities and its expectations of future changes in
interest rates. To the extent that a Fund invests in the mortgage market, the
Portfolio Advisers usually will evaluate, among other things, relevant economic,
environmental and security-specific variables such as housing starts, coupon and
age trends. To determine relative value among markets the Portfolio Advisers may
use tools such as yield/duration curves, break-even prepayment rate analysis and
holding-period-return scenario testing.

A Fund may seek to increase its current income by writing covered call or
put options with respect to some or all of the U.S. Government Securities held
in its portfolio. In addition, a Fund may at times, through the writing and
purchase of options on U.S. Government Securities, and the purchase and sale of
futures contracts and related options with respect to U.S. Government
Securities, seek to reduce fluctuations in net asset value by hedging against a
decline in the value of U.S. Government Securities owned by that Fund or an
increase in the price of such securities which such Fund plans to purchase,
although it is not the general practice to do so. Significant option writing
opportunities generally exist only with respect to longer term U.S. Government
Securities. Options on U.S. Government Securities and futures and related
options are not considered U.S. Government Securities; accordingly, they have a
different set of risks and features. These practices and related risks are
described each Fund's Statement of Additional Information.

U.S. Government Securities are considered among the most creditworthy of
fixed income investments. Because of this added safety, the yields available
from U.S. Government Securities are generally lower than the yields available
from corporate debt securities. The value of U.S. Government Securities (like
those of fixed income securities generally) will change as interest rates
fluctuate. During periods of failing U.S. interest rates, the values of
outstanding long term U.S. Government Securities generally rise. Conversely,
during periods of rising interest rates, the values of such securities generally
decline. The magnitude of these fluctuations will generally be greater for
securities with longer maturities and the Funds expect that their portfolios of
U.S. Government securities will be weighted towards the longer maturities at
least to the

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extent that they have written call options thereon. Although changes in the
value of U.S. Government Securities will not affect investment income from those
securities, they will affect a Fund's net asset value.

Investment Grade Fixed Income Securities (BSTBF, BFIF)

The Funds may invest in investment grade U.S. fixed income securities. Such
investments may include mortgage related securities that are not U.S. Government
Securities, asset backed securities and fixed income securities rated Baa or
higher by Moody's or BBB by Standard & Poor's. Fixed income securities rated Baa
by Moody's or BBB by Standard & Poor's are considered investment grade
obligations which lack outstanding investment characteristics and may have
speculative characteristics as well. See Appendix A for the descriptions of
these rating categories.

Mortgage Related Securities. Mortgage related securities issued by financial
institutions (or separate trusts or affiliates of such institutions), even where
backed by U.S. Government securities, are not considered U.S. Government
Securities. The mortgage pass-through market is marked by high liquidity and
credit quality. The primary risk that exists for mortgage pass-through
securities is interest rate risk. Changes in market yields will affect the value
of these securities as the price of fixed income securities generally increases
when interest rates decline and decreases when interest rates rise. Prices of
longer term securities generally increase or decrease more sharply than those of
shorter term securities in response to interest rate changes. In addition,
prepayment of principal on mortgage pass-through securities may make it
difficult to lock in interest rates for a fixed period of time. To the extent
that mortgage securities are purchased at prices that differ from par, these
prepayments (which are received at par) may make up a significant portion of the
pass-through total return. Generally, mortgage securities yield more than
Treasury securities of the same average life. For more information on
mortgage-related securities, see "Investment Objective and Policies" in each
Fund's Statement of Additional Information.

Asset-Backed Securities. In general, asset-backed securities in which a Fund
may invest are issued as debt securities by special purpose corporations. These
securities represent an undivided ownership interest in a pool of installment
sales contracts and installment loans collateralized by, among other things,
credit card receivables and automobiles. The Funds will invest in, to the extent
available, (i) loan pass-through certificates or participations representing an
undivided ownership interest in pools of installment sales contracts and
installment loans (the "Participations") and (ii) debt obligations issued by
special purpose corporations which hold subordinated equity interests in such
installment sales contracts and installment loans. The Funds anticipate that a
substantial portion of the asset-backed securities in which they invest will
consist of the debt obligations of such special purpose corporations.
Asset-backed securities, in general, are of a shorter maturity (usually five
years) than most conventional mortgage-backed securities and historically have
been less likely to experience substantial prepayments. Furthermore, the effect
of prepayments on securities that have shorter maturities, such as asset-backed
securities,is much smaller than the effect of prepayments on securities having
longer maturities, such as mortgage-backed securities. The yield characteristics
of asset-backed securities differ from more traditional debt securities in that
interest and principal payments are paid more frequently, usually monthly, and
principal may be prepaid at any time. As a result, if a Fund purchases an
asset-backed security at a discount, similar to conventional mortgage-backed
securities, a prepayment rate that is faster than expected will increase yield
to maturity, while a prepayment rate that is slower than expected will reduce
yield to maturity. Conversely, if a Fund purchases an asset-backed security at a
premium, faster than expected prepayments will reduce, while slower than
expected prepayments will increase, yield to maturity. Prepayments may result
from a number of factors, including trade-ins and liquidations due to default,
as well as the receipt of proceeds from physical damage, credit, life and
disability insurance policies. The rate of prepayments on asset-backed
securities may also be influenced by a variety of economic and social factors,
including

46
<PAGE>

general measures of consumer confidence; accordingly, from time to time,
substantial amounts of prepayment may be available for reinvestment by a Fund
and will be subject to the prevailing interest rates at the time of prepayment.

Asset-backed securities often contain elements of credit support to lessen
the effect of the potential failure by obligors to make timely payments on
underlying assets. Credit support falls into two categories: (i) liquidity
protection and (ii) protection against losses resulting from ultimate default by
an obligor on the underlying asset. Liquidity protection ensures that the pass
through of payments due on the installment sales contracts and installments on
loans which comprise the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance polices or
letters of credit obtained by the issuer or sponsor from third parties; through
various means of structuring the transaction, or through a combination of such
approaches. The Funds will not pay any additional fees for such credit support.
However, the existence of credit support may increase the market price of the
security. For more information on asset-backed securities, see "Investment
Objective and Policies" in each Fund's Statement of Additional Information.

High Yield Securities (BSTBF, BSTGIF, BFIF)

Lower rated fixed income securities, including debt securities, convertible
securities and preferred stock and unrated corporate fixed income securities,
commonly referred to as "junk bonds," are considered speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness than higher rated fixed income securities.

Convertible securities are bonds, debentures, notes, preferred stock or
other securities which may be converted or exchanged by the holder into shares
of the underlying common stock at a stated exchange ratio. A convertible
security may also be subject to redemption by the issuer but only after a date
and under certain circumstances (including a specified price) established on
issue. Adjustable rate preferred stocks are preferred stocks which adjust their
dividend rates quarterly based on specified relationships to certain indexes of
U.S. Treasury Securities. A Fund may continue to hold securities obtained as a
result of the conversion of convertible securities held by such Fund when the
Portfolio Adviser believes retaining such securities is consistent with the
Fund's investment objective.

Differing yields on fixed income securities of the same maturity are a
function of several factors, including the relative financial strength of the
issuers. Higher yields are generally available from securities in the lower
categories of recognized rating agencies, i.e., Ba or lower by Moody's or BB or
lower by Standard & Poor's. A Fund may invest in any security which is rated by
Moody's or Standard & Poor's, or in any unrated security which the Portfolio
Advisers determine is of suitable quality. Securities in the rating categories
below Baa as determined by Moody's and BBB as determined by Standard & Poor's
are considered to be of poor standing and predominantly speculative. The rating
services descriptions of these rating categories, including the speculative
characteristic of the lower categories, are set forth in Appendix A.

Securities ratings are based largely on the issuer's historical financial
information and the rating agencies' investment analysis at the time of rating.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. Although the Funds' Portfolio Advisers
will consider security ratings when making investment decisions in the High
Yield Market, they will perform their own investment analysis and will not rely
principally on the ratings assigned by the rating services. A Portfolio
Adviser's analysis generally may include, among other things, consideration of
the issuer's experience and managerial strength, changing financial condition,
borrowing requirements or debt maturity schedules, and its

47
<PAGE>

responsiveness to changes in business conditions and interest rates. It also
considers relative values based on anticipated cash flow, interest or dividend
coverage, asset and earnings prospects.

The Blanchard Short-Term Global Income Fund ("BSTGIF") may invest in
collateralized mortgage obligations ("CMOs"). Collateralized mortgage
obligations are debt obligations collateralized either by mortgage loans or
mortgage pass-through securities (such collateral collectively being called
"Mortgage Assets"). Payments of principal and interest on the Mortgage Assets
and any reinvestment income thereon provide the funds to pay debt service on the
CMOs. CMOs may be issued by the U.S. Government, its agencies or
instrumentalities or by private originators of or investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers and special purpose subsidiaries of such entities. Typically,
CMOs are collateralized by GNMA certificates or other government mortgage-backed
securities, but they may also be collateralized by whole loans or private
mortgage pass-through securities.

In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMOs, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal prepayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distribution
date. Interest is paid or accrues on all classes of the CMOs (other than any
"principal-only" class) on a monthly, quarterly or semi-annual basis. The
principal and interest on the Mortgage Assets may be allocated among the several
classes of a CMO in many ways. In a common structure, payments of principal
(including any prepayments) on the Mortgage Assets are applied to the classes of
the series of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class of
CMO until all other classes having an earlier stated maturity or final
distribution date have been paid in full.

BSTGIF may also invest in stripped mortgage-backed securities ("SMBS").
Stripped mortgage-backed securities are derivative multi-class mortgage
securities and may be issued by agencies or instrumentalities of the U.S.
Government or by private originators of or investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers and special purpose subsidiaries of the foregoing.

SMBS are usually structured with two classes that receive different
proportions of the interest and/or principal distributions on a pool of Mortgage
Assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the Mortgage Assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yields to maturity on both PO and IO classes
are extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying Mortgage Assets. If the underlying
Mortgage Assets of an IO class of SMBS experience greater than anticipated
prepayments of principal, an investor may fail to recoup fully its initial
investment in these securities even if the securities are rated in the highest
rating category. SMBS experience greater volatility in market value than
mortgage securities in general.

CERTAIN INVESTMENT STRATEGIES AND POLICIES

Options and Futures Transactions (BSTBF, BSTGIF, BFIF, BWEMF, BPMF, BGGF)

General. The successful use of these investment techniques depends on the
ability of Fund management to forecast interest rate and currency exchange rate
movements correctly. Should interest or exchange rates move in an unexpected
manner, a Fund may not achieve the anticipated benefits of futures

48
<PAGE>

contracts, options or forward contracts or may realize losses and thus be in a
worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are no
daily price fluctuation limits with respect to options on currencies and forward
contracts, and adverse market movements could therefore continue to an unlimited
extent over a period of time. In addition, the correlation between movements in
the prices of such instruments and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses. The Funds' ability to dispose of its positions in futures
contracts, options and forward contracts will depend on the availability of
liquid markets in such instruments. Markets in options and futures with respect
to a number of fixed income securities and currencies are relatively new and
still developing. It is impossible to predict the amount of trading interest
that may exist in various types of futures contracts, options and forward
contracts. If a secondary market does not exist with respect to an option
purchased or written by a Fund over-the-counter, it might not be possible to
effect a closing transaction in the option (i.e., dispose of the option) with
the result that (i) an option purchased by the Fund would have to be exercised
in order for the Fund to realize any profit and (ii) the Fund may not be able to
sell currencies or portfolio securities covering an option written by the Fund
until the option expires or it delivers the underlying futures contract or
currency upon exercise. Therefore, no assurance can be given that the Funds will
be able to utilize these instruments effectively for the purposes set forth
above. The selection of futures and option strategies requires skills different
from those needed to select portfolio securities, however, the Portfolio
Advisers do have experience in the use of futures and options. Furthermore, a
Fund's ability to engage in options and futures transactions may be limited by
tax considerations. See "Tax Matters" in each Fund's Statement of Additional
Information.

Options on Portfolio Securities. (BSTBF, BSTGIF, BFIF) A Fund, in seeking to
generate high current income, may write covered call options on certain of its
portfolio securities at such time and from time to time as Fund management shall
determine to be appropriate and consistent with the investment objective of the
Fund. A covered call option means that the Fund owns the security on which the
option is written. Generally, the Funds expect that options written by them will
be traded on recognized securities exchanges. In certain instances, however, a
Fund may purchase and sell options in the over-the-counter market ("OTC
Options"). A Fund's ability to close option positions established in the
over-the-counter market may be more limited than in the case of exchange-traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Fund. In addition,
the staff of the SEC has taken the position that OTC Options and the assets used
as "cover" should be treated as illiquid securities. There is no fixed limit on
the percentage of a Fund's assets upon which options may be written.

The Funds will receive a premium (less any commissions) from the writing of
such contracts, and it is believed that the total return to the Funds can be
increased through such premiums consistent with each Fund's investment
objective. The writing of option contracts is a highly specialized activity
which involves investment techniques and risks different from those ordinarily
associated with investment companies, although the Funds believe that the
writing of covered call options listed on an exchange or traded in the
over-the-counter market, where the Fund owns the underlying security, tends to
reduce such risks. The writer forgoes the opportunity to profit from an increase
in market price of the underlying security above the exercise price so long as
the option remains open. See each Fund's Statement of Additional Information for
more information.

Futures Contracts and Options on Futures Contracts. (BSTBF, BFTFBF, BFIF) A
Fund may enter into contracts for the purchase or sale for future delivery of
interest rate instruments, fixed-income securities, foreign currencies, or
contracts based on financial indices including any index of U.S. Government
Securities, foreign government securities or corporate debt securities ("futures
contracts") and may purchase and write put and call options to buy or sell
futures contracts ("options on futures contracts"). A

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<PAGE>

"sale" of a futures contract means the acquisition of a contractual obligation
to deliver the securities or foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a futures contract means
the incurring of a contractual obligation to acquire the securities or foreign
currencies called for by the contract at a specified price on a specified date.
Options on futures contracts to be written or purchased by a Fund will be traded
on U.S. or foreign exchanges or over-the-counter. See "Additional Risks of
Futures Contracts and Related Options, Forward Foreign Currency Exchange
Contracts and Options on Foreign Currencies" below and in each Fund's Statement
of Additional Information for further discussion of the use, risks and costs of
futures contracts and options on futures contracts.

Although most futures contracts call for making or taking delivery of the
underlying securities, these obligations are typically cancelled or closed out
before the scheduled settlement date. The closing is accomplished by purchasing
(or selling) an identical futures contract to offset a short (or long) position.
Such an offsetting transaction cancels the contractual obligations established
by the original futures transaction. Other financial futures contracts call for
cash settlements rather than delivery of securities.

If the price of an offsetting futures transaction varies from the price of
the original futures transaction, the Funds will realize a gain or loss
corresponding to the difference. That gain or loss will tend to offset the
unrealized loss or gain on the hedged securities transaction, but may not always
or completely do so.

In contrast to the purchase or sale of a security, the full purchase price
of the futures contract is not paid or received by a Fund upon its purchase or
sale. Instead, the Funds will deposit in a segregated custodial account an
amount of cash or U.S. Treasury bills equal to approximately 5% of the value of
the contract. This amount is known as initial margin. The nature of initial
margin in futures transactions is different from that of margin in security
transactions in that futures contract margin does not involve the borrowing of
Funds by the customer to finance the transactions. Rather, the initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to the Fund upon termination of the futures contract assuming all
contractual obligations have been satisfied. Subsequent payments to and from the
broker, called variation margin, will be made on a daily basis as the price of
the underlying security fluctuates making the long and short positions in the
futures contract more or less valuable, a process known as "mark to the market."
For example, when a Fund has purchased a futures contract and the price of the
underlying security has risen, that position will have increased in value and
the Fund will receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the underlying security has declined, the position would be less
valuable and the Fund would be required to make a variation margin payment to
the broker. At any time prior to expiration of the futures contract, a Fund may
elect to terminate the position by taking an opposite position. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to that Fund, and the Fund realizes a loss or gain. No
assurance can be given that the Funds will be able to take an opposite position.

The Funds will not (i) enter into any futures contracts or options on
futures contracts if immediately thereafter the aggregate of margin deposits on
all the outstanding futures contracts of a Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund, or (ii) enter into any futures contracts or options on
futures contracts if the aggregate of the market value of the outstanding
futures contracts of a Fund and the market value of the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50% of
the market value of the total assets of that Fund.

Options on Foreign Currencies. (BSTBF, BSTGIF, BFIF) The Funds may purchase
and write put and call options on foreign currencies to increase a Fund's gross
income and for the purpose of protecting against declines in the U.S. dollar
value of foreign currency denominated portfolio securities and against

50
<PAGE>

increases in the U.S. dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Funds could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to a Fund's position, it may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by a Fund are traded on U.S. and foreign exchanges or
over-the-counter. There is no specific percentage limitation on a Fund's
investments in options on foreign currencies. See each Fund's Statement of
Additional Information for further discussion on the use, risks and costs of
options on foreign currencies.

Forward Foreign Currency Exchange Contracts. (BSTBF, BSTGIF, BFIF, BWEMF)
The Funds will purchase or sell forward foreign currency exchange contracts
("forward contracts") as part of their portfolio investment strategy. A forward
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. A Fund may enter into a forward contract,
for example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to "lock in" the U.S. dollar
price of the security ("transaction hedge"). Additionally, for example, when a
Fund believes that a foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when a Fund
believes that the U.S. dollar may suffer a substantial decline against foreign
currency, it may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this situation, a Fund
may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Fund believes that the
U.S. dollar value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. dollar value of the currency
in which portfolio securities of the Fund are denominated ("cross-hedge"). The
Funds' custodian will place cash not available for investment or U.S. Government
Securities or other high quality debt securities in a separate account of a Fund
having a value equal to the aggregate amount of that Fund's commitments under
forward contracts entered into with respect to position hedges and crosshedges.
If the value of the securities placed in a separate account declines, additional
cash or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments with
respect to such contracts. As an alternative to maintaining all or part of the
separate account, a Fund may purchase a call option permitting the Fund to
purchase the amount of foreign currency being hedged by a forward sale contract
at a price no higher than the forward contract price or a Fund may purchase a
put option permitting the Fund to sell the amount of foreign currency subject to
a forward purchase contract at a price as high or higher than the forward
contract price. Unanticipated changes in currency prices may result in poorer
overall performance for a Fund than if it had not entered into such contracts.
Pursuant to the sub-advisory agreemehts, the Portfolio Advisers, where permitted
by law, will purchase and sell foreign exchange in the interbank dealer market
for a fee on behalf of a Fund, subject to certain procedures and reporting
requirements adopted by the Board Members.

Additional Risks of Futures Contracts and Related Options, Forward Foreign
Currency Exchange Contracts and Options on Foreign Currencies. The market prices
of futures contracts may be affected by certain factors. First, all participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the securities and futures
markets. Second, from the point of view of speculators, the deposit requirements
in the futures

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<PAGE>

market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may also
cause temporary price distortions.

In addition, futures contracts in which the Funds may invest may be subject
to commodity exchange imposed limitations on fluctuations in futures contract
prices during a single day. Such regulations are referred to as "daily price
fluctuation limits" or "daily limits." During a single trading day no trades may
be executed at prices beyond the daily limit. Once the price of a futu res
contract has increased or decreased by an amount equal to the daily limit,
positions in those futures cannot be taken or liquidated unless both a buyer and
seller are willing to effect trades at or within the limit. Daily limits, or
regulatory irltervention in the commodity markets, could prevent a Fund from
promptly liquidating unfavorable positions and adversely affect operations and
profitability.

Options on foreign currencies and forward foreign currency exchange
contracts ("forward contracts") are not traded on contract markets regulated by
the Commodity Futures Trading Commission ("CFTC") and are not regulated by the
SEC. Rather, forward currency contracts are traded through financial
institutions acting as market-makers. Foreign currency options are traded on
certain national securities exchanges, such as the Philadelphia Stock Exchange
and the Chicago Board Options Exchange, subject to SEC regulation. In the
forward currency market, there are no daily price fluctuation limits, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Moreover, a trader of forward contracts could lose amounts
substantially in excess of its initial investments, due to the collateral
requirements associated with such positions.

Options on foreign currencies traded on national securities exchanges are
within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the OCC, thereby reducing the risk of
counterparty default. Further, a liquid secondary market in options traded on a
national securities exchange may exist, potentially permitting the Fund to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however,
are subject to the risks of the availability of a liquid secondary market
described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exercise and settlement of such
options must be made exclusively through the OCC, which has established banking
relationships in applicable foreign countries for this purpose. As a result, the
OCC may, if it determines that foreign governmental restrictions or taxes would
prevent the orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose special
procedures on exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar settlement prices or
prohibitions on exercise.

In addition, futures contracts and related options and forward contracts and
options on foreign currencies may be traded on foreign exchanges, to the extent
permitted by the CFTC. Such transactions are subject to the risk of governmental
actions affecting trading in or the prices of foreign currencies or securities.
The value of such positions also could be adversely affected by (a) other
complex foreign political and economic factors, (b) lesser availability than in
the United States of data on which to make trading decisions, (c) delays in a
Fund's ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States, (d) the imposition of different exercise
and settlement terms and procedures and margin requirements than in the United
States, and (e) lesser trading volume.

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Other Investment Policies

Repurchase Agreements. The Funds (other than BTMMF and BPMF) may enter into
repurchase agreements. Under a repurchase agreement, a Fund acquires a debt
instrument for a relatively short period (usually not more than one week)
subject to the obligation of the seller to repurchase and the Fund to resell
such debt instrument at a fixed price. The resale price is in excess of the
purchase price in that it reflects an agreed-upon market interest rate effective
for the period of time during which that Fund's money is invested. The Funds'
repurchase agreements will at all times be fully collateralized in an amount at
least equal to the purchase price including accrued interest earned on the
underlying securities. The instruments held as collateral are valued daily, and
as the value of instruments declines, the Funds will require additional
collateral . If the seller defaults and the value of the collateral securing the
repurchase agreement declines, a Fund may incur a loss. If such a defaulting
seller were to become insolvent and subject to liquidation or reorganization
under applicable bankruptcy or other laws, disposition of the underlying
securities could involve certain costs or delays pending court action. Finally,
it is not certain whether the Funds would be entitled, as against a claim of the
seller or its receiver, trustee in bankruptcy or creditors, to retain the
underlying securities. Repurchase agreements are considered by the staff of the
STE to be loans by a Fund.

Lending of Porffolio Securities. (BSTBF, BFTFBF, BSTGIF, BFIF, BAEF) In
order to generate additional income, each Fund may lend its porffolio securities
in an amount up to 33-1/3% of total Fund assets to broker-dealers, major banks,
or other recognized domestic institutional borrowers of securities not
affiliated with Sheffield. The borrower at all times during the loan must
maintain cash or cash equivalent collateral or provide to the Fund an
irrevocable letter of credit equal in value to at least 100% of the value of the
securities loaned. During the time porffolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities, and
the Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of any loaned securities fail financially.

When-lssued and Forward Transactions and Stand-By Commitments. (BFTFBF) The
Fund may purchase eligible securities on a "when issued" basis and may purchase
or sell securities on a "forward commitment" basis. The Fund does not intend to
engage in "when issued" purchases and forward commitments for speculative
purposes, but only in furtherance of its investment objective. The Fund will
establish a segregated account with its custodian bank in which it will maintain
cash or other high quality debt securities determined daily to be equal in value
to the commitments for "when-issued" securities.

In addition, the Fund may acquire "stand-by commitments" with respect to
Municipal Obligations that it holds. Under a "stand-by commitment," a dealer
agrees to purchase, at the Fund's option, specified Municipal Obligations at a
specified price. The Fund will acquire "stand-by commitments" solely to
facilitate porffolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. "Stand-by commitments" acquired by the Fund
would be valued at zero in determining the Fund's net asset value.

Money Market Instruments. (BFTFBF, BWEMF, BPMF, BGGF, BFIF, BSTBF) Money
market instruments include, but are not limited to, the following instruments:
government securities; commercial paper; bank certificates of deposit and
bankers' acceptances; and repurchase agreements related to any of the foregoing.
A Fund will only purchase commercial paper if it is rated Prime-1 or Prime-2 by
Moody's or A-1 or A-2 by Standard & Poor's or, if not rated, is considered by
Fund management to be of equivalent quality.

Under a defensive strategy, BSTBF and BFIF may concentrate their investments
in securities issued by banks. Such investments may include certificates of
deposit, time deposits, bankers' acceptances, and obligations issued by bank
holding companies, as well as repurchase agreements entered into with banks.

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Illiquid Securities. (BSTBF, BSTGIF, BFIF, BAEF, BGGF) The Funds will not
invest in illiquid securities if immediately after such investment more than 10%
of a Fund's total assets (taken at market value) would be invested in such
securities. See each Fund's Statement of Additional Information. For this
purpose, illiquid securities include (a) securities that are illiquid by virtue
of the absence of a readily available market or legal or contractual
restrictions on resale, (b) participation interests in loans that are not
subject to puts, (c) covered call options on portfolio securities written by a
Fund over-the-counter and the cover for such options and (d) repurchase
agreements not terminable within seven days. Securities that have legal or
contractual restrictions on resale but have a readily available market are not
deemed illiquid for purposes of this limitation.

SEC Rule 144A allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act of 1933 applicable to resales of certain securities to qualified
institutional buyers. The Porffolio Advisers anticipate that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
security foreign issuers, such as the PORTAL System sponsored by the National
Association of Securities Dealers, Inc.

The Portfolio Adviser will monitor the liquidity of restricted securities in
each Fund's portfolio under the supervision of the Board Members. In reaching
liquidity decisions, the Portfolio Advisers will consider, inter alia, the
following factors: (1 ) the frequency of trades and quotes for the security; (2)
the number of dealers wanting to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer).

Non-diversification. All of the Funds' portfolios (other than BTMMF) are
"non-diversified" which means the Funds are not limited in the proportion of
assets that may be invested in the securities of a single issuer.

However, each Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, which will relieve the Funds of any liability for Federal income tax to
the extent its earnings are distributed to shareholders. See "Tax Matters". To
so qualify, among other requirements, each Fund will limit its investments so
that, at the close of each fiscal quarter, (i) not more than 25% of the market
value of a Fund's total assets will be invested in the securities of a single
issuer, and (ii) with respect to 50% of the market value of its total assets,
not more than 5% of the market value will be invested in the securities of a
single issuer and a Fund will not own more than 10% of the outstanding voting
securities of a single issuer. For purposes of the Funds' requirements to
maintain diversification for tax purposes, the issuer of a loan participation
will be the underlying borrower. In cases where a Fund does not have recourse
directly against the borrower, both the borrower and each agent bank and
co-lender interposed between the Fund and the borrower will be deemed issuers of
the loan participation for tax diversification purposes. A Fund's investments in
U.S. Government Securities are not subject to these limitations. Since the Funds
may invest in a smaller number of individual issuers than diversified investment
companies, an investment in the Funds may, under certain circumstances, present
greater risks to an investor than an investment in a diversified company.

Porffolio Turnover. The Funds may engage in active short-term trading to
benefit from yield disparities among different issues of securities, to seek
short-term profits during periods of fluctuating interest rates, or for other
reasons. Such trading will increase a Fund's rate of turnover and the possible
incidence of short-term capital gain taxable as ordinary income. VCM anticipates
that the annual turnover in each Fund will not

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be in excess of 200%. An annual turnover rate of 200% occurs, for example, when
the dollar equivalent of all of the securities in a Fund's portfolio are
replaced twice in a period of one year. A high rate of porffolio turnover
involves correspondingly greater expenses than a lower rate, including brokerage
commissions or dealer mark-ups and other transaction costs on the sale of
securities and reinvestment in other securities, which expenses must be borne by
that Fund and its shareholders. High portfolio turnover rate also may result in
the realization of substantial net short-term capital gains. In order to
continue to qualify as a regulated investment company for Federal tax purposes,
less than 30% of the annual gross income of a Fund must be derived from the sale
of securities held by the Fund for less than three months. See "Tax Matters".

Concentration. Under normal circumstances, and as a matter of fundamental
policy, BSTGIF will "concentrate" at least 25% of its total assets in debt
instruments issued by domestic and foreign companies engaged in the banking
industry, including bank holding companies. Such investments may include
certificates of deposit, time deposits, bankers' acceptances, and obligations
issued by bank holding companies, as well as repurchase agreements entered into
with banks (as distinct from non-bank dealers) in accordance with the policies
set forth in "Repurchase Agreements". However, when business or financial
conditions warrant, the Fund may, for temporary defensive purposes, vary from
its policy of investing at least 25% of its total assets in the banking
industry. For example, the Fund may reduce its position in debt instruments
issued by domestic and foreign banks and bank holding companies and increase its
position in U.S. Government Securities or cash equivalents.

Due to the Fund's investment policy with respect to investments in the
banking industry, the Fund will have greater exposure to the risk factors which
are characteristic of such investments. In particular, the value of and
investment return on the Fund's shares will be affected by economic or
regulatory developments in or related to the banking industry. Sustained
increases in interest rate can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in general economic
conditions could increase the exposure to credit losses. The banking industry is
also subject to the effects of the concentration of loan portfolios in
particular businesses such as real estate, energy, agriculture or high
technology-related companies; concentration of loan portfolios in lesser
developed country loans and highly leveraged transaction loans; national and
local regulation; and competition within those industries as well as with other
types of financial institutions. In addition, the Fund's investments in
commercial banks located in several foreign countries are subject to additional
risks due to the combination in such banks of commercial banking and diversified
securities activities. As discussed above, however, the Fund will seek to
minimize its exposure to such risks by investing only in debt securities which
are determined to be of high quality. The other Funds do not concentrate their
assets in any industry or industries other than for temporary defensive
purposes.

Borrowing. (BSTGIF, BWEMF) Each Fund may borrow up to one-third of the value
of its total assets from banks to increase its holdings of portfolio securities
or in order to meet redemption requests. Under the 1940 Act, a Fund is required
to maintain continuous asset coverage of 300% with respect to such borrowings
and to sell (within three days) sufficient portfolio holdings to restore such
coverage if it should decline to less than 300% due to market fluctuations or
otherwise, even if such liquidations of the Fund's holdings may be
disadvantageous from an investment standpoint. Leveraging by means of borrowing
may exaggerate the effect of any increase or decrease in the value of porffolio
securities or a Fund's net asset value, and money borrowed will be subject to
interest and other costs (which may include commitment fees and/or the cost of
maintaining minimum average balances) which may or may not exceed the income
received from the securities purchased with borrowed funds.

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RISK FACTORS AND SPECIAL CONSIDERATIONS

Foreign Investments. (BSTBF, BSTGIF, BFIF, BWEMF, BGGF) Foreign investments
involve certain risks that are not present in domestic securities. Because the
Funds intend to purchase securities denominated in foreign currencies, a change
in the value of any such currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of a Fund's assets and a Fund's
income available for distribution. In addition, although a portion of a Fund's
investment income may be received or realized in such currencies, the Internal
Revenue Code of 1986 (the "Code") requires that each Fund compute and distribute
its income in U.S. dollars. Therefore, if the exchange rate of any such currency
declines after the Fund's income has been earned and translated into U.S.
dollars but before payment, a Fund could be required to liquidate securities to
make such distributions. Similarly, if an exchange rate depreciates between the
time a Fund incurs expenses in U.S. dollars and the time such expenses are paid,
the amount of such currency required to be converted into U.S. dollars in order
to pay such expenses in U.S. dollars will be greater than the equivalent amount
in any such currency of such expenses at the time they were incurred. Under the
Code, changes in an exchange rate which occur between the time a Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time a Fund actually collects such
receivables or pays such liabilities will result in foreign exchange gains or
losses that increase or decrease distributable taxable net investment income .
Similarly, dispositions of certain debt securities (by sale, at maturity or
otherwise) at a U.S. dollar amount which is higher or lower than the Fund's
original U.S. dollar cost may result in foreign exchange gains or losses, which
will increase or decrease distributable taxable net investment income.

The values of foreign investments and the investment income derived from
them may also be affected unfavorably by changes in currency exchange control
regulations. Although the Funds will invest only in securities denominated in
foreign currencies that are fully exchangeable into U.S. dollars without legal
restriction at the time of investment, there is no assurance that currency
controls will not be imposed subsequently. In addition, the values of foreign
fixed-income investments will fluctuate in response to changes in U.S. and
foreign interest rates.

There may be less information publicly available about a foreign issuer than
about a U.S. issuer, and foreign issuers are not generally subject to
accounting, auditing and financial reporting standards and practices comparable
to those in the United States. The securities of some foreign issuers are less
liquid and at times more volatile than securities of comparable U.S. issuers.
Foreign brokerage commissions, custodial expenses and other fees are also
generally higher than for securities traded in the United States.

In addition, with respect to certain foreign countries, there is a
possibility of expropriation of assets, confiscatory taxation, political or
financial instability and diplomatic developments which could adversely affect
the value of investments in those countries. The Portfolio Advisers do not
expect to invest the Funds' assets in countries where they believe such events
are likely to occur.

Income received by a Fund from sources within foreign countries may be
reduced by withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. The Portfolio Advisers will attempt to minimize such taxes
by timing of transactions and other strategies, but there is no assurance that
such efforts will be successful. Any such taxes paid by a Fund will reduce its
net income available for distribution to shareholders.

Investors should recognize that investing in debt obligations and other
fixed-income securities of issuers in emerging countries involves certain
special considerations and risk factors, including those set forth below, which
are not typically associated with investing in debt obligations and other
fixed-income securities of U.S. issuers.

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Trading volume in emerging country securities markets is substantially less
than in the United States. Further securities of some emerging country issuers
are less liquid and more volatile than securities of comparable U.S. issuers.
Commissions for trading on emerging country stock exchanges are generally higher
than commissions for trading on U.S. exchanges although the Funds will endeavor
to achieve the most favorable net results on their portfolio transactions and
may, in certain instances, be able to purchase portfolio investments on other
stock exchanges where commissions are negotiable.

Issuers in emerging countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. issuers. Consequently, there
may be less publicly available information about an emerging country issuer than
about a U.S. issuer. Further, there is generally less government supervision and
regulation of foreign stock exchanges, brokers and listed issuers than in the
United States.

The Funds may invest in unlisted emerging country debt obligations and other
fixed-income securities, including investments in new and early stage issuers,
which may involve a high degree of business and financial risk that can result
in substantial losses. Because of the absence of any trading market for these
investments, a Fund may take longer to liquidate these positions than would be
the case for publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized on these sales couId
be less than those originally paid by the Fund. Further, issuers whose
securities are not publicly traded may not be subject to public disclosure and
other investor protection requirements applicable to publicly traded securities.

The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Further, the
economies of developing countries generally are dependent upon international
trade and, accordingly, have been and may continue to be adversely affected by
trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries
with which they trade. These economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.

With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the value
of a Fund's investments in those countries. In addition, it may be difficult to
obtain and enforce a judgment in a court outside of the United States.

From time to time, BGGF may invest in Eastern Europe as investment
opportunities emerge in those markets, if the Sector Manager deems it prudent in
light of then existing social, economic and political conditions. Investing in
the securities of issuers in Eastern Europe involves certain additional
considerations not usually associated with investing in securities of issuers in
more developed capital markets, including the following: (i) political and
economic considerations, such as greater risks of expropriation and
nationalization and less social, political and economic stability; (ii) the
small size of the markets for such securities, the low or nonexistent volume of
trading, the lack of liquidity and price volatility; (iii) restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures governing private
and foreign investments and private property. Applicable accounting and
financial reporting standards in Eastern Europe may be substantially different
from U.S. accounting standards and, in certain Eastern European countries, no
reporting standards may exist. Consequently, substantially less information is
available to investors in Eastern Europe, and the information that is available
may not be conceptually comparable to, or prepared on the same basis as, that
available in

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more developed capital markets, which may make it difficult to assess the
financial status of particular companies. Upon the accession to power of
Communist regimes approximately 40 years ago, the governments of a number of
Eastern European countries expropriated a large amount of property. The claims
of many property owners against those governments were never finally settled.
There can be no assurance that the Fund's investments in Eastern Europe, if any,
would not also be appropriated, nationalized or otherwise confiscated, in which
case the Fund would lose its entire investment in the country involved. In
addition, any change in the leadership or policies of Eastern European countries
may halt the expansion of or reverse the liberalization of foreign investment
policies now occurring.

Precious Metals and Precious Metals Securities. (BPMF, BGGF) Investment in
securities of precious metals mining, exploration and processing companies
involves certain risks. Selective investment in such securities, however, may
offer a greater return than shares of domestic industrial issuers. The market
action of such securities has tended to move against, or independently of, the
market trend of industrial securities; therefore, the addition of securities of
companies involved in precious metals operations to an investor's porffolio may
increase the return and may reduce overall fluctuations in porffolio value.
Thus, an investment in a Fund should be considered part of an overall investment
program rather than as a complete investment program in itself.

Prices of precious metals mining securities can be volatile and tend to
experience greater volatility than the prices of physical precious metals. This
is due to the fact that the costs of mining precious metals remain relatively
fixed, so that an increase or decrease in the price of precious metals has a
direct and greater than proportional effect on the profitability of precious
metals mining companies. Investments tied to precious metals characteristically
involve high risk because of precious metals' price volatility. The price of
precious metals is affected by factors such as cyclical economic conditions,
political events and monetary policies of various countries (see "Investment
Objective and Policies-Additional Information Regarding Precious Metals and
Precious Metals Securities" in each Fund's Statement of Additional Information
of each Fund for historic price information on gold bullion). During periods of
rising precious metals prices, investments in Precious Metals Securities will
tend to be emphasized with respect to a Fund.

The mining of gold is highly concentrated in a few countries. Currently, the
five largest producers of gold are the Republic of South Africa, certain
republics of the former Soviet Union, Canada, the United States and Australia.
Economic and political conditions prevailing in these countries may have a
direct effect on the production and marketing of newly produced gold and sales
of central bank gold holdings. At any given time, a substantial portion of the
investments of a Fund may be concentrated in one or a few foreign countries. The
Comprehensive Anti-Apartheid Act of 1986 prohibits new investment by United
States companies in South Africa, including the purchase of securities issued by
any South African issuer after October 1, 1986. Although the Funds may not
invest in such securities issued on or after October 1, 1986, Fund management
believes that there are still some excellent investment opportunities with
respect to South African Precious Metals Securities issued prior to October 1,
1986. Therefore, while it is expected that a majority of gold mining companies
in which the Funds will invest will be located within the United States and
Canada, the portfolio may still seek to benefit from permissible investment
opportunities in South Africa when Cavelti believes the potential rewards
outweigh the risks The selection of these investments will be carefully
monitored to assure compliance with the Comprehensive Anti-Apartheid Act of
1986. See "Investment Objective and Policies-Additional Information Regarding
Precious Metals'and Precious Metals Securities" in each Fund's Statement of
Additional Information for further details on this subject.

Risk Factors-Lower Rated Fixed Income Securities. (BSTBF, BSTGIF, BFIF,
BWEMF) Lower quality fixed income securities generally produce a higher current
yield than do fixed income securities of higher ratings. However, these fixed
income securities are considered speculative because they involve greater

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price volatility and risk than do higher rated fixed income securities and
yields on these fixed income securities will tend to fluctuate over time.
Although the market value of all fixed income securities varies as a result of
changes in prevailing interest rates (e.g., when interest rates rise, the market
value of fixed income securities can be expected to decline), values of lower
rated fixed income securities tend to react differently than the values of
higher rated fixed income securities. The prices of lower rated fixed income
securities are less sensitive to changes in interest rates than higher rated
fixed income securities. Conversely, lower rated fixed income securities also
involve a greater risk of default by the issuer in the payment of principal and
income and are more sensitive to economic downturns and recessions than higher
rated fixed income securities. The financial stress resulting from an economic
downturn could have a greater negative effect on the ability of issuers of lower
rate fixed income securities to service their principal and interest payments,
to meet projected business goals and to obtain additional financing than on more
creditworthy issuers. In the event of an issuer's default in payment of
principal or interest on such securities, or any other fixed income securities
in a Fund's portfolio, the next asset value of that Fund will be negatively
affected. Moreover, as the market for lower rated fixed income securities is a
relatively new one, a severe economic downturn might increase the number of
defaults, thereby adversely affecting the value of all outstanding lower rated
fixed income securities and disrupting the market for such securities. Fixed
income securities purchased by a Fund as part of an initial underwriting present
an additional risk due to their lack of market history. These risks are
exacerbated with respect to fixed income securities rated Caa or lower by
Moody's or CCC or lower by Standard & Poor's. Unrated fixed income securities
generally carry the same risks as do lower rated fixed income securities.

Lower quality debt securities are typically traded among a smaller number of
broker-dealers rather than in a broad secondary market. Purchasers of lower
quality debt securities tend to be institutions, rather than individuals, a
factor that further limits the secondary market. To the extent that no
established retail secondary market exists, many lower quality debt securities
may not be as liquid as Treasury and investment grade bonds. The ability of a
Fund to sell lower quality debt securities will be adversely affected to the
extent that such securities are thinly traded or illiquid. Moreover, the ability
of a Fund to value lower quality debt securities becomes more difficult, and
judgment plays a greater role in valuation, as there is less reliable, objective
data available with respect to such securities that are thinly traded or
illiquid. Unrated debt securities are not necessarily of lower quality than
rated debt securities, but they may not be attractive to as many buyers.

Because investors may perceive that there are greater risks associated with
the lower quality debt securities of the type in which the Funds may invest, the
yields and prices of such securities may tend to fluctuate more than those for
higher quality debt securities. Changes in perception of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
in the lower quality segments of the debt securities market than do changes in
higher quality segments of the debt security market, resulting in greater yield
and price volatility. The speculative characteristics of lower rated debt
securities are set forth in Appendix A.

The Funds' Portfolio Advisers believe that the risks of investing in such
high yielding, debt securities may be minimized through careful analysis of
prospective issuers, Although the opinions of ratings services such as Moody's
and Standard & Poor's are considered in selecting securities in which a Fund may
invest, they evaluate the safety of the principal and the interest payments of
the security, not their market value risk. Additionally credit rating agencies
may experience slight delays in updating ratings to reflect current events. The
Porffolio Advisers rely, primarily, on their own credit analysis. This may
suggest, however, that the achievement of the Fund's investment objective is
more dependent on the Porffolio Adviser's proprietary credit analysis, than is
otherwise the case for a Fund that invests exclusively in higher quality debt
securities. Once the rating of a porffolio security or the quality determination
ascribed by a Porffolio Adviser

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to an unrated debt security has been downgraded, the Porffolio Adviser will
consider all circumstances deemed relevant in determining whether to continue to
hold the security.

Risk Factors-Mortgage Securities. (BSTGIF) The yield characteristics of the
mortgage securities differ from those of traditional debt securities. Among the
major differences are that interest and principal payments are made more
frequently on mortgage securities, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally permit prepayment at any time. Evaluating the risks associated with
prepayment and determining the rate at which prepayments may occur depends on a
number of factors. The rate of prepayment is influenced by a variety of economic
geographic, demographic, social and other factors including interest rate
levels, changes in housing needs, net equity built by mortgagors in the
mortgaged properties, job transfers, and unemployment rates. If BSTGIF purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity, while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if BSTGIF purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Amounts available for reinvestment are likely to be
greater during a period of rising interest rates. Accelerated prepayments on
securities purchased by BSTGIF at a premium also impose a risk of loss of
principal because the premium may not have been fully amortized at the time the
principal is repaid in full.

The rate of principal payments on the certificates, the aggregate amount of
each interest payment and the yield to maturity on mortgage securities are
related to the rate of principal payments on the underlying mortgage loans. Such
principal payments may be in the form of scheduled principal payments,
prepayments by mortgagors, liquidations due to default, casualty, condemnation
and certain events usually set forth in the related pooling and servicing
agreement. The rate of prepayment may be influenced by a variety of economic,
geographic, social and other factors. In general, however, if interest rates on
comparable obligations were to fall below the mortgage rates on the underlying
mortgage loans, which may be different from prevailing interest rates, the rate
of prepayment would be expected to increase.

Conversely, if prevailing rates on comparable obligations were to rise above
the mortgage rates on the underlying mortgage loans, the mortgage loans would be
expected to prepay at lower rates than if prevailing rates on comparable
obligations were to remain at or below the mortgage rates on the underlying
mortgage loans.

The mortgage securities in which BSTGIF may invest differ from conventional
bonds in that principal is paid back over the life of the mortgage securities
rather than at maturity. As a result, the holder of the mortgage securities
(i.e., BSTGIF) receives monthly scheduled payments of principal and interest,
and may receive unscheduled principal payments representing prepayments on the
underlying mortgages. When the holder reinvests the payments and any unscheduled
prepayments of principal it receives, it may receive a rate of interest which is
lower than the rate on the existing mortgage securities. For this reason,
mortgage-securities are less effective than other types of U.S. Government
securities as a means of "locking in" long-term interest rates.

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APPENDIX A

Description of Moody's Investors Service, Inc.'s Bond Ratings:

Investment grade debt securities are those rating categories indicated by an
asterisk (*).

*Aaa: Bonds which are rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

*Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

*A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

*Baa: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category, the modifier 2 indicates a mid-range ranking, and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

A-1
<PAGE>

Description of Standard & Poor's Corporation's Bond Ratings:

Investment grade debt securities are those rating categories indicated by an
asterisk (*).

*AAA: Debt rated AAA have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

*AA: Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.

*A: Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

*BBB: Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.

BB, B, CCC, CC, C: Debt rated "BB," "B," "CCC," "CC" and "C" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB: Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.

B: Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"BB" or "BB-" rating.

CCC: Debt rated "CCC" has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "C" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.

CC: The rating "CC" is typically applied to debt subordinated to senior debt
that is assigned an actual or implied "CCC" rating.

C: The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

C1: The rating "C1" is reserved for income bonds on which no interest is
being paid.

D: Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

NR: Bonds may lack a S&P rating because no public rating has been requested,
because there is insufficient information on which to base a rating, or because
S&P does not rate a particular type of obligation as a matter of policy.

A-2
<PAGE>

-------------------------------
BLANCHARD
GROUP OF FUNDS
-------------------------------

Blanchard Global Growth Fund
Blanchard Precious Metals Fund, Inc.
Blanchard 100% Treasury Money Market Fund
Blanchard Short-Term Global Income Fund
Blanchard American Equity Fund
Blanchard Flexible Income Fund
Blanchard Short-Term Bond Fund
Blanchard Flexible Tax-Free Bond Fund
Blanchard Worldwide Emerging Markets Fund

Prospectus
July , 1995
Please read and keep for your file

B L A N C H A R D

<PAGE>

Blanchard Group of Funds

Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
1-800-723-9512

-------------------------------
B L A N C H A R D
-------------------------------

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

BLANCHARD PRECIOUS METALS FUND, INC.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

- --------------------------------------------------------------------------------

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current prospectus dated July ___, 1995 (the
"Prospectus"), pursuant to which Blanchard Precious Metals Fund, Inc. (the
"FUND") is offered. Please retain this document for future reference.

- --------------------------------------------------------------------------------

To obtain the Prospectus please call the FUND at 1-800-723-9512

- --------------------------------------------------------------------------------

TABLE OF CONTENTS
- ----------------- Page
----
Investment Objective and Policies .......................................... 2
Investment Restrictions .................................................... 15
Computation of Net Asset ................................................... 18
Performance Information..................................................... 19
Portfolio Transactions...................................................... 20
Dividends, Capital Gains Distributions
and Tax Matters........................................................... 22
The Management of the Fund
Investment Advisory Services................................................ 33
Portfolio Management Services............................................... 35
Administrative Services.....................................................
Distribution Plan...........................................................
Description of the FUND..................................................... 41
Shareholder Reports......................................................... 41
Financial Statements........................................................ A-1

Manager
- -------
Virtus Capital Management, Inc.

Distributor
- -----------
Federated Securities Corp.

Custodian
- ---------
United States Trust Company of New York

Transfer Agent
- --------------
United States Trust Company of New York

Counsel
- -------
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel

Independent Accountants
- -----------------------
Price Waterhouse LLP

Dated: July __, 1995

<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The investment objective and policies of the FUND are set forth in the FUND's
Prospectus which refers to the following investment strategies and additional
information:

Options and Futures Strategies

Through the writing and purchase of options and the purchase and sale of
stock index futures contracts, interest rate futures contracts, foreign currency
futures contracts and related options on such futures contracts, Virtus Capital
Management, Inc. ("VCM") may at times seek to hedge against a decline in the
value of securities included in the FUND's portfolio or an increase in the price
of securities which it plans to purchase for the FUND or to reduce risk or
volatility while seeking to enhance investment performance. Expenses and losses
incurred as a result of such hedging strategies will reduce the FUND's current
return.

The ability of the FUND to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices, U.S.
Government securities and foreign currencies are relatively new and still
developing. Although the FUND will not enter into an option or futures position
unless a liquid secondary market for such option or futures contract is believed
by FUND management to exist, there is no assurance that the FUND will be able to
effect closing transactions at any particular time or at an acceptable price.
Reasons for the absence of a liquid secondary market on an Exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an Exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an Exchange; (v) the facilities of an Exchange or
the Options Clearing Corporation ("OCC") may not at all times be adequate to
handle current trading volume; or (vi) one or more Exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market thereon would cease to exist, although outstanding options
on that Exchange that had been issued by the OCC as a result of trades on that
Exchange would continue to be exercisable in accordance with their terms.

Low initial margin deposits made upon the opening of a futures position and
the writing of an option involve substantial leverage. As a result, relatively
small movements in the price of the contract can result in substantial
unrealized gains or losses. However, to the extent the FUND purchases or sells
futures contracts and options on futures contracts and purchases and writes
options on securities and securities indexes for hedging purposes, any losses
incurred in connection therewith should, if the hedging strategy is successful,
be offset, in whole or in part, by increases in the value of securities held by
the FUND or decreases in the prices of securities the FUND intends to acquire.
It is impossible to predict the amount of trading interest that may exist in
various types of options or futures. Therefore, no assurance can be given that
the FUND will be able to utilize these instruments effectively for the purposes
stated below. Furthermore, the FUND's ability to engage in options and futures
transactions may be limited by tax considerations. Although the FUND will only
engage in options and futures transactions for limited purposes, it will involve
certain risks which are described in the Prospectus. The FUND will not engage in
options and futures transactions for leveraging purposes.

Writing Covered Options on Securities

The FUND may write covered call options and covered put options on
optionable securities of the types in which it is permitted to invest from time
to time as Cavelti Capital Management, Ltd., the FUND's portfolio adviser (the
"Portfolio Manager"), determines is appropriate in seeking to attain its
objective. Call options written by the FUND give the holder the right to buy the
underlying securities from the FUND at a stated exercise price; put options give
the holder the right to sell the underlying security to the FUND at a stated
price.

-2-

<PAGE>

The FUND may write only covered options, which means that, so long as the
FUND is obligated as the writer of a call option, it will own the underlying
securities subject to the option (or comparable securities satisfying the cover
requirements of securities exchanges). In the case of put options, the FUND will
maintain, in a segregated account, cash or short-term U.S. Government securities
with a value equal to or greater than the exercise price of the underlying
securities or will hold a purchased put option with a higher strike price than
the put written. The FUND may also write combinations of covered puts and calls
on the same underlying security.

The FUND will receive a premium from writing a put or call option, which
increases the FUND's return in the event the option expires unexercised or is
closed out at a profit. The amount of the premium will reflect, among other
things, the relationship of the market price of the underlying security to the
exercise price of the option, the term of the option and the volatility of the
market price of the underlying security. By writing a call option, the FUND
limits its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the FUND assumes the risk that it may be required to purchase the
underlying security for an exercise price higher than its market value at the
time it is exercised resulting in a potential capital loss if the purchase price
is less than the underlying securities current market value minus the amount of
the premium received, unless the security subsequently appreciates in value.

The FUND may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option written. The FUND will realize a
profit or loss from such transaction if the cost of such transaction is less or
more, respectively, than the premium received from the writing of the option. In
the case of a put option, any loss so incurred may be partially or entirely
offset by the premium received from a simultaneous or subsequent sale of a
different put option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by unrealized appreciation of the underlying security owned
by the FUND.

Purchasing Put and Call Options on Securities

The FUND may purchase put options to protect its portfolio holdings in an
underlying security against a decline in market value. Such hedge protection is
provided during the life of the put option since the FUND, as holder of the put
option, is able to sell the underlying security at the put exercise price
regardless of any decline in the underlying security's market price. In order
for a put option to be profitable, the market price of the underlying security
must decline sufficiently below the exercise price to cover the premium and
transaction costs. By using put options in this manner, the FUND will reduce any
profit it might otherwise have realized in the underlying security by the
premium paid for the put option and by transaction costs.

The FUND may also purchase call options to hedge against an increase in
prices of securities that it wants ultimately to buy. Such hedge protection is
provided during the life of the call option since the FUND, as holder of the
call option, is able to buy the underlying security at the exercise price
regardless of any increase in the underlying security's market price. In order
for a call option to be profitable, the market price of the underlying security
must rise sufficiently above the exercise price to cover the premium and
transaction costs. By using call options in this manner, the FUND will reduce
any profit it might have realized had it bought the underlying security at the
time it purchased the call option by the premium paid for the call option and by
transaction costs.

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<PAGE>

Purchase and Sale of Options and Futures on Stock Indices

The FUND may purchase and sell options on stock indices and stock index
futures as a hedge against movements in the equity markets.

Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars multiplied by a specified multiple. The
writer of the option is obligated, in return for the premium received, to make
delivery of this amount. Unlike options on specific securities, all settlements
of options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. Currently, index options traded include the S&P 100 Index,
the S&P 500 Index, the NYSE Composite Index, the AMEX Market Value Index, the
National Over-the-Counter Index and other standard broadly based stock market
indices.

A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount
multiplied by the difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at which the
agreement is made. No physical delivery of securities is made.

If the Portfolio Manager expects general stock market prices to rise, it
might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy. If in fact the stock index does rise, the price of
the particular equity securities intended to be purchased 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, the Portfolio Manager expects general stock market prices to
decline, it might purchase a put option or sell a futures contract on the index.
If that index does in fact 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 such put option or futures contract.

Purchase and Sale of Interest Rate Futures

The FUND may purchase and sell interest rate futures contracts on U.S.
Treasury bills, notes and bonds for the purpose of hedging fixed income and
interest sensitive securities against the adverse effects of anticipated
movements in interest rates.

The FUND may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the fixed income securities held by the FUND will
fall, thus reducing the net asset value of the FUND. This interest rate risk can
be reduced without employing futures as a hedge by selling long-term fixed
income securities and either reinvesting the proceeds in securities with shorter
maturities or by holding assets in cash. This strategy, however, entails
increased transaction costs to the FUND in the form of dealer spreads and
brokerage commissions.

The sale of interest rate futures contracts provides an alternative means
of hedging against rising interest rates. As rates increase, the value of the
FUND's short position in the futures contracts will also tend to increase, thus
offsetting all or a portion of the depreciation in the market value of the
FUND's investments which are being hedged. While the FUND will incur commission
expenses in selling and closing out futures positions (which is done by taking
an opposite position which operates to terminate the position in the futures
contract), commissions on futures transactions are lower than transaction costs
incurred in the purchase and sale of portfolio securities.

-4-

<PAGE>

Options on Stock Index Futures Contracts and Interest Rate Futures Contracts

The FUND may purchase and write call and put options on stock index and
interest rate futures contracts. The FUND may use such options on futures
contracts in connection with its hedging strategies in lieu of purchasing and
writing options directly on the underlying securities or stock indices or
purchasing and selling the underlying futures. For example, the FUND may
purchase put options or write call options on stock index futures or interest
rate futures, rather than selling futures contracts, in anticipation of a
decline in general stock market prices or rise in interest rates, respectively,
or purchase call options or write put options on stock index or interest rate
futures, rather than purchasing such futures, to hedge against possible
increases in the price of equity securities or debt securities, respectively,
which the FUND intends to purchase.

Purchase and Sale of Currency Futures Contracts and Related Options

In order to hedge its portfolio and to protect it against possible
variations in foreign exchange rates pending the settlement of securities
transactions, the FUND may buy or sell foreign currencies or may deal in forward
currency contracts. The FUND may also invest in currency futures contracts and
related options. If a decline in exchange rates for a particular currency is
anticipated, the FUND may sell a currency futures contract or a call option
thereon or purchase a put option on such futures contract as a hedge. If it is
anticipated that exchange rates will rise, the FUND may purchase a currency
futures contract or a call option thereon or sell (write) a put option to
protect against an increase in the price of securities denominated in a
particular currency the FUND intends to purchase. These futures contracts and
related options thereon will be used only as a hedge against anticipated
currency rate changes, and all options on currency futures written by the FUND
will be covered.

A currency futures contract sale creates an obligation by the FUND, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the FUND, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract or let the option expire.

The FUND will write (sell) only covered put and call options on currency
futures. This means that the FUND will provide for its obligations upon exercise
of the option by segregating sufficient cash or short-term obligations or by
holding an offsetting position in the option or underlying currency future, or a
combination of the foregoing. The FUND will, so long as it is obligated as the
writer of a call option on currency futures, own on a contract-for-contract
basis an equal long position in currency futures with the same delivery date or
a call option on stock index futures with the difference, if any, between the
market value of the call written and the market value of the call or long
currency futures purchased maintained by the FUND in cash, Treasury bills, or
other high-grade short-term obligations in a segregated account with its
custodian. If at the close of business on any day the market value of the call
purchased by the FUND falls below 100% of the market value of the call written
by the FUND, the FUND will so segregate an amount of cash, Treasury bills or
other high grade short-term obligations equal in value to the difference.
Alternatively, the FUND may cover the call option through segregating with the
custodian an amount of the particular foreign currency equal to the amount of
foreign currency per futures contract option multiplied by the number of options
written by the FUND. In the case of put options on currency futures written by
the FUND, the FUND will hold the aggregate exercise price in cash, Treasury
bills, or other high grade short-term obligations in a segregated account with
its custodian, or own put options on currency futures or short currency futures,
with the difference, if any, between the market value of the put written and the
market value of the puts purchased or the currency futures sold maintained by
the FUND in cash, Treasury bills or other high grade short-term obligations in a
segregated account with its custodian. If at the close of business on any day
the market value of the put options purchased or the currency futures sold by
the FUND falls

-5-

<PAGE>

below 100% of the market value of the put options written by the FUND, the FUND
will so segregate an amount of cash, Treasury bills or other high grade
short-term obligations equal in value to the difference.

If other methods of providing appropriate cover are developed, the FUND
reserves the right to employ them to the extent consistent with applicable
regulatory and exchange requirements.

In connection with transactions in stock index options, stock index
futures, interest rate futures, foreign currency futures and related options on
such futures, the FUND will be required to deposit as "initial margin" an amount
of cash and short-term U.S. Government securities equal to from 5% to 10% of the
contract amount. Thereafter, subsequent payments (referred to as "variation
margin") are made to and from the broker to reflect changes in the value of the
futures contract.

Forward Foreign Currency Exchange Contracts

The value of the FUND's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the FUND may incur costs in connection with
conversions between various currencies. The FUND will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties at a price set at the time of the contract.
These contracts are traded directly or indirectly between currency traders
(usually large commercial banks) and their customers. While the pursuit of
foreign currency gain is not a primary objective of the FUND, the FUND may, from
time to time, hold foreign currency to realize such gains. (These gains
constitute non-qualifying income that is subject to the 10% limitation with
respect to the "Income Requirement" of Subchapter M of the Internal Revenue Code
of 1986, as amended, which is discussed herein under "Dividends, Capital Gains
Distributions and Tax Matters.")

The FUND will enter into forward foreign currency exchange contracts as
described hereafter. When the FUND enters into a contract for the purchase or
sale of a security denominated in a foreign currency, it may desire to establish
the U.S. dollar cost or proceeds. By entering into a forward contract in U.S.
dollars for the purchase or sale of the amount of foreign currency involved in
an underlying security transaction, the FUND will be able to protect itself
against a possible loss between trade and settlement dates resulting from an
adverse change in the relationship between the U.S. dollar and such foreign
currency. However, this tends to limit potential gains which might result from a
positive change in such currency relationships.

When the Portfolio Manager 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. The FUND does not intend to
enter into such forward contracts on a regular or continuous basis, and will not
do so if, as a result, the FUND would have more than 25% of the value of its
total assets committed to such contracts. The FUND will also not enter into such
forward contracts or maintain a net exposure in such contracts where the FUND
would be obligated to deliver an amount of foreign currency in excess of the
value of the FUND's portfolio securities or other assets denominated in that
currency. 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 the Portfolio Manager determines that the best interests of the
FUND will be served. The FUND's custodian bank will segregate cash or marketable
high grade debt securities in an amount not less than the value of the FUND's
total assets committed to foreign currency exchange contracts entered into under
this type of transaction. If the value of the securities segregated declines,
additional cash or securities will be added on a daily basis, i.e.,

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<PAGE>

marked-to-market, so that the segregated amount will not be less than the amount
of the FUND's commitments with respect to such contracts.

Generally, the FUND will not enter into a forward foreign currency exchange
contract with a term of greater than one year. At the maturity of the contract,
the FUND may either sell the portfolio security and make delivery of the foreign
currency, or may retain the security and terminate the obligation to deliver the
foreign currency by purchasing an "offsetting" forward contract with the same
currency trader obligating the FUND to purchase, on the same maturity date, the
same amount of foreign currency.

It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for the FUND to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the FUND is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security if
its market value exceeds the amount of foreign currency the FUND is obligated to
deliver.

If the FUND retains the portfolio security and engages in an offsetting
transaction, the FUND will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the FUND
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between entering into a forward contract for the sale of a
foreign currency and the date the FUND enters into an offsetting contract for
the purchase of the foreign currency, the FUND will realize a gain to the extent
the price of the currency the FUND has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the FUND
will suffer a loss to the extent the price of the currency the FUND has agreed
to purchase exceeds the price of the currency the FUND has agreed to sell.

The FUND's dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the FUND is not required
to enter into such transactions with regard to its foreign currency-denominated
securities and will not do so unless deemed appropriate by the Portfolio
Manager. It also should be realized that this method of protecting the value of
the FUND's portfolio securities against the decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which one can achieve at some future point
in time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain which might result should the value of such currency
increase.

Additional Risks of Futures Contracts and Related Options and Forward Foreign
Currency Exchange Contracts

The market prices of futures contracts may be affected by certain factors.
First, all participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the securities
and futures markets. Second, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions.

In addition, futures contracts in which the FUND may invest may be subject
to commodity exchange imposed limitations on fluctuations in futures contract
prices during a single day. Such regulations are referred to as "daily price
fluctuation limits or "daily limits". During a single trading day no trades may
be executed at prices beyond the daily limit. Once the price of a futures
contract has increased or decreased by an amount equal to the daily limit,
positions in those futures cannot be taken or liquidated unless both a buyer and
seller are willing to effect trades at or within the limit. Daily limits, or
regulatory intervention in the commodity

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markets, could prevent the FUND from promptly liquidating unfavorable positions
and adversely affect operations and profitability.

Forward foreign currency exchange contracts ("forward contracts") are not
traded on contract markets regulated by the Commodity Futures Trading Commission
("CFTC") and are not regulated by the SEC. Rather, forward contracts are traded
through financial institutions acting as market-makers. In the forward currency
market, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Moreover, a trader of forward contracts could lose amounts substantially in
excess of its initial investments, due to the collateral requirements associated
with such positions.

In addition, futures contracts and related options, and forward contracts
may be traded on foreign exchanges, to the extent permitted by the CFTC. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (a) other complex foreign
political and economic factors, (b) lesser availability than in the United
States of data on which to make trading decisions, (c) delays in the FUND's
ability to act upon economic events occurring in foreign markets during
nonbusiness hours in the United States and the United Kingdom, (d) the
imposition of different exercise and settlement terms and procedures and margin
requirements than in the United States, and (e) lesser trading volume.

Ratings of Debt Instruments

The four highest ratings of Moody's Investors Service, Inc. ("Moody's") for
U.S. corporate and municipal bonds are Aaa, Aa, A and Baa. Bonds rated Aaa are
judged by Moody's to be of the best quality. Bonds rated Aa are judged to be of
high quality by all standards. Together with the Aaa group, they comprise what
are generally known as high-grade bonds. Moody's states that Aa bonds are rated
lower than the best bonds because margins of protection or other elements make
their long-term risks appear somewhat larger than the long-term risks for Aaa
bonds. Bonds which are rated A by Moody's possess many favorable investment
attributes and are considered "upper medium grade obligations." Factors giving
security to principal and interest of A rated bonds are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds that are rated Baa are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and have speculative characteristics as
well.

The four highest ratings of Standard & Poor's Corporation ("S&P") for U.S.
bonds are AAA, AA, A and BBB. Bonds rated AAA have the highest rating assigned
by S&P to an obligation. Capacity to pay interest and repay principal is
extremely strong. Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in a small degree.
Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. Bonds rated BBB are considered on the
borderline between definitely sound obligations and obligations where the
speculative element begins to predominate.

Ratings of Commercial Paper

Commercial paper rated A-1 by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements; the issuer has access
to at least two additional channels of borrowing; basic earnings and cash flow
have an upward trend with allowance made for unusual circumstances; the issuer's
industry is well established and the issuer has a strong position within the
industry and the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1, A-2 or A-3.

The rating P-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2)

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economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.

Regulatory Matters

In connection with its proposed futures and options transactions, the FUND
has filed with the Commodity Futures Trading Commission ("CFTC") a notice of
eligibility for exemption from the definition of (and therefore from CFTC
regulation as) a "commodity pool operator" under the Commodity Exchange Act. The
FUND has represented in its notice of eligibility that:

(i) it will not purchase or sell futures or options on futures contracts
or stock indices if as a result the sum of the initial margin
deposits on its existing futures contracts and related options
positions and premiums paid for options on futures contracts or
stock indices would exceed 5% of the FUND's assets; and

(ii) with respect to each futures contract purchased or long position in
an option contract, the FUND will set aside in a segregated account
cash or cash equivalents in an amount equal to the market value of
such contracts less the initial margin deposit.

The Staff of the SEC has taken the position that the purchase and sale of
futures contracts and the writing of related options may involve senior
securities for the purposes of the restrictions contained in Section 18 of the
Investment Company Act of 1940 (the "1940 Act") on investment companies issuing
senior securities. However, the staff has issued letters declaring that it will
not recommend enforcement action under Section 18 if an investment company:

(i) sells futures contracts to offset expected declines in the value of
the investment company's portfolio securities, provided the value of
such futures contracts does not exceed the total market value of
those securities (plus such additional amount as may be necessary
because of differences in the volatility factor of the portfolio
securities vis-a-vis the futures contracts);

(ii) writes call options on futures contracts, stock indexes or other
securities, provided that such options are covered by the investment
company's holding of a corresponding long futures position, by its
ownership of portfolio securities which correlate with the
underlying stock index or otherwise;

(iii) purchases futures contracts, provided the investment company
establishes a segregated account ("cash segregated account")
consisting of cash or cash equivalents in an amount equal to the
total market value of such futures contracts less the initial margin
deposited therefor; and

(iv) writes put options on futures contracts, stock indices or other
securities, provided that such options are covered by the investment
company's holding of a corresponding short futures position, by
establishing a cash segregated account in an amount equal to the
value of its obligation under the option, or otherwise.

The FUND will conduct its purchases and sales of futures contracts and
writing of related options transactions in accordance with the foregoing.

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Additional Information Regarding Precious Metals and Precious Metals Securities

The production and marketing of gold and precious metals may be affected by
the action of certain governments and changes in existing governments. For
example, the mining of gold is highly concentrated in a few countries. In
current order of magnitude of production of gold bullion, the five largest
producers of gold are the Republic of South Africa, the Union of Soviet
Socialist Republics, Canada, Brazil and the United States. Economic and
political conditions prevailing in these countries may have a direct effect on
the production and marketing of newly produced gold and sales of central bank
gold holdings. It is expected that a majority of gold mining companies in which
the FUND will invest will be located within the United States and Canada.

Prices of Precious Metals Securities can be volatile and tend to experience
greater volatility than the prices of physical precious metals. This is due to
the fact that the costs of mining precious metals remain relatively fixed, so
that an increase or decrease in the price of precious metals has a direct and
greater than proportional effect on the profitability of precious metals mining
companies. Investments tied to precious metals characteristically involve high
risk because of precious metals' price volatility. The price of precious metals
is affected by factors such as cyclical economic conditions, political events
and monetary policies of various countries. During periods of rising precious
metals prices, the FUND will tend to emphasize investments in Precious Metals
Securities.

Portfolio Turnover

As a result of its investment policies, the FUND expects to engage in a
substantial number of portfolio transactions. However, the FUND's portfolio
turnover rate is not expected to exceed 100%. A 100% portfolio turnover rate
would occur if 100% of the securities owned by the FUND were sold and either
repurchased or replaced by it within one year. The FUND's portfolio turnover
rate is, generally, the percentage computed by dividing the lesser of FUND's
purchases or sales exclusive of short-term securities and bullion, by the
average value of the FUND's total investments exclusive of short-term securities
and bullion. The portfolio turnover rates for the fiscal periods ended April 30,
1994, 1993 and 1992, were 174%, 66% and 62%, respectively. High portfolio
turnover involves correspondingly greater brokerage commissions, other
transaction costs, and a possible increase in short-term capital gains or
losses. Shareholders are taxed on any such net gains at ordinary income rate.

INVESTMENT RESTRICTIONS

Investment restrictions are fundamental policies and cannot be changed
without approval of the holders of a majority (as defined in the 1940 Act) of
the outstanding shares of the FUND. As used in the Prospectus and the Statement
of Additional Information, the term "majority of the outstanding shares" of the
FUND means respectively the vote of the lesser of (i) 67% or more of the shares
of the FUND present at a meeting, if the holders of more than 50% of the
outstanding shares of the FUND are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the FUND. The following are the FUND's
investment restrictions.

1. As a non-diversified management investment company, the FUND has the
following restrictions: (a) with respect to 50% of the FUND's total assets, the
FUND may not invest more than 5% of its total assets, at market value, in the
securities of one issuer (except the securities of the U.S. Government, its
agencies and instrumentalities) and (b) with respect to the other 50% of the
FUND's total assets, the FUND may not invest more than 25% of the market value
of its total assets in a single issuer (except the securities of the U.S.
Government, its agencies and instrumentalities). These two restrictions,
hypothetically, could give rise to the FUND having as few as twelve issuers.

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2. The FUND will not purchase a security if, as a result: (a) it would own
more than 10% of any class or of the outstanding voting securities of any single
company; (b) more than 5% of its total assets would be invested in the
securities of companies (including predecessors) that have been in continuous
operation for less than 3 years; (c) 25% or more of its total assets would be
concentrated in companies within any one industry except the FUND may invest 25%
or more of its assets in Precious Metals Securities as defined in the Prospectus
and (d) more than 5% of total assets would be invested in warrants or rights or
invest more than 2% of its total assets if such warrants are not listed on the
New York Stock Exchange.

3. The FUND may borrow money from a bank solely for temporary or emergency
purposes (but not in an amount equal to more than 10% of the market value of its
total assets). The FUND will not purchase securities while borrowing is in
excess of 5% of the market value of its total assets.

4. The FUND will not make loans of money or securities other than (a)
through the purchase of publicly distributed debt securities in accordance with
its investment objective and (b) through repurchase agreements.

5. The FUND may not invest more than 10% of its total assets in the
securities of other investment companies or purchase more than 3% of any other
investment company's voting securities.

6. The FUND may not knowingly purchase or otherwise acquire securities
which are subject to legal or contractual restrictions on resale or for which
there is no readily available market if, as a result thereof, more than 10% of
the assets of the FUND (taken at market value) would be invested in such
securities, including repurchase agreements with maturity dates in excess of 7
days.

7. The FUND may not pledge, mortgage or hypothecate its assets, except that
to secure borrowings permitted by Restriction 3 above, the FUND may pledge
securities having a value at the time of pledge not exceeding 10% of the market
value of the FUND's total assets.

8. The FUND may not purchase or sell commodity contracts, except for
futures contracts and related options as described under "Investment Objective
and Policies" in the Prospectus and this Statement of Additional Information.

9. The FUND may not buy any securities or other property on margin (except
for options and futures trading and for such short term credits as are necessary
for the clearance of transactions) or engage in short sales.

10. The FUND may not invest in companies for the purpose of exercising
control or management.

11. The FUND may not underwrite securities issued by others except to the
extent that the FUND may be deemed an underwriter in the resale of any portfolio
securities.

12. The FUND may not purchase or retain securities of any issuer (other
than the shares of the FUND) if to the FUND's knowledge, those officers and
Directors of the FUND and the officers and directors of VCM, who individually
own beneficially more than 1/2 of 1% of the outstanding securities of such
issuer, together own beneficially more than 5% of such outstanding securities.

13. The FUND may not purchase or sell real estate (although it may purchase
securities secured by real estate interests or interests therein, or issued by
companies or investment trusts which invest in real estate or interests
therein).

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<PAGE>

14. The FUND may not invest directly in oil, gas, or other mineral
exploration or development programs; provided, however, that if consistent with
the objectives of the FUND, the FUND may purchase securities of issuers whose
principal business activities fall within such areas.

15. The FUND may not issue senior securities.

In order to permit the sale of shares of the FUND in certain states, the
FUND may make commitments more restrictive than the restrictions described
above. Should the FUND determine that any such commitment is no longer in the
best interests of the FUND and its shareholders it will revoke the commitment by
terminating sales of its shares in the state(s) involved.

Percentage restrictions apply at the time of acquisition and any subsequent
change in percentages due to changes in market value of portfolio securities or
other changes in total assets will not be considered a violation of such
restrictions.

COMPUTATION OF NET ASSET VALUE

The net asset value of the FUND is determined at 4:15 p.m. New York time,
on each day that the New York Stock Exchange is open for business and on such
other days as there is sufficient trading in the FUND's securities to affect
materially the net asset value per share of the FUND. The FUND will be closed on
New Years Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. The net asset value per share is
computed by dividing the value of all securities plus other assets, less
liabilities, by the number of shares outstanding. Each determination of the
FUND's net asset value is made (i) by valuing portfolio securities which are
traded on the New York Stock Exchange or the American Stock Exchange at the last
sale price, or, if no sale, at the closing bid price, (ii) by valuing other
securities as nearly as possible in the manner described in clause (i) if traded
on any other U.S. or foreign exchange, and, if not so traded, on the basis of
the latest available bid prices. A security which is listed or traded on more
than one exchange, is valued at the quotation on the exchange determined to be
the primary market for such security by the Board of Directors or VCM.
High-quality short-term debt securities which mature in 60 days or less are
valued at amortized cost if their original maturity was 60 days or less, or by
amortizing their value on the 61st day prior to maturity if their original term
to maturity exceeded 60 days. Amortized cost will be used unless the Board of
Directors determines that such method does not represent fair value.

Generally, trading in foreign securities, as well as trading in corporate
bonds, U.S. government securities and money market instruments, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange. The values of such securities used in computing the net asset value of
the FUND are determined as of such times. Foreign currency exchange rates are
also generally determined prior to 4:15 p.m. Bullion investments are valued at
the closing spot price based on dealer or exchange quotations. Occasionally,
events affecting the value of metal securities may occur between such times and
4:15 p.m. which will not be reflected in the computation of the FUND's net asset
value. If events occur which materially affect the value of metal securities,
the securities will be valued at fair value as determined in good faith by the
Board of Directors.

Puts and calls held by the FUND are valued at the last sales price or, if
there are no transactions, at the mean between the closing bid and asked prices.
When the FUND writes a call, an amount equal to the premium received is included
in the FUND's statement of assets and liabilities as an asset, and an equivalent
credit is included in the liability section. The credit is "marked-to-market" to
reflect the current market value of the call. If a call expires, the FUND has a
gain in the amount of the premium received; if the FUND enters into a closing
purchase transaction, it will have a gain or loss depending on whether the
premium received was more or less than the cost of the closing transaction. All
other securities and other assets of the FUND are valued at fair value as
determined in good faith by the Board of Directors.

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PERFORMANCE INFORMATION

For purposes of quoting and comparing the performance of the FUND to that
of other mutual funds and to stock or other relevant indices in advertisements
or in reports to shareholders, performance will be stated in terms of total
return, rather than in terms of yield. The total return basis combines principal
and dividend income changes for the periods shown. Principal changes are based
on the difference between the beginning and closing net asset values for the
period and assume reinvestment of dividends and distributions paid by the FUND.
Dividends and distributions are comprised of net investment income and net
realized capital gains. Under the rules of the SEC, funds advertising
performance must include total return quotes calculated according to the
following formula:

P(1 + T)n = ERV

Where P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years (1, 5 or 10)

ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods or at
the end of the 1, 5 or 10 year periods
(or fractional portion thereof)

Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five, and ten year periods or a shorter period dating from the
effectiveness of the FUND's registration statement. In calculating the ending
redeemable value, the pro rata share of the account opening fee is deducted from
the initial $1,000 investment and all dividends and distributions by the FUND
are assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. Total return, or "T" in
the formula above, is computed by finding the average annual compounded rates of
return over the 1, 5 and 10 year periods (or fractional portion thereof) that
would equate the initial amount invested to the ending redeemable value.

The FUND's average annual total return figures, reflecting the initial
investment and reinvestment of all dividends and distributions, net of the pro
rata share of the account opening fee, for the one year period ended April 30,
1994 was 27.8%.

The FUND may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the FUND's performance with other measures of
investment return. For example, in comparing the FUND's total return with data
published by Lipper Analytical Services, Inc. or the Standard & Poor's 500 Stock
Index or the Dow Jones Industrial Average, the FUND calculates its aggregate
total return for the specified periods of time by assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment
dates. Percentage increases are determined by subtracting the initial net asset
value of the investment from the ending net asset value and by dividing the
remainder by the beginning net asset value. The FUND does not, for these
purposes, deduct the pro rata share of the account opening fee from the initial
value invested. The FUND will, however, disclose the pro rata share of the
account opening fee and will disclose that the performance data does not reflect
such non-recurring charge and that inclusion of such charge would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.

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PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of portfolio securities are placed on
behalf of the FUND by the Portfolio Manager subject to the supervision of VCM
and the Board of Directors and pursuant to authority contained in the Investment
Advisory Contract and Sub-Advisory Agreements between the FUND and VCM, and VCM
and the Portfolio Manager. In selecting such brokers or dealers, the Portfolio
Manager 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, and 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 the Portfolio Manager for the
FUND's use, which in the opinion of the Board of Directors are reasonable and
necessary to the FUND's normal operations. 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 the Portfolio
Manager. Such allocation shall be in such amounts as VCM shall determine and the
Portfolio Manager shall report regularly to VCM who will in turn report to the
Board of Directors on the allocation of brokerage for such services.

The receipt of research from broker-dealers may be useful to the Portfolio
Manager in rendering investment management services to its other clients, and
conversely, such information provided by brokers or dealers who have executed
orders on behalf of the Portfolio Manager's other clients may be useful to the
Portfolio Manager in carrying out its obligations to the FUND. The receipt of
such research may not reduce the Portfolio Manager's normal independent research
activities.

The Portfolio Manager is authorized, subject to 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 the Portfolio Manager or
their 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 also shareholders of VCM. The Investment Advisory Contract
does not provide for any reduction in the management fee as a result of profits
resulting from brokerage commissions effected through the Distributor. In
addition, the Sub-Advisory Agreement between VCM and the Portfolio Manager does
not provide for any reduction in the advisory fees as a result of profits
resulting from brokerage commissions effected through the Portfolio Manager or
any affiliated brokerage firms. For the years ended April 30, 1994, 1993, and
1992 the FUND incurred brokerage commission expenses of $654,000, $190,954 and
$172,286, respectively from the purchase and sale of portfolio securities.

The Board of Directors had 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 the
Portfolio Manager or to their 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 Directors and to maintain records in connection with such reviews.

Brokers or dealers who execute portfolio transactions on behalf of the FUND
may receive commissions which are in excess of the amount of commission which
other brokers or dealers would have charged

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for effecting such transactions provided the Portfolio Manager determines in
good faith that such commissions are reasonable in relation to the value of the
brokerage and/or research services provided by such executing brokers or dealers
viewed in terms of a particular transaction or VCM's overall responsibilities to
the FUND.

It may happen that the same security will be held by other clients of VCM
or of the Portfolio Manager. When the other clients are simultaneously engaged
in the purchase or sale of the same security, the prices and amounts will be
allocated in accordance with a formula considered by VCM to be equitable to
each, taking into consideration such factors as size of account, concentration
of holdings, investment objectives, tax status, cash availability, purchase
cost, holding period and other pertinent factors relative to each account. In
some cases this system could have a detrimental effect on the price or volume of
the security as far as the FUND is concerned. In other cases, however, the
ability of the FUND to participate in volume transactions will produce better
execution results for the FUND.

DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAX MATTERS

The following is only a summary of certain additional tax considerations
generally affecting the FUND and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the FUND or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning.

Qualification as a Regulated Investment Company

The FUND has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the FUND is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the FUND made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.

If the FUND has a net capital loss (i.e., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such years. During fiscal 1994, the Fund utilized capital loss
carryovers of $5,660,501 which had arisen in prior years to partially offset the
Fund's net taxable gains realized and recognized in the year ended April 30,
1994.

In addition to satisfying the Distribution Requirement, a regulated
investment company must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short

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Gain Test, the FUND may have to limit the sale of appreciated securities that it
has held for less than three months. However, the Short-Short Gain Test will not
prevent the FUND from disposing of investments at a loss, since the recognition
of a loss before the expiration of the three-month holding period is disregarded
for this purpose. Interest (including original issue discount) received by the
FUND at maturity or upon the disposition of a security held for less than three
months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of the Short-Short Gain Test.
However, income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.

In general, gain or loss recognized by the FUND on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the FUND held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Section 1256, will generally be
treated as ordinary income or loss.

In general, for purposes of determining whether capital gain or loss
recognized by the FUND on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (i) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (ii) the asset is otherwise held by the FUND as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the FUND
grants a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
FUND grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, the FUND may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.

Any gain recognized by the FUND on the lapse of, or any gain or loss
recognized by the FUND from a closing transaction with respect to, an option
written by the FUND will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the FUND will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the FUND
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.

Transactions that may be engaged in by the FUND (such as regulated futures
contracts, certain foreign currency contracts and options on stock indexes and
futures contracts) will be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are treated as if they are sold for its fair
market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under such contracts have not terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as of such
date. Any gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is taken into account for the taxable year
together with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during that taxable year. Any capital gain
or loss for the taxable year with respect to Section 1256 contracts (including
any capital gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss (except for Section 1256 forward foreign
currency contracts, which are subject to the Section 988 Rules). The FUND may
elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the FUND that are
not Section 1256 contracts. The Internal Revenue Service has held in several
private rulings that gains arising from Section 1256 contracts will be treated
for purposes of the

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<PAGE>

Short-Short Gain Test as being derived from securities held for not less than
three months if the gains arise as a result of a constructive sale under Code
Section 1256.

The FUND may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If the FUND invests in a PFIC, it may elect to
treat the PFIC as a qualifying electing fund (a "QEF") in which event the FUND
will each year have ordinary income equal to its pro rata share of the PFIC's
ordinary earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether the
FUND receives distributions of any such ordinary earnings or net capital gain
from the PFIC. If the FUND does not (because it is unable to, chooses not to or
otherwise) elect to treat the PFIC as a QEF, then in general (i) any gain
recognized by the FUND upon sale or other disposition of its interest in the
PFIC or any excess distribution received by the FUND from the PFIC will be
allocated ratably over the FUND's holding period of its interest in the PFIC,
(ii) the portion of such gain or excess distribution so allocated to the year in
which the gain is recognized or the excess distribution is received shall be
included in the FUND's gross income for such year as ordinary income (and the
distribution of such portion by the FUND to shareholders will be taxable as an
ordinary income dividend, but such portion will not be subject to tax at the
FUND level), (iii) the FUND shall be liable for tax on the portions of such gain
or excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (A) the amount of gain or excess distribution allocated to
such prior year multiplied by the highest tax rate (individual or corporate) in
effect for such prior year plus (B) interest on the amount determined under
clause (A) for the period from the due date for filing a return for such prior
year until the date for filing a return for the year in which the gain is
recognized or the excess distribution is received at the rates and methods
applicable to underpayments of tax for such period, and (iv) the distribution by
the FUND to shareholders of the portions of such gain or excess distribution so
allocated to prior years (net of the tax payable by the FUND thereon) will again
be taxable to the shareholders as an ordinary income dividend.

Under recently proposed Treasury Regulations a Fund can elect to recognize
as gain the excess, as of the last day of its taxable year, of the fair market
value of each share of PFIC stock over the Fund's adjusted tax basis in that
share ("mark to market gain"). Such mark to market gain will be included by the
Fund as ordinary income, such gain will not be subject to the Short-Short Gain
Test, and the Fund's holding period with respect to such PFIC stock commences on
the first day of the next taxable year. If the Fund makes such election in the
first taxable year it holds PFIC stock, the Fund will include ordinary income
from any mark to market gain, if any, and will not incur the tax described in
the previous paragraph.

Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.

In addition to satisfying the requirements described above, the FUND must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the FUND's
taxable year, at least 50% of the value of the FUND's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the FUND has
not invested more than 5% of the value of the FUND's total assets in securities
of such issuer and as to which the FUND does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the FUND controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority which
identifies the issuer of such instrument.

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<PAGE>

Although the FUND's management and the Portfolio Manager will endeavor to
manage the FUND's portfolio so that the FUND's investment in Physical Precious
Metals Investments (as defined in the Prospectus) does not result in its failure
to satisfy the asset diversification test or the source of income requirement
described above, the FUND's management reserves the right to depart from this
policy whenever, in its sole judgment, it is deemed in the best interests of the
FUND and its shareholders to do so. If for any taxable year the FUND does not
qualify as a regulated investment company, all of its taxable income (including
its net capital gain) will be subject to tax at regular corporate rates without
any deduction for distributions to shareholders, and such distributions will be
taxable as ordinary dividends to the extent of the FUND's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
According to an Internal Revenue Service announcement of Treasury regulations to
be promulgated, if the FUND qualifies and elects to be taxed as a regulated
investment company after not qualifying as a regulated investment company for
more than one year, the FUND will be subject to federal income tax on the amount
of the net unrealized gain on its assets at the time of requalification (or, if
the FUND so elects, at the time such net unrealized gain is recognized during
the following ten year period).

Excise Tax on Regulated Investment Companies

A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.

For purposes of the excise tax, a regulated investment company shall (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).

The FUND intends to make sufficient distributions or deemed distributions
of its ordinary taxable income and capital gain net income prior to the end of
each calendar year to avoid liability for the excise tax. However, investors
should note that the FUND may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.

Fund Distributions

The FUND anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends-received deduction for
corporations only to the extent discussed below.

The FUND may either retain or distribute to shareholders its net capital
gain for each taxable year. The FUND currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his or her shares or
whether such gain was recognized by the FUND prior to the date on which the
shareholder acquired his shares. Conversely, if the FUND elects to retain its
net capital gain, the FUND will be taxed thereon (except to the extent of any
available capital loss carryovers) at the 35% corporate tax rate. If the FUND
elects to retain its net capital gain, it is expected that the FUND also will
elect to have shareholders of record on the last day of its taxable year treated
as if each received a distribution of his pro rata share of such gain, with the
result that each shareholder will be required to report his pro rata share of
such gain

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<PAGE>

on his tax return as long-term capital gain, will receive a refundable tax
credit for his pro rata share of tax paid by the FUND on the gain, and will
increase the tax basis for his shares by an amount equal to the deemed
distribution less the tax credit.

Ordinary income dividends paid by the FUND with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations, such as "S" corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the FUND from domestic corporations for the taxable year.
A dividend received by the FUND will not be treated as a qualifying dividend (1)
if it has been received with respect to any share of stock that the FUND has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the FUND has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the FUND is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property; or (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends- received deduction for
a corporate shareholder may be disallowed or reduced (i) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the FUND or (ii) by application of Code Section 246(b) which in
general limits the dividends-received deduction to 70% of the shareholder's
taxable income (determined without regard to the dividends-received deduction
and certain other items).

Alternative Minimum Tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at the rate of 24% for
noncorporate taxpayers and 20% for corporate taxpayers on the excess of the
taxpayer's alternative minimum taxable income ("AMTI") over an exemption amount.
In addition, under the Superfund Amendments and Reauthorization Act of 1986, a
tax is imposed for taxable years beginning after 1986 and before 1996 at the
rate of 0.12% on the excess of a corporate taxpayer's AMTI (determined without
regard to the deduction for this tax and the AMT net operating loss deduction)
over $2 million. The corporate dividends received deduction is not itself an
item of tax preference that must be added back to taxable income or is otherwise
disallowed in determining a corporation's AMTI. However, corporate shareholders
will generally be required to take the full amount of any dividend received from
the FUND into account (without a dividends-received deduction) in determining
its adjusted current earnings, which are used in computing an additional
corporate preference item (i.e., 75% of the excess of a corporate taxpayer's
adjusted current earnings over its AMTI (determined without regard to this item
and the AMT net operating loss deduction)) includable in AMTI.

Investment income that may be received by the FUND from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the FUND to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the FUND's assets to be invested in various countries is not
known. If more than 50% of the value of the FUND's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the FUND may elect to "pass through" to the FUND's shareholders the amount of
foreign taxes paid by the FUND. If the FUND so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the FUND, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
FUND representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not

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<PAGE>

itemize deductions. Each shareholder should consult his own tax advisor
regarding the potential application of foreign tax credits.

Distributions by the FUND that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.

Distributions by the FUND will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the FUND (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the FUND reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the FUND, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.

Ordinarily, shareholders are required to take distributions by the FUND
into account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the FUND) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.

The FUND will be required in certain cases to withhold and remit to the U.
S. Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding by the Internal Revenue Service for failure to
report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the FUND that it is not subject to backup withholding or
that it is a corporation or other "exempt recipient."

Sale or Redemption of Shares

A shareholder will recognize gain or loss on the sale or redemption of
shares of the FUND in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the FUND within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the FUND will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-received
deduction for corporations) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 3% lower than the maximum rate applicable to
ordinary income. Capital losses in any year are deductible only to the extent of
capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary
income.

Foreign Shareholders

Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the FUND
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.

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<PAGE>

If the income from the FUND is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate)
upon the gross amount of the dividend. Furthermore, such a foreign shareholder
may be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate)
on the gross income resulting from the FUND's election to treat any foreign
taxes paid by it as paid by its shareholders, but may not be allowed a deduction
against this gross income or a credit against this U.S. withholding tax for the
foreign shareholder's pro rata share of such foreign taxes which it is treated
as having paid. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the FUND, capital
gain dividends and amounts retained by the FUND that are designated as
undistributed capital gains.

If the income from the FUND is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
FUND will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.

In the case of foreign noncorporate shareholders, the FUND may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the FUND with proper notification of its
foreign status.

The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the FUND,
including the applicability of foreign taxes.

Effect of Future Legislation; Local Tax Considerations

The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the FUND.

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<PAGE>

THE MANAGEMENT OF THE FUND

Officers and Directors are listed with their ages, addresses, principal
occupations, and present positions, including any affiliation with Virtus
Capital Management, Inc., Signet Trust Company, Federated Investors, Federated
Securities Corp., Federated Services Company, and Federated Administrative
Services or the Funds (as defined below).

John F. Donahue, 70 (1)(2)
Federated Investors Tower
Pittsburgh, PA Chairman and Director of the Fund; Chairman
and Trustee of Blanchard Funds; Chairman and
Trustee of The Virtus Funds; Chairman and
Trustee, Federated Investors, Federated
Advisers, Federated Management, and Federated
Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research,
Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and
Director, Trustee, or Managing General
Partner of the Funds.

Thomas G. Bigley, 61
28th Floor
One Oxford Centre
Pittsburgh, PA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds; Director,
Oberg Manufacturing Co.; Chairman of the
Board, Children's Hospital of Pittsburgh;
Director, Trustee or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst
& Young LLP.

John T. Conroy, Jr., 57 (3)
Wood/IPC Commercial Department
John R. Wood and Associates,
Inc., Realtors
3255 Tamiami Trail North
Naples, FL Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
President, Investment Properties Corporation;
Senior Vice-President, John R. Wood and
Associates, Inc., Realtors; President,
Northgate Village Development Corporation;
Partner or Trustee in private real estate
ventures in Southwest Florida; Director,
Trustee, or Managing General Partner of the
Funds; formerly, President, Naples Property
Management, Inc.

William J. Copeland, 76 (3)
One PNC Plaza - 23rd Floor
Pittsburgh, PA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds; Director
and Member of the Executive Committee,
Michael Baker, Inc.; Director, Trustee, or
Managing General Partner of the Funds;
formerly, Vice Chairman and Director,

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<PAGE>

PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.

James E. Dowd, 72 (3)
571 Hayward Mill Road
Concord, MA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
Attorney-at-law; Director, The Emerging
Germany Fund, Inc.; Director, Trustee, or
Managing General Partner of the Funds;
formerly, Director, Blue Cross of
Massachusetts, Inc.

Lawrence D. Ellis, M.D., 62 (1)
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals;
Professor of Medicine and Trustee, University
of Pittsburgh; Director of Corporate Health,
University of Pittsburgh Medical Center;
Director, Trustee, or Managing General
Partner of the Funds.

Edward L. Flaherty, Jr., 70 (1)(3)
Two Gateway Center - Suite 674
Pittsburgh, PA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
Attorney-at-law; Partner, Henny, Kochuba,
Meyer & Flaherty; Director, Eat'N Park
Restaurants, Inc., and Statewide Settlement
Agency, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western
Region.

Edward C. Gonzales, 64 (1)
Federated Investors Tower
Pittsburgh, PA President and Treasurer of the Fund;
President and Treasurer of Blanchard Funds,
and The Virtus Funds; Vice President,
Treasurer, and Trustee, Federated Investors;
Vice President and Treasurer, Federated
Advisers, Federated Management, Federated
Research, Federated Research Corp., and
Passport Research, Ltd.; Executive Vice
President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director
of some of the Funds; Vice President and
Treasurer of the Funds.

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<PAGE>

Peter E. Madden, 53
225 Franklin Street
Boston, MA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
Consultant; State Representative,
Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the
Funds; formerly, President, State Street Bank
and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic
Foundation, Inc.

Gregor F. Meyer, 68
Two Gateway Center - Suite 674
Pittsburgh, PA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
Attorney-at-law; Partner, Henny, Kochuba,
Meyer & Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.;
Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.

John E. Murray, Jr.,
J.D., S.J.D., 62
[MAILING ADDRESS
CITY, STATE & ZIP CODE] Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
President, Law Professor, Duquesne
University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or
Managing Partner of the Funds.

Wesley W. Posvar, 69
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds;
Professor, Foreign Policy and Management
Consultant; Trustee, Carnegie Endowment for
International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space
Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or
Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council
for Environmental Policy and Technology.

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<PAGE>

Marjorie P. Smuts, 59
4905 Bayard Street
Pittsburgh, PA Director of the Fund; Trustee of Blanchard
Funds; Trustee of The Virtus Funds; Public
relations/marketing consultant; Director,
Trustee, or Managing General Partner of the
Funds.

- ---------------

(1) This Director is deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940, as amended.

(2) Member of the Executive Committee. The Executive Committee of the Board of
Directors handles the responsibilities of the Board of Directors between
meetings of the Board.

(3) Member of the Audit Committee. The Audit Committee is responsible for
reviewing compliance with all internal controls and all regulations related
to the financial reporting process.

The Funds

As referred to in the list of Directors and Officers, "Funds" includes the
following investment companies:

American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money Trust; California
Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc,; High Yield Cash
Trust; Insight Institutional Series, Inc,; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Star Funds; The Starburst Funds; The
Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligation; and World Investment
Series, Inc.

Fund Ownership

As of June 30, 1995, Officers and Directors own less than 1% of the
outstanding shares of each Fund.

-25-

<PAGE>

To the best knowledge of the FUND, as of June 30, 1995, no shareholder
owned 5% or more of the outstanding shares of the FUND.

Officers and Directors Compensation

<TABLE>
- -------------------------------------------------------------------------------------------------
NAME, POSITION AGGREGATE TOTAL COMPENSATION
WITH THE FUND COMPENSATION FROM PAID TO TRUSTEES FROM
THE FUND THE FUND AND FUND
COMPLEX*
- -------------------------------------------------------------------------------------------------

<S> <C> <C>
John F. Donahue, $-0- $-0- for the Fund Complex
Chairman and Director

Thomas G. Bigley, Director $-0- $489.00 the Fund Complex

John T. Conroy, Jr., Director $-0- $2,001.50 for the Fund Complex

William J. Copeland, Director $-0- $2,001.50 for the Fund Complex

James E. Dowd, Director $-0- $2,001.50 for the Fund Complex

Lawrence D. Ellis, M.D., $-0- $1,816.00 for the Fund Complex
Director

Edward L. Flaherty, Jr., $-0- $2,001.50 for the Fund Complex
Director

Edward C. Gonzales, President $-0- $-0- for the Fund Complex
and Director

Peter E. Madden, Director $-0- $1,517.50 for the Fund Complex

Gregory F. Meyer, Director $-0- $1,816.00 for the Fund Complex

John E. Murray, Jr., J.D., $-0- $-0- for the Fund Complex
S.J.D., Director

Wesley W. Posvar, Director $-0- $1,816.00 for the Fund Complex

Marjorie P. Smuts $-0- $1,816.00 for the Fund Complex
Director

* Fund Complex = Blanchard Funds, Blanchard Precious Metals Fund,Inc. and The Virtus Funds.

</TABLE>

INVESTMENT ADVISORY SERVICES

Advisor to the Fund

The Fund's investment adviser is Virtus Capital Management, Inc. ("VCM"),
which is a division of Signet Trust Company, a wholly-owned subsidiary of Signet
Banking Corporation. Because of the internal controls maintained by Signet Bank
to restrict the flow of non-public information, Fund investments

-26-

<PAGE>

are typically made without any knowledge of Signet Bank's or its affiliates'
lending relationships with an issuer.

The adviser shall not be liable to the Fund, or any shareholder of any of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Fund.

Advisory Fees

For its services, VCM receives an annual investment advisory fee as
described in the prospectus. For the fiscal years ended April 30, 1994, 1993 and
1992, the aggregate amounts paid or accrued by the Fund to the prior manager
under the then existing management agreement were $602,610, $227,978 and
$256,761, respectively. The prior manager was not required to reimburse the Fund
for any expenses during the years ended April 30, 1994, 1993 and 1992.

PORTFOLIO MANAGEMENT SERVICES

Pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement") between
VCM and the portfolio manager, Cavelti Capital Management, Ltd. (the "Portfolio
Manager"), VCM has delegated to the Portfolio Manager 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
Directors of the Fund. Under the terms of the Sub-Advisory Agreement, the
Portfolio Manager 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 the Portfolio
Manager, by VCM, of monthly compensation based on the Fund's average daily net
assets for providing investment advice to the Fund and managing the investment
of the assets of the Fund. These fees are determined by applying the following
annual rates to the Fund's average daily net assets: .30% of the Fund's net
assets up to the first $150 million; .2625% of the Fund's net assets in excess
of $150 million but less than $300 million; and .225% of the Fund's net assets
in excess of $300 million. The Agreement provides that the Portfolio Manager's
fee shall be reduced proportionately based on the ratio of the Portfolio
Manager's fee to VCM's fee in the event VCM's fee is reduced as a result of a
state expense limitation. For the fiscal years ended April 30, 1994, 1993 and
1992, the aggregate amounts paid or accrued by the prior manager to the
Portfolio Manager under the Sub-Advisory Agreement were $170,058, $95,907, and
$77,028, respectively.

The Sub-Advisory Agreement, dated _______, 1995, was approved by the Fund's
Directors on _______, 1995 and the Fund's shareholders on _______, 1995. The
Sub-Advisory Agreement provides that it may be terminated without penalty by
either the Fund or the Portfolio Manager at any time by the giving of 60 days'
written notice to the other and terminates automatically in the event of
"assignment", as defined in the Investment Company Act. The Sub-Advisory
Agreement provides that, unless sooner terminated, it shall continue in effect
from year to year only so long as such continuance is specifically approved at
least annually by either the Board of Directors of the Fund or by a vote of the
majority of the outstanding voting securities of the Fund, provided, that in
either event, such continuance is also approved by the vote of the majority of
the Directors who are not parties to the Sub-Advisory Agreement or "interested
persons" of such parties cast in person at a meeting called for the purpose of
voting on such approval.

-27-

<PAGE>

ADMINISTRATIVE SERVICES

Federated Administrative Services, which is a subsidiary of Federated
Investors, provides administrative personnel and services to the Funds for the
fees set forth in the prospectus.

DISTRIBUTION PLAN

The Fund has adopted a Plan for Shares of the Fund pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940. The Plan provides that the Funds' Distributor
shall act as the Distributor of shares, and it permits the payment of fees to
brokers and dealers for distribution and administrative services and to
administrators for administrative services. The Plan is designed to (i)
stimulate brokers and dealers to provide distribution and administrative support
services to the Fund and its shareholders and (ii) stimulate administrators to
render administrative support services to the Fund and its shareholders. These
services are to be provided by a representative who has knowledge of the
shareholders' particular circumstances and goals, and include, but are not
limited to: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Funds; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Director reasonably
requests.

Other benefits which the Fund hopes to achieve through the Plan include,
but are not limited to the following: (1) an efficient and effective
administrative system; (2) a more efficient use of assets of shareholders by
having them rapidly invested in the Fund with a minimum of delay and
administrative detail; and (3) an efficient and reliable records system for
shareholders and prompt responses to shareholder requests and inquiries
concerning their accounts.

By adopting the Plan, the then Board of Directors expected that the Fund
will be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in seeking to achieve its investment objectives.
By identifying potential investors in shares whose needs are served by the
Fund's objectives, and properly servicing these accounts, the Fund may be able
to curb sharp fluctuations in rates of redemptions and sales.

DESCRIPTION OF THE FUND

The FUND is a Maryland corporation. The FUND's authorized shares consists
of 1,000,000,000 shares of common stock, par value $.001 per share. Shares of
the FUND entitle the holders to one vote per share. The shares have no
preemptive or conversion rights. The voting and dividend rights, the right of
redemption and the privilege of exchange are described in the Prospectus. Shares
are fully paid and non-assessable.

The FUND may be terminated upon the sale of its assets to another open-end
management investment company if approved by the vote of the holders of a
majority of the outstanding shares of the FUND. The FUND may also be terminated
upon liquidation and distribution of its assets, if approved by a majority
shareholder vote of the FUND. Shareholders of the FUND shall be entitled to
receive distributions as a class of the assets belonging to the FUND. The assets
of the FUND received for the issue or sale of the shares of the FUND and all
income earnings and the proceeds thereof, subject only to the rights of
creditors, are specifically allocated to the FUND, and constitute the underlying
assets of the FUND.

-28-

<PAGE>

SHAREHOLDER REPORTS

Shareholders will receive reports semi-annually showing the investments of
the FUND and other information. In addition, shareholders will receive annual
financial statements audited by the FUND's independent accountants.

-29-

<PAGE>

PART C. OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits

List all financial statements and exhibits filed as part of the
Registration Statement.

(a) Financial statements:

In Part A:

Financial Highlights.

In Part B:

1. Portfolio of Investments, April 30, 1994.

2. Statement of Assets and Liabilities, April 30, 1994.

3. Statement of Operations for the year ended April 30, 1994.

4. Statement of Changes in Net Assets for each of the years
ended April 30, 1993 and April 30, 1994.

5. Report of Independent Accountants.

In Part C: None.

(b) Exhibits

1. (a) Articles of Incorporation of Registrant.1

(b) Amended Articles of Incorporation.2

2. (a) By-laws of Registrant.1

(b) Amended By-laws.2

3. None.

4. Specimen certificate for shares of Common Stock of
Registrant.2

5. (a) Investment Advisory Agreement between Registrant and
Sheffield Management Company.1

C-1

<PAGE>

(b) Form of Investment Advisory Contract between Registrant
and Virtus Capital Management, Inc.6

(d) Form of Portfolio Management Agreement between Virtus
Capital Management, Inc. and
Cavelti Capital Management Ltd.6

6.(a)(i) Distribution Agreement between Registrant and Sheffield
Investments Inc.6

6.(a)(ii) Form of Distributor's contract between Registrant and
Federated Securities Corp.6

7. None.

8.(a) Custodian and Transfer Agency Agreements between Registrant
and The United States Trust Company of New York.5

8.(b) Form of Custodian Contract between Registrant and
Signet Trust Company.6

8.(c) Form of Agreement for Fund Accounting, Shareholder
Recordkeeping and Custody Services Procurement between
Registrant, on behalf of each series, and Federated
Services Company.6

9. Form of Administrative Services Agreement between Registrant
and Federated Securities Company.6

10. None.

11. (a) Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel.

(b) Consent of Price Waterhouse LLP, independent accountants
for the Registrant.

12. None.

13. Certificate re: initial $100,000 capital.3

14. Copies of model tax-sheltered retirement plans.3

15(a)(i) Rule 12b-1 Plan.1

C-4

<PAGE>

15(a)(ii) Form of Distribution Plan.6

16. Schedule of Performance Quotations.4

- ------------
1 Previously filed on August 24, 1987 in the Registrant's
Registration Statement
2 Previously filed on April 20, 1988 in Pre-Effective Amendment
No. 2 to the Registrant's Registration Statement
3 Previously filed on June 10, 1988 in Pre-Effective Amendment
No. 3 to the Registrant's Registration Statement
4 Previously filed on July 3, 1990 in Post-Effective Amendment
No. 3 to the Registrant's Registration Statement
5 Previously filed on August 30, 1991 in Post-Effective
Amendment No. 4 to the Registrant's Registration Statement.
6 To be filed by amendment.

ITEM 25. Persons Controlled By or Under Common
Control with Registrant
-------------------------------------

See "The Fund's Directors" and "Manager and Management
Agreement" in the Statement of Additional Information.

ITEM 26. Number of Holders of Securities
-------------------------------

Number of Record Holders
Title of Class as of April 30, 1995
-------------- ------------------------
Common Stock
Stock ($.001 par value) 6,674

ITEM 27. Indemnification
---------------

State the general effect of any contract, arrangement or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.

Under the terms of the Registrant's Articles of Incorporation and By-Laws,
the Registrant may indemnify any person who was or is a Director, officer or
employee of the Registrant to the maximum extent permitted by law; provided,
however, that any such indemnification (unless ordered by a court) shall be made
by the Registrant only as authorized in the specific case upon a determination
that indemnification of such persons is proper in the circumstances. Such
determination shall be made (i) by the Directors, by a majority vote of a quorum
which consists of

C-5

<PAGE>

Directors who are neither "interested persons" of the Registrant, as defined in
Section 2(a)(19) of the Investment Company Act of 1940, nor parties to the
proceeding, or (ii) if the required quorum is not obtainable or, if a quorum of
such Directors so directs, by independent legal counsel in a written opinion. No
indemnification will be provided by the Registrant to any Director or officer of
the Registrant for any liability to the Registrant or shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.

Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of it 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.

ITEM 28. Business and Other Connections of Investment Adviser
----------------------------------------------------

Describe any other business, profession, vocation or employment of a
substantial nature in which each investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner, or trustee.

Sheffield Management Company provides management services to the Registrant
and its series and to Blanchard Precious Metals Fund, Inc. The directors and
officers of Sheffield Management Company have held the following positions of a
substantial nature:

Michael I. Freedman Trustee (Director) and President,
Blanchard Group of Funds,
President and Director, Sheffield
Investments, Inc., an affiliated
broker-dealer; Self-employed
investment marketing consultant
and a Registered Representative
from 11/83-3/84 with E.G. Francis
& Co., a broker-dealer.

C-6

<PAGE>

Bertram Frankenberger, Jr. Director, Sheffield Investments
Inc., an affiliated broker-
dealer; Self-employed consultant
and private investor; Director,
American Bancorp, a holding
company; Partner, Deloitte
Haskins & Sells, an International
CPA firm from 1956-1985.

Lawrence Liebman Trustee (Director) and Secretary,
Blanchard Group of Funds;
Secretary and Director, Sheffield
Investments Inc., an affiliated
broker-dealer; Attorney-at-Law.

Robert Anderson Vice-President and Assistant
Secretary, Blanchard Group of
Funds, Vice President, Sheffield
Investments Inc., Vice President,
Sheffield Management Company,
Inc., Vice President, The
Westergaard Fund, Inc., Vice
President, Calvin Vullock Ltd.

William C. Craven Chief Financial Officer and
Treasurer, Blanchard Group of
Funds; Senior Vice President,
Reich & Tang L.P. and Treasurer
of the Reich & Tang Funds from
1990 to 1991; Vice President-
Finance and Chief Financial
Officer, Templeton Funds
Management Co. and Treasurer of
the Templeton Mutual Funds from
1986 to 1990; and Partner,
McGladrey, Hendrickson & Pullen,
Certified Public Accountants from
1978 to 1986.

ITEM 29. Principal Underwriters
----------------------

(a) Blanchard Funds

C-7

<PAGE>

(b)

(1) (2) (3)

Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Vice President
Federated Investors Tower Chief Executive
Pittsburgh, PA 15222-3779 Officer, Chief
Operating Officer,
and Asst. Treasurer,
Federated Securities
Corp.

Edward C. Gonzales Director, Executive President, Treasurer,
Federated Investors Tower Vice President, and and Trustee
Pittsburgh, PA 15222-3779 Treasurer, Federated
Securities Corp.

John W. McGonigle Director, Executive Vice President and
Federated Investors Tower Vice President, and Secretary
Pittsburgh, PA 15222-3779 Assistant Secretary,
Federated Securities
Corp.

John B. Fisher President- --
Federated Investors Tower Institutional Sales,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.

James F. Getz President-Broker/ --
Federated Investors Tower Dealer, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark R. Gensheimer Executive Vice --
Federated Investors Tower President of Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities
Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

C-8

<PAGE>

H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

David C. Gonzales Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

William J. Kerns Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

C-9

<PAGE>

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

David W. Spears Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

C-10

<PAGE>

Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities
Pittsburgh, PA 15222-3779 Corp.

Philip C. Hetzel Assistant Vice --
Federated Investors Tower President,
Pittsburgh, PA 15222-3779 Federated Securities
Corp. --

Ernest L. Linane Assistant Vice --
Federated Investors Tower President,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.

S. Elliott Cohan Secretary, Federated Assistant Secretary
Federated Investors Tower Securities Corp.
Pittsburgh, PA 15222-3779

ITEM 30. Location of Accounts and Records
--------------------------------

The accounts, books or other documents required to be maintained by Section
31(a) of the 1940 Act and the rules promulgated thereunder are maintained by
Sheffield Management Company, 41 Madison Avenue, New York, New York 10010,
except for those maintained by the Fund's Custodian and Transfer Agent.

ITEM 31. Management Services
-------------------

Not applicable.

ITEM 32. Undertakings
------------

Registrant undertakes to furnish each person to whom a prospectus is
delivered, a copy of the Fund's latest annual report to shareholders, upon
request and without charge.

C-11

<PAGE>

EXHIBITS INDEX

Exhibit Number Description
-------------- -----------

11(a) Consent of Kramer, Levin,
Naftalis, Nessen, Kamin &
Frankel, counsel to the
Registrant

11(b) Consent of Price Waterhouse LLP,
independent accountants of the
Registrant

C-12

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the Undersigned, thereunto
duly authorized, in the City of New York and State of New York, on the 31 day of
May, 1995.

BLANCHARD PRECIOUS METALS FUND, INC.

By /s/ Michael I. Freedman
----------------------------------------------
Michael I. Freedman,
Chairman

Pursuant to the requiements of the Securities Act of 1933, this Amendment to
its Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

Signature Title Date
- --------- ----- ----

/s/ Michael I. Freedman Director, President and May 31, 1995
- -------------------------------- Principal Executive Officer
Michael I. Freedman

/s/ William Craven Principal Financial and May 31, 1995
- -------------------------------- Accounting Officer
William Craven

*Lawrence Liebman Director and Secretary May 31, 1995
- --------------------------------
Lawrence Liebman

*Eric J. Lomas Director May 31, 1995
- --------------------------------
Eric J. Lomas

*Gerald E. Morris Director May 31, 1995
- --------------------------------
Gerald E. Morris

*Arthur Kiriacon Director May 31, 1995
- --------------------------------
Arthur Kiriacon

*By: /s/ Susan J. Penry-Williams
---------------------------
Attorney-in-Fact, pursuant to
powers of attorney dated June 15,
1990, as filed with Post-Effective
Amendment No. 6 to Registrant's
Registration Statement on July 3, 1990.

<PAGE>

Registration No. 33-16755

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

EXHIBITS
FILED WITH POST-EFFECTIVE
AMENDMENT NO. 8
TO FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND
INVESTMENT COMPANY ACT OF 1940

BLANCHARD PRECIOUS METALS FUND, INC.

C-15

<PAGE>

EXHIBIT 11(a)
-------------

Consent of
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
Counsel to the Registrant

<PAGE>

Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 THIRD AVENUE
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100

May 30, 1995

Blanchard Precious Metals Fund, Inc.
41 Madison Avenue
New York, New York 10010

Re: Blanchard Precious Metals Fund, Inc.
File No. 33-16755
Post-Effective Amendment to Registration
Statement on Form N-1A
----------------------------------------

Gentlemen:

We hereby consent to the reference of our firm as Counsel in the
Post-Effective Amendment No. 9 to the Registration Statement on Form N-1A.

Very truly yours,

/s/ Kramer, Levin, Naftalis, Nessen, Kamin & Frankel

<PAGE>

EXHIBIT 11(b)
-------------

Consent of
Price Waterhouse LLP
Independent Accountants to the Registrant

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 9 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated June
21, 1994, relating to the financial statements and financial highlights of the
Blanchard Precious Metals Fund, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our report into
the Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Prospectus.

Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
May 23, 1995

<PAGE>

June 7, 1995

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attention: Document Control Room 1004

Re: Blanchard Precious Metals Fund, Inc.
File No. 33-16755
----------------

Dear Sir or Madam:

We are electronically filing via EDGAR, on behalf of Blanchard Precious
Metals Fund, Inc. (the "Registrant") and pursuant to the provisions of the
Securities Act of 1933, as amended, and the Investment Company act of 1940, as
amended, Post-Effective Amendment No. 9 to Registrant's Registration Statement
on Form N-1A with Exhibits. The purpose of this filing is to reflect changes in
connection with the Special Meetings of Shareholders scheduled to be held on or
about July 11, 1995. This filing has been marked to indicate changes from the
last filing of this prospectus on September 1, 1994. It is expected that this
filing will become effective 60 days from the date of filing.

Very truly yours,

/s/ Joanne Doldo
Joanne Doldo

JD:vec
cc: C. Grant Anderson, Esq.
Robert Anderson
Dorothy Cali
Michael I. Freedman
Leslie P. Hunter
Joel Whitman
Carl Frischling, Esq.
Pinchas Mendelson, Esq.
Susan J. Penry-Williams, Esq.