BLANCHARD PRECIOUS METALS FUND INC, 485BPOS, 1996-08-27

BLANCHARD PRECIOUS METALS FUND INC
485BPOS, 1996-08-27

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1933 Act File No. 33/16755
1940 Act File No. 811-05303

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. ..........

Post-Effective Amendment No. 11 ...........

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 14 ...........................

BLANCHARD PRECIOUS METALS FUND, INC.

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

X immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
-----------------
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:

X filed the Notice required by that Rule on June 14, 1996; or
intends to file the Notice required by that Rule on or about
; or
------------
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.

Copies To:

Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037

CROSS REFERENCE SHEET

This Amendment to the Registration Statement of Blanchard Precious
Metals Fund, Inc., is comprised of the following:

Part A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page.
Item 2. Fee Table, Summary of Fund Expenses.
Item 3. Highlights.
Item 4. Investment Objectives and Policies; Additional
Information about the Fund;
Additional Information on Investment Policies and
Techniques;
General Information; Investment Information;
Investment Objective; Investment Policies;
Additional Risk Considerations; Investment Risks
Associated with Investment in Equity and Debt
Securities.
Item 5. Management of the Fund; Portfolio Advisory
Services.
Blanchard Precious Metals Fund, Inc. Information;
Distribution of Fund Shares; Administration of the
Fund. Transfer Agent and Dividend Disbursing Agent
Item 5 A. Performance of the Portfolio Adviser; Performance
Computation Information.
Item 6. Additional Information about the Fund; Other
Information; Cover Page; Shareholder Inquiries;
Tax Matters.
Expenses of the Fund; General Information;
Shareholder Information; Voting Rights; Tax
Information; Federal Income Tax.
Item 7. How to Invest; Investor Services; How to Invest;
Distribution of Shares of the Fund.
Net Asset Value; How to Invest; Purchases by
Mail; Investors Services; Automatic Withdrawal
Plan.
Item 8. How to Redeem; By Telephone; By Mail.
Item 9. Not Applicable

Part B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION

Item 10. Cover Page.
Item 11. Table of Contents.
Item 12. Not Applicable
Item 13. Investment Objective; Policies and
Restrictions;
Portfolio Transactions.
General Information About the Fund; Investment
Objectives and Policies; Investment Limitations.
Item 14. The Management of the Fund.
Blanchard Precious Metals Funds, Inc. Management;
Trustee Compensation.
Item 15. Not Applicable
Share Ownership.
Item 16. Investment Advisory Services; Cover Page;
See Prospectus.
Investment Advisory Services; Administrative
Services; Custodian.
Item 17. Portfolio Transactions.
Brokerage Transactions.
Item 18. See Prospectus.
Item 19. See Prospectus; Computation of Net Asset Value.
Purchasing Shares; Determining Net Asset Value;
Redeeming Shares; Redemption in Kind.
Item 20. Tax Matters.
Tax Status.
Item 21. Not Applicable
Item 22. Performance Information.
Total Return; Yield; Performance Comparisons.
Item 23. Not Applicable

Incorporate by reference pursuant to Rule 411 under the
Securities Act of 1933, Parts A and B, filed as Post-
Effective Amendment No. 11, filed August 27, 1996, in
their entirety (File Nos. 33-16755 and 811-05303).

BLANCHARD
GROUP OF FUNDS

BLANCHARD GLOBAL GROWTH FUND

BLANCHARD PRECIOUS METALS FUND, INC.

BLANCHARD FLEXIBLE INCOME FUND

BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND

BLANCHARD FLEXIBLE TAX-FREE BOND FUND

Combined Prospectus

August 31, 1996

BLANCHARD

BLANCHARD GROUP OF FUNDS

COMBINED PROSPECTUS

. Blanchard Global Growth Fund

. Blanchard Precious Metals Fund, Inc.

. Blanchard Flexible Income Fund

. Blanchard Short-Term Flexible Income Fund

. Blanchard Flexible Tax-Free Bond Fund

Blanchard Funds (the "Trust"), which currently consists of seven investment
portfolios, and Blanchard Precious Metals Fund, Inc. (the "Company"), 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 manager. There is no guarantee that the Funds will achieve their
investment objectives.

Please read this Prospectus carefully and retain it for future reference. A
copy of each Fund's Statement of Additional Information, dated August 31, 1996,
has been filed with the Securities and Exchange Commission (`SEC'') and is
incorporated herein by reference. You may request a copy of the Statements of
Additional Information or a paper copy of this Prospectus, if you have received
your Prospectus electronically, free of charge by calling 1-800-829-3863. To
obtain other information or make inquiries about the Funds, contact Signet
Financial Services, Inc. at 1-800-829-3863. The Statements of
Additional Information, material incorporated by reference into this document,
and other information regarding the Funds, is maintained electronically with
the SEC at Internet Web site (http://www.sec.gov).

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS, OBLIGATIONS OF, OR
GUARANTEED BY SIGNET BANK OR ANY OF ITS AFFILIATES, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. IN ADDITION, THEY INVOLVE RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

Prospectus dated August 31, 1996

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

HIGHLIGHTS 2
- ------------------------------------- HOW TO REDEEM 22
-------------------------------------

SUMMARY OF FUND EXPENSES 3 DISTRIBUTION OF SHARES OF THE
- ------------------------------------- FUNDS 23
-------------------------------------

FINANCIAL HIGHLIGHTS 4
- ------------------------------------- TAX MATTERS 25
-------------------------------------

THE FUNDS' INVESTMENT OBJECTIVES

AND POLICIES 6 PERFORMANCE INFORMATION 27
-------------------------------------
- -------------------------------------

MANAGEMENT OF THE FUNDS 16 ADDITIONAL INFORMATION ABOUT THE
- ------------------------------------- FUNDS 28
-------------------------------------

PORTFOLIO ADVISORY SERVICES 17
- ------------------------------------- ADDITIONAL INVESTMENT INFORMATION 30

-------------------------------------
HOW TO INVEST 18

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

CERTAIN INVESTMENT STRATEGIES AND
POLICIES 34

INVESTOR SERVICES 20
- ------------------------------------- -------------------------------------

APPENDIX 46
-------------------------------------

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; U.S. Fixed Income; Foreign
Equities; Foreign Fixed Income; Precious Metals Securities; and Emerging
Markets.

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 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 SHORT-TERM FLEXIBLE INCOME FUND ("BSTFIF") (formerly, Blanchard
Short-Term Bond Fund) 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.

HIGHLIGHTS
- -------------------------------------------------------------------------------

FUND MANAGEMENT

Virtus Capital Management, Inc. ("VCM") provides the overall management
services necessary for the Funds' operations. As of June 30, 1996, VCM had
more than $2.7 billion in assets under management. VCM selected, and
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 Funds" and
"Portfolio Advisory Services."

HOW TO INVEST AND REDEEM
You may purchase shares directly from Federated Securities Corp. (the
"Distributor"), which 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 is $3,000
($2,000 for qualified retirement plans, such as IRAs and Keoghs). 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 has also
adopted a distribution 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."

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

BGGF and BPMF intend to declare dividends at least annually from net
investment income. BSTFIF, BFTFBF and BFIF intend to declare dividends daily
and pay monthly 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 monthly check. See "Tax
Matters."

SPECIAL CONSIDERATIONS

The 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 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 Fund, 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
will be collectively referred to as "Portfolio Advisers."

SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BGGF BPMF BFIF BSTFIF BFTFBF
---- ---- ---- ------ ------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........... NONE NONE NONE NONE NONE
Maximum Sales Load Imposed on Reinvested
Dividends
(as a percentage of offering price)........... NONE NONE NONE NONE NONE
Contingent Deferred Sales Charge
(as a percentage of original purchase price
or redemption proceeds, as applicable)........ NONE NONE NONE NONE NONE
Redemption Fees
(as a percentage of amount redeemed, if
applicable)................................... NONE NONE NONE NONE NONE
Exchange Fee................................... NONE NONE NONE NONE NONE
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver if applicable)(1). 1.00% 1.00% 0.75% 0.50% 0.00%
12b-1 Fees (after waiver if applicable)(2)..... 0.75% 0.75% 0.25% 0.25% 0.00%
Other Expenses (after waivers if
applicable)(3)................................ 0.76% 0.54% 0.58% 0.63% 1.00%
Total Fund Operating Expenses (after waivers
if applicable)(4)........................... 2.51% 2.29% 1.58% 1.38% 1.00%
</TABLE>

(1) The management fee of Short-Term Flexible Income Fund and Flexible Tax-
Free Bond Fund has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser can terminate this voluntary waiver at any
time at its sole discretion. The maximum management fee is 0.75% for the
Short-Term Flexible Income Fund and the Flexible Tax-Free Bond Fund.

(2) The maximum 12b-1 fee for the Flexible Tax-Free Bond Fund is 0.25%.

(3) Other expenses would have been 1.23% for the Flexible Tax-Free Bond Fund
absent the voluntary waiver by the administrator. The administrator can
terminate the voluntary waiver at any time at its sole discretion.

(4) Total Fund Operating Expenses would be 1.63% for the Short-Term Flexible
Income Fund, 2.23% for the Flexible Tax-Free Bond Fund, absent the
voluntary waivers described above in Notes 1, 2 and 3.

Annual Operating Expenses were 2.54% for the Global Growth Fund, 2.36% for the
Precious Metal Funds, 1.44% for the Short-Term Flexible Income Fund, 1.05% for
the Flexible Tax-Free Bond Fund and 1.56% for the Flexible Income Fund for the
fiscal year ended April 30, 1996. The Annual Operating Expenses in the table
above are based on expenses expected to be incurred during the fiscal period
ending September 30, 1996.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Funds will bear either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Management of the Funds" and "Distribution of Shares of the
Funds."

For the Global Growth Fund and the Precious Metals Fund, long-term
shareholders may pay more than the economic equivalent of the maximum front-
end sales charges permitted under the Association of Securities Dealers, Inc.

Example:
<TABLE>
<S> <C> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return; and
(2) redemption at the end of each time period. As
noted in the table above, the Funds charge no
redemption fees.
<CAPTION>
BGGF BPMF BFIF BSTFIF BFTFBF
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
1 year........................................... $ 25 $ 23 $ 16 $ 14 $ 10
3 years.......................................... 78 72 50 44 32
5 years.......................................... 134 123 86 76 55
10 years......................................... 285 263 188 166 122
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------

(For a share outstanding throughout each period)

The financial highlights for the period ended April 30, 1996 have been audited
by Deloitte & Touche LLP, independent auditors of Blanchard Funds and
Blanchard Precious Metals Fund, Inc. (collectively referred to as the
"Funds"). Their report dated June 19, 1996 on the Funds' financial statements
for the year ended April 30, 1996 is included in the Funds respective Annual
Reports, which are incorporated by reference. This table should be read in
conjunction with the Funds' financial statements and notes thereto, which may
be obtained free of charge from the Funds.
<TABLE>
<CAPTION>
Distributions
Net realized from net
and Distributions realized
Net asset unrealized Distributions in excess gains and
value, Net gain/(loss) Total from from net of net Tax foreign
Period ended beginning investment on investment investment investment return currency
April 30, of period income investments operations income income(f) of capital transactions
- ------------ --------- ---------- ------------ ---------- ------------- ------------- ---------- -------------
BGGF
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987(a) $ 8.00 0.01 2.50 2.51 -- -- -- --
1988 $10.51 0.14 (0.21) (0.07) (0.12) -- -- (0.64)
1989 $ 9.68 0.22 0.49 0.71 (0.10) -- -- (0.18)
1990 $10.11 0.30 0.09 0.39 (0.38) -- -- (0.50)
1991 $ 9.62 0.30 0.14 0.44 (0.21) -- -- (0.21)
1992 $ 9.64 0.33 0.26 0.59 (0.31) -- -- --
1993 $ 9.92 0.25 0.32 0.57 (0.30) -- -- (0.19)
1994 $10.00 0.03 1.29 1.32 -- -- -- (1.28)
1995 $10.04 0.08 (0.19) (0.11) -- -- -- --
1996 $ 9.71 0.04 1.86 1.90 (0.04) (0.04) -- --
BPMF
1989(b) $ 8.00 0.02 (0.83) (0.81) -- -- -- --
1990 $ 7.19 (0.03)(i) (0.59)(i) (0.62) -- -- (0.14) (0.03)
1991 $ 6.30 (0.08)(i) (0.93)(i) (1.01) -- -- -- --
1992 $ 5.29 (0.09)(i) (0.16)(i) (0.25) -- -- -- --
1993 $ 5.04 (0.08)(i) 1.87(i) 1.79 -- -- -- --
1994 $ 6.83 (0.11)(i) 2.01(i) 1.90 -- -- -- --
1995 $ 8.73 (0.02) (0.41) (0.43) -- -- (0.09) (0.03)
1996 $ 7.12 (0.10)(i) 2.75(i) 2.65 -- -- -- --
BFIF
1993(c) $ 5.00 0.21 0.09 0.30 (0.21) -- -- --
1994 $ 5.09 0.40 (0.17) 0.23 (0.36) -- (0.03) (0.08)
1995 $ 4.85 0.30 (0.13) 0.17 -- -- (0.31) --
1996 $ 4.71 0.28 0.10 0.38 (0.31) -- -- --
BSTFIF
1993(d) $ 3.00 0.00(m) 0.00(m) 0.00(m) (0.00)(m) -- -- (0.00)(m)
1994 $ 3.00 0.17 (0.06) 0.11 (0.17) -- -- (0.01)
1995 $ 2.93 0.15 -- 0.15 (0.14) (0.00)(m) -- --
1996 $ 2.94 0.22 -- 0.22 (0.17) (0.00)(m) -- --
BFTFBF
1994(e) $ 5.00 0.18 (0.20) (0.02) (0.18) -- -- (0.03)
1995 $ 4.77 0.24 0.26 0.50 (0.23) (0.01) -- --
1996 $ 5.03 0.22 0.13 0.35 (0.22) (0.00)(m) -- --
</TABLE>

*Computed on an annualized basis.

(a)Reflects operations for the period from June 1, 1986 (commencement of
operations) to April 30, 1987.

(b)Reflects operations for the period from June 22, 1988 (commencement of
operations) to April 30, 1989.

(c)Reflects operations for the period from November 2, 1992 (commencement of
operations) to April 30, 1993.

(d)Reflects operations for the period from April 16, 1993 (commencement of
operations) to April 30, 1993.

(e)Reflects operations for the period from August 12, 1993 (commencement of
operations) to April 30, 1994.

(f) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.

FINANCIAL HIGHLIGHTS--BLANCHARD GROUP OF FUNDS
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Distributions in
excess of
net realized Net Ratios to Average Net Assets Net assets,
gains and asset ------------------------------------------------- end of
foreign value, Net Expense period
currency Total end Total investment waiver/ (000 Portfolio
transactions(f) distributions of period return(g) Expenses income/(loss) reimbursement(h) omitted) turnover
- ---------------- ------------- --------- --------- -------- ------------- ---------------- ----------- ---------

(g)Based on net asset value.

(h)This voluntary expense decrease is reflected in both the expenses and net
investment income ratios shown above.

(i)Calculated based on average shares outstanding-prior years amounts restated
for comparative purposes.

(j)Net of expense reimbursement.

(k) During the Fund's 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 by the prior distributor and manager,
respectively.

(l) The investment income ratio to average net assets would have been 0.72%,
if a portion of the 12b-1 distribution and management fees had not been
waived by the prior distributor and prior manager, respectively.

(m)Less than one cent per share.

(See Notes which are an integral part of the Financial Statements)

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 will
invest, under normal market conditions, at least 65% of the value of its total
assets in securities of at least three different countries.

The Fund's investment policies reflect the opinion of Mellon Capital
Management, Inc. ("MCM" or the "Portfolio Adviser"), the Fund's portfolio
adviser or sub-adviser, that the world economic system is characterized by
various cycles affecting, among other things, business activities, inflation,
interest rates, currencies, and price levels and that by shifting its assets
among the six investment sectors, the Fund can take advantage of investment
opportunities created by such cycles. MCM believes that within each cycle,
certain investment sectors offer more investment opportunities than others.
Naturally, there can be no guarantee that MCM 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 table indicates the maximum percentage of total
assets of the Fund that may be invested in each sector. The Fund may have zero
percent allocated to any sector when deemed appropriate by MCM.

PERCENTAGE OF TOTAL ASSETS OF THE FUND IN EACH SECTOR

SECTORS MAXIMUM
-----------------------------------------------------

U.S. Equities Secto 65% r
--------------------------------------------

Foreign Equities Secto 65% r
-----------------------------------------

U.S. Fixed Income Secto 65% r
----------------------------------------

Foreign Fixed Income Secto 65% r
-------------------------------------

Precious Metals Securities Secto 25% r
-------------------------------

Emerging Markets Secto 15% r
-----------------------------------------

The Portfolio Adviser will actively allocate Fund assets, through investments
in the U.S. Equities, Foreign Equities, U.S. Fixed Income and Foreign Fixed
Income Sectors, across the major debt and equity markets of the world,
overweighting sectors that the Portfolio Adviser believes are undervalued. The
Portfolio Adviser may also allocate Fund assets to the Precious Metals
Securities Sector and the Emerging Markets Sector in an attempt to further
diversify portfolio holdings, protect against increases in inflation and
enhance overall returns. The Portfolio Adviser will monitor currency exposure,
and such exposure will be actively hedged as currencies become overvalued.

It is possible that an overlapping of investments among the six investment
sectors may occur. For example, investments in U.S. equity securities are not
found only in the U.S. Equities Sector, as the Precious Metals Securities
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 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, FOREIGN EQUITIES, U.S. FIXED INCOME AND FOREIGN FIXED INCOME
SECTORS. Within the four U.S. and foreign equities and income sectors, the
Portfolio Adviser will use a highly disciplined process to determine the
percentage of the Fund's assets which will be from time-to-time allocated
among each U.S. and foreign country's markets, based upon the Portfolio
Adviser's assessment of risk and the degree by which each such market is
currently undervalued. (The foreign countries which will be included within
the Foreign Equities and the Foreign Fixed Income Sectors are the following:
Australia, Austria, Belgium, Canada, Denmark, France, Finland, Germany, Hong
Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway,
Singapore/Malaysia, South Africa, Spain, Sweden, Switzerland and the United
Kingdom. This list may be modified from time-to-time to conform to the list of
countries included in the Morgan Stanley Capital International World Index
[the "Morgan Stanley Index"]).

In estimating the relative attractiveness of each asset class, MCM will take
into account various factors. Common stocks will be evaluated using a
"dividend-discount" model. This model provides an expected return of the
relevant common stock index of each market in which the Fund may invest (i.e.,
the Standard & Poor's 500 Composite Stock Price Index* [the "S&P 500 Index"]
for the U.S. Equities Sector, and the separate country indexes comprising the
Morgan Stanley Index for the Foreign Equities Sector) based upon earnings for
companies whose stocks are included in such Indexes. The expected bond return
is that expected to be produced by long-term bonds with credit risks similar
to bonds rated Aa by Moody's Investors Service, Inc. or AA by Standard &
Poor's Corporation.

- --------

* "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)" and "Standard & Poor's 500"
are trademarks of McGraw-Hill, Inc. and have been licensed for use by MCM.

The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's
("S&P"). S&P makes no representation or warranty, express or implied, to the
owners of the Fund or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability
of the S&P 500 Index to track general stock market performance. S&P's only
relationship to MCM is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 Index which is determined, composed and calculated
by S&P without regard to MCM or the Fund. S&P has no obligation to take the
needs of MCM or the owners of the Fund into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and
has not

Once expected return and volatility (risk) estimates are developed for each
asset class within the four U.S. and foreign equity and fixed income sectors,
the Portfolio Adviser will attempt to identify apparent imbalances in the
relative prices of the securities of each market, using a computer model.

To implement its allocation strategy, the Portfolio Adviser will invest in the
following securities: (i) in the U.S. Equity Sector, the Portfolio Adviser
will invest in a diversified portfolio of common stocks which seeks to track
the performance of the S&P 500 Index; (ii) in the U.S. Fixed Income Sector,
the Portfolio Adviser will invest in a diversified portfolio of U.S. fixed
income obligations which seeks to track the performance of the Lehman Long-
Term Treasury Index; (iii) in the Foreign Equities Sector, the Portfolio
Adviser will invest in a diversified portfolio of common stocks which seeks to
track the performance of individual country segments of the Morgan Stanley
Index; (iv) and in the Foreign Fixed Income Sector, the Portfolio Adviser will
invest in a portfolio of foreign government fixed income obligations which
seeks to track the individual country segments of the Salomon Brothers World
Government (5+) Bond Index.

The Fund is not an "Index Fund," and thus does not have a policy of weighting
its portfolio so as to approximate the relative composition of the securities
contained in the indices which it seeks to track. Rather, it seeks to track
performance by investing in a select group of securities (each of which is
included in the relevant index) which the Portfolio Adviser believes, taken
together, will represent the performance of the index as a whole.

PRECIOUS METALS SECURITIES SECTOR. Precious metals securities include
securities of metal mining producer and non-producer companies that are
engaged in (i) the exploration, refining and development of gold, silver,
palladium, and platinum; (ii) the manufacture or production of products
incorporating such precious metals (for example, jewelry, photographic
supplies and medical equipment and supplies); or (iii) the marketing of
precious metals or precious metals products. Such marketing companies may be
in the industries named above or in separate industries that fall into the
category of wholesale-retail trade. A company will be considered to be
"engaged in" such activity if it derives more than 50% of its revenues from or
devotes more than 50% of its assets to such activity.
- --------

Footnote continued from page 7.
participated in the determination of the prices and amount of the Fund or
the timing of the issuance or sale of the Fund or in the determination or
calculation of the equation by which the Fund is to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Fund.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MCM, OWNERS OF THE FUND, OR ANY
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE
ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH
DAMAGES.

In particular, the Portfolio Adviser 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.

EMERGING MARKETS SECTOR. The Fund may invest in emerging country equity
securities, which would include common stock, preferred stock (including
convertible preferred stock), bonds, notes and debentures convertible into
common or preferred stock, stock purchase warrants and rights, equity
interests in trusts and partnerships and American, Global or other types of
Depository Receipts of companies; (i) the principal securities market for
which is an emerging country; (ii) that alone or on a consolidated basis
derive 50% or more of their annual revenue from either goods produced, sales
made or services performed in emerging countries; or (iii) that are organized
under the laws of, and with a principal office in, an emerging country.
Determinations as to eligibility will be made by the Portfolio Adviser based
upon publicly available information and inquiries made to the companies.

An emerging country is any country that the International Bank for
Reconstruction and Development (more commonly known as the World Bank) has
determined to have a low or middle income economy. There are currently over
130 countries which are considered to be emerging countries, approximately 40
of which currently have stock markets. These countries generally include every
nation in the world except the United States, Canada, Japan, Australia, New
Zealand and most nations located in Western Europe. Currently investing in
many emerging countries is not feasible or may involve unacceptable political
risks. The Emerging Markets Sector will focus its investments on those
emerging market countries in which the Portfolio Adviser believes the
economies are developing strongly and in which the markets are becoming more
sophisticated.

In addition to the normal determinants of interest rates, inflation, economic
growth and currency movements, country selections and weightings in emerging
growth markets are determined by developmental trends, credit ratings, the
political environment, market liquidity, progress towards privatization and
the degree of foreign investor interest. In addition to emphasizing industries
which are crucial to the development trend in a country and assessing
financial reporting standards and the availability of public information,
stock selection is based on a fundamental analysis of specific criteria
including (i) quality of management; (ii) stock fundamentals (strong earnings
growth and profit potential, positive cash flow, sound balance sheet,
geographical sales and profit spread, and good marketability in shares); and
(iii) price and timing.

Depository receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depository receipts are not obligated to
disclose material information in the United States and, therefore, there may
not be a correlation between such information and the market value of the
depository receipts.

OPTIONS AND FUTURES. With respect to all sectors, the Portfolio Adviser may
utilize stock and bond futures and options, currency hedging, and other
investment techniques described under "Certain Investment Strategies and
Policies--Options and Futures" and in the Fund's Statement of Additional
Information, subject to the limitations set forth therein.

BLANCHARD PRECIOUS METALS FUND, INC.

The Fund's primary investment objective is to provide 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 metals markets
may experience declines.

For the 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 loss of the metal on deposit. The
Fund will purchase certificates from institutions where the certificate is
100% backed by physical precious metals in the possession of the institutions
and enter 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 "Risk
Factors and Special Considerations--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 which are higher than those attendant to the purchase, holding
and disposition of more traditional types of investments.

The Portfolio Adviser believes that physical precious metals are readily
marketable, and thus would not be subject to the Fund's limitation on
investing in illiquid securities described under "Certain Investment
Strategies and Policies--Illiquid 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.
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 FLEXIBLE INCOME 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 less than 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"
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.

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 34.9% 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 limitation, 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 under
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 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 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 Flexible Income 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 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 less than 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."

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.

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 Investment Company Act of 1940 ("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.

MANAGEMENT OF THE FUNDS
- -------------------------------------------------------------------------------

BOARD OF TRUSTEES/DIRECTORS. The Board of Trustees of Blanchard Funds and the
Board of Directors of BPMF (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 handles the Boards' responsibilities between
meetings of the Boards.

MANAGER. 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.

MANAGEMENT FEES. VCM receives an annual management fee at annual rates equal
to percentages of the relevant Fund's average net assets as follows:

BGGF and BPMF--1.00% of the Fund's 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. BFIF--.75%; BSTFIF--.75%; BFTFBF--.75%. These fees
are higher than the fees paid by most investment companies because of the
complexity of managing these types of Funds.

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 management 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.

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, 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
fixed income common trust funds with $190.5 million in assets.

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

Mellon Capital Management Corporation is the Portfolio Adviser to the Fund.
MCM was established in 1983, and provides investment advisory services to
investment companies, pension plans, foundations, endowments and other
institutions located both in the U.S. and abroad. As of September 30, 1995,
MCM had over $40 billion of assets under management. MCM, a wholly owned
indirect subsidiary of Mellon Bank Corporation, is located at 595 Market
Street, Suite 3000, San Francisco, California 94105.

The Fund's portfolio manager is Charles J. Jacklin. Mr. Jacklin has performed
this duty since May 1996. Mr. Jacklin manages and develops global asset
allocation strategies, and develops and implements MCM's value-added
investment strategies. Prior to joining MCM, he served on the finance
faculties of the Stanford University and University of Chicago Schools of
Business. Mr. Jacklin has also served as Senior Staff Economist for Financial
Markets and Banking for the President's Council of Economic Advisers, and had
primary responsibility for all matters related to financial markets and
banking. He has published a number of articles on finance and investment in
academic research journals, and is an associate editor for the Review of
Quantitative Finance and Accounting. Mr. Jacklin holds a Ph.D. in Finance from
Stanford University.

THE SUB-ADVISORY CONTRACT. The Sub-Advisory Contract provides that MCM shall
pay all expenses incurred by it and its staff in connection with the
performance of its services under the Sub-Advisory Contract, including the
payment of salaries of all officers and employees who are employed by it. VCM
will pay MCM an annual fee not to exceed .375% of the Fund's average daily net
assets up to $100 million; .35% on net assets between $100 million and $150
million; and .325% on net assets in excess of $150 million.

BLANCHARD SHORT-TERM FLEXIBLE INCOME FUND
BLANCHARD FLEXIBLE INCOME FUND

VCM has retained OFFITBANK, 520 Madison Avenue, New York, New York 10022 to
provide portfolio advisory services to the Funds. 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 $7 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' portfolios.

THE SUB-ADVISORY AGREEMENTS. The sub-advisory agreements between VCM and
OFFITBANK provide 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 $50.2 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 been actively engaged in municipal obligation portfolio management
with U.S. Trust for over 10 years and has been responsible for the Fund's day-
to-day investment decisions since the Fund's commencement of operations in
July of 1993. 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 PRECIOUS METALS FUND, INC.

VCM has retained Cavelti Capital Management, Ltd., of Toronto, Canada to
provide portfolio advisory services to the Fund. Cavelti Capital Mangement,
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.

THE SUB-ADVISORY AGREEMENT. Pursuant to the sub-advisory agreement between VCM
and Cavelti Capital Management Ltd., VCM has agreed to pay Cavelti Capital
Management Ltd. monthly compensation of the sum of the amounts determined by
applying the following annual rates to the Fund's aggregate 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, plus
.255% of the Fund's 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 determined as of the close of trading (normally 4:00 p.m.,
Eastern time) on the New York Stock Exchange. If your order is received after
the above time, 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.

For all Funds the minimum initial investment requirement is $3,000 and the
minimum initial investment requirement for qualified pension plans (IRAs,
Keoghs, etc.) is $2,000. 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, P.O. Box 8612, Boston, MA 02266-8612, together with a check
payable to the individual Fund in payment for the shares. If you need
assistance in completing the Application, call 1-800-829-3863.

All purchases must be made in U.S. dollars and checks must be drawn on a
United States bank. Payment for shares may 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.

Orders by mail are considered received after payment by check is converted
into federal funds. This is generally the next business day after the Transfer
Agent receives the check.

PURCHASES BY WIRE. You may also purchase shares by bank wire. For opening new
accounts in this manner, please call 1-800-829-3863 (toll free) 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 to: State Street Bank and
Trust Company, ABA #011000028, DDA #0627-975-6, Boston, MA, 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 1-800-829-3863 for information and forms required to establish these
Plans.

BY TELEPHONE. This service allows you to purchase additional shares quickly
and conveniently through an electronic transfer of money. When you make an
additional purchase by telephone, Blanchard will automatically debit your
predesignated bank account for the desired amount. To establish the telephone
purchase option on your new account, you must complete the section on the

Application and attach a "voided" check from your bank account. If your
account is already established, please call 1-800-829-3863 to request the
appropriate form. This option will become effective 15 calendar days after the
form is processed.

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

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 1-800-829-3863.

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 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, due to
transfer or redemption of shares, the value of the account drops below a
minimum amount deemed acceptable from time-to-time by the Fund. In 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.

EXCHANGE PRIVILEGE

You may exchange your Fund shares for shares of another Fund in the Blanchard
Group of Funds or for Investment Shares of any Virtus Fund at net asset value.
In addition, you may exchange your Fund Shares for shares of Federated
Emerging Market Fund at net asset value. No fees are charged in

connection with any such exchange. Before making an exchange, you should read
the Prospectus concerning the participating Fund into which your exchange is
being made.

To request an exchange by telephone, simply call 1-800-829-3863, prior to 4:00
p.m. (Eastern) time. Exchanges can be made in this manner only if you have not
opted out of the Telephone Exchange Privilege, as described in 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 shares 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 Blanchard Flexible Income Fund or Blanchard Short-
Term Flexible Income Fund, you may elect a service which allows you to write
an unlimited number of checks in any amount of $250 or more which will clear
through the Transfer Agent. There is no charge for this service for regular
checks; special business site checkbooks are assessed a $60 check printing
fee. If the amount of your check is less than $250, the check will be cleared
but you will be assessed a $10 charge. If the 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, please call Investors' Services at 1-800-
829-3863.

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, 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 NEW ACCOUNT APPLICATION OR SHAREHOLDER PRIVILEGE FORM MUST BE
RECEIVED BY THE TRANSFER AGENT BEFORE THE THESE PRIVILEGES MAY BE USED.

21
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 by calling 1-800-829-
3863, prior to 4:00 p.m., Eastern time. 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 State Street Bank for the wiring of
funds. In addition, your designated bank may also impose a service charge.

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. Written redemption requests should be made to the Blanchard Group of
Funds, P.O. Box 8612, Boston, Massachusetts 02266-8612. Where share
certificates have been issued, the certificates must be endorsed and must
accompany the redemption request. Signatures on redemption requests 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 associations, 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 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. Eastern time 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 7 calendar 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 from time to time by the
Boards, provided that for any period the total amount of fees representing an
expense to the Trust or the Company shall not exceed an annual rate of .25 of
1% of the average daily net assets of shares of BFIF, BSTFIF and BFTFBF 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 or the Company 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 Funds for providing administrative services. This fee, if
paid, will be reimbursed by VCM and not the Funds.

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 Boards 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 Services Company, 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 Services
Company provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
AVERAGE COMBINED AGGREGATE DAILY
MAXIMUM NET ASSETS OF THE TRUST/CORPORATION
ADMINISTRATIVE FEE AND THE VIRTUS FUNDS
------------------ -----------------------------------
<S> <C>
.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
</TABLE>

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

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. 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
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, Inc. and
Blanchard Global Growth 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.

Investment income that may be received by the Blanchard Global Growth Fund,
Blanchard Precious Metals Fund, Blanchard Flexible Income Fund, and Blanchard
Short-Term Flexible Income 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 consists 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.

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' Statements 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
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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 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 shareholder
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

indices 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 indices. 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 indices of U.S. markets or world markets, to that of other mutual
funds, individual country indices, or other recognized indices.

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 Funds Magazine. 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
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BLANCHARD FUNDS

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

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 of the Trust 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 of 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' 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.

INDEPENDENT ACCOUNTANTS. Deloitte & Touche LLP, 2500 One PPG Place,
Pittsburgh, Pennsylvania 15222-5401 has been appointed the independent
accountants for the Funds.

CUSTODIAN. Signet Trust Company, Richmond, Virginia is custodian for the
securities and cash of the Funds. Under the Custodian Agreement, Signet Trust
Company holds the Funds' portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Shareholder Services
Company, Pittsburgh, Pennsylvania, is transfer agent for the Funds and
dividend disbursing agent for the Funds.

SHAREHOLDER INQUIRIES. Shareholder inquiries concerning the status of an
account or information concerning the Funds should be directed to Signet
Financial Services, Inc. at 41 Madison Avenue, 24th Floor, New York, New York
10010, or by calling 1-800-829-3863.

ADDITIONAL INVESTMENT INFORMATION
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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 revenue 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 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.

RISKS. Municipal bond prices are interest rate sensitive, which means that
their value varies inversely with the market interest rates. Thus, if market
interest rates have increased from the time a bond was purchased, the bond, if
sold, might be sold at a price less than its cost. Similarly, if market
interest rates have declined from the time a bond was purchased, the bond, if
sold, might be sold at a price greater than its cost. (In either instance, if
the bond was held to maturity, no loss or gain normally would be realized as a
result of interim market fluctuations.)

U.S. GOVERNMENT SECURITIES (BSTFIF, BFIF, BGGF)

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 in 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 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 (BSTFIF, BFIF, BGGF)

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 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 policies 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/HIGHER-RISK SECURITIES (BSTFIF, 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 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.

CERTAIN INVESTMENT STRATEGIES AND POLICIES
- -------------------------------------------------------------------------------

OPTIONS AND FUTURES TRANSACTIONS (BSTFIF, BFIF, 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
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. A Fund's 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. (BSTFIF, 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. (BSTFIF, BFTFBF, BFIF,
BGGF) 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
"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. (BSTFIF, BFIF, BGGF) 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
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. (BSTFIF, BFIF, BGGF) 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 agreements, 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 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 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 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.

OTHER INVESTMENT POLICIES

REPURCHASE AGREEMENTS. The Funds 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 SEC to be
loans by a Fund.

LENDING OF PORTFOLIO SECURITIES. (BSTFIF, BFTFBF, BFIF) In order to generate
additional income, each Fund may lend its portfolio 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 portfolio 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 portfolio 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, BPMF, BGGF, BFIF, BSTFIF) 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, BSTFIF 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.

ILLIQUID SECURITIES. (BSTFIF, BFIF, BGGF, BFTFBF, BPMF) 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.

Rule 144A under the Securities Act of 1933 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 Portfolio
Advisers anticipate that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
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 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 Code, 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.

PORTFOLIO 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 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 portfolio 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."

RISK FACTORS AND SPECIAL CONSIDERATIONS

FOREIGN INVESTMENTS. (BSTFIF, BFIF, 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 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
41

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.

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 Portfolio Adviser 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 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 portfolio
may increase the return and may reduce overall fluctuations in portfolio
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 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.
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. (BSTFIF) 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 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 rated 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 net 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 the 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
the 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 the 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 Fund's Portfolio Adviser believes 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 the Fund
may invest, the Portfolio Adviser evaluates 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 Portfolio Adviser relies, primarily on
its own credit analysis. This may suggest, however, that the achievement of
the Fund's investment objective is more dependent on the Portfolio 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
portfolio security or the quality determination ascribed by the Portfolio
Adviser to an unrated debt security has been downgraded, the Portfolio Adviser
will consider all circumstances deemed relevant in determining whether to
continue to hold the security.

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.

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.

[This Page Intentionally Left Blank]

The Blanchard Group of Funds are available through Signet Financial Services,
Inc., member NASD, and are advised by an affiliate, Virtus Capital Management,
Inc., who is compensated for this service.
Investment products are not deposits, obligations of, or guaranteed by
any bank. They are not insured by the FDIC. They involve risk, including
the possible loss of principal invested.

BLANCHARD

(2096) 00/01/05/06/07PC0896
G01386-01 (8/96)

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 August
31, 1996 (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 1-800-829-3863.

TABLE OF CONTENTS Page

Investment Objective and Policies ........................ 2
Investment Restrictions .................................. 9
Computation of Net Asset Value.............................11
Performance Information12
Portfolio Transaction 12
Dividends, Capital Gains Distributions
and Tax Matters 14
The Management of the Fund.................................19
Management Services 23
Portfolio Management Services..............................24
Custodian 24
Administrative Services24
Distribution Plan 24
Description of the FUND25
Shareholder Reports 25

Manager
Virtus Capital Management, Inc.

Portfolio Adviser
Cavelti Capital Management, Ltd.

Distributor
Federated Securities Corp.

Custodian
Signet Trust Company

Transfer Agent
Federated Shareholder Services Company

Independent Accountants
Deloitte & Touche LLP

Dated: August 31, 1996

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.

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 security's 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.

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.

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
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., 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 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.

REPURCHASE AGREEMENTS

Repurchase agreements are transactions by which the FUND
purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon price on an agreed upon date within a
number of days (usually not more than seven days) from the date of
purchase. The resale price reflects the purchase price plus an agreed
upon market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation
is in effect secured by the value (at least equal to the amount of the
agreed upon resale price and marked-to-market daily) of the underlying
security. While it does not presently appear possible to eliminate all
risks from these transactions (particularly the possibility of a decline
in the market value of the underlying securities, as well as delay and
costs to the FUND in connection with bankruptcy proceedings) it is the
policy of the FUND to limit repurchase agreements to those member banks
of the Federal Reserve System and primary dealers in U.S. Government
securities who are believed by the FUND's Directors to present minimum
credit risk. Repurchase agreements maturing in more than seven days are
considered, for the purposes of the FUND's investment restrictions, to be
illiquid securities. No more than 10% of the FUND's net assets may be
held in illiquid securities (see "Investment Restrictions").

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)
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.

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 years ended April 30, 1996 and
1995, were 176% and 116%, 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.

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).

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 4:00 p.m.
(Eastern 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, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

DETERMINING MARKET VALUE OF SECURITIES

Market or fair values of the FUND's portfolio securities are
determined as follows:
according to the last reported sales price on a recognized
securities exchange, if available. (If a security is traded on more than
one exchange, the price on the primary market for that security, as
determined by the Adviser or sub-adviser, is used.);
according to the last reported bid price, if no sale on the
recognized exchange is reported or if the security is traded over-the-
counter;
for short-term obligations, according to the prices
furnished by an independent pricing service, except that short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, may be valued at amortized cost; or
at fair value as determined in good faith by the Directors.

Prices provided by independent pricing services may be
determined without relying exlusively on quoted prices and may consider:
institutional trading in similar groups of securities; yield; quality ;
coupon rate; maturity; type of issue; trading characteristics; and other
market data.

The FUND will value futures contracts, options and put options
on futures at their market values established by the exchanges at the
close of option trading on such exchanges unless the Board of Directors
determine in good faith that another method of valuing options positions
is necessary to appraise their fair value. Over-the-counter put options
will be valued at the mean between the bid and asked prices.

The Fund will value bullion at the closing spot price based
onexchange quotations.

TRADING IN FOREIGN SECURITIES

Trading in foreign securities may be completed at times which
vary from the closing of the New York Stock Exchange. In computing the
net asset value, the FUND values foreign securities at the latest closing
price on the exchange on which they are traded immediately prior to the
closing of the New York Stock Exchange. Certain foreign currency exchange
rates are determined when such rates are made available to the FUND at
times prior to the close of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U. S. dollars
at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined
and the closing of the New York Stock Exchange. If such events materially
affect the value of portfolio securities, these securities may be valued
at their fair value as determined in good faith by the Directors,
although the actual calculation may be done by others.

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 and
five year periods ended April 30, 1996 and the life of fund (June 22,
1988 to April 30, 1995) were 37.03%, 16.71% and 4.90%, respectively.

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 which was
in effect until December 1994 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.

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, 1996, 1995, and 1994, the FUND incurred brokerage
commission expenses of $514,423, $395,000, and $654,000, 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 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.

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 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 while 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.

Certain 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 their 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
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 a sale or other disposition of its interest in the PFIC or any
"excess distribution" (as defined) 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 corporate tax rate 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.
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 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 determine ordinary taxable income for the succeeding
calendar year).

The FUND intends to make sufficient distributions or deemed
distributions 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. Met capital gain distributed and designated
as a capital gain dividend 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.

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 of (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 (`ATM'') is imposed in addition to, but
only to the extent it exceeds, the regular tax and is computed at the
rate of 26% (or 28% for taxable income in excess of $175,000) 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 corporate'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 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 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 as dividends 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
precedes 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
11.6% 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.

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 applicable 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 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 been 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 and
capital gain dividends.

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 shareholder, 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 bases on the Code and the Treasury Regulation 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 expresses 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 an
investment in the FUND under their particular circumstances.

THE MANAGEMENT OF THE FUND
Officers and Directors are listed with their addresses, birthdates, and
present positions with Blanchard Precious Metals Fund, and principal
occupations.

JOHN F. DONAHUE@*
FEDERATED INVESTORS TOWER
PITTSBURGH, PA CHAIRMAN AND DIRECTOR OF THE FUND;
Chairman and
BIRTHDATE: JULY 28, 1924 Trustee, Federated Investors,
Federated Advisers, Federated
Management, and Federated Research;
Chairman and Director, Federated
Research Corp. and Federated Global
Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive
Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J.
Christopher Donahue, Executive Vice
President of the Trust.

THOMAS G. BIGLEY
28TH FLOOR
ONE OXFORD CENTRE
PITTSBURGH, PA DIRECTOR OF THE FUND; Chairman of the
Board,
BIRTHDATE: FEBRUARY 3, 1934 Children's Hospital of Pittsburgh
formerly, Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group,
Inc.; Trustee, University of
Pittsburgh; Director or Trustee of the
Funds.
.

JOHN T. CONROY, JR.
WOOD/IPC COMMERCIAL DEPARTMENT
JOHN R. WOOD AND ASSOCIATES,
INC., REALTORS
3255 TAMIAMI TRAIL NORTH
NAPLES, FL DIRECTOR OF THE FUND;
President, Investment
BIRTHDATE: JUNE 23, 1937 Properties Corporation; Senior Vice-
President, John R. Wood and
Associates, Inc., Realtors; Partner or
Trustee in private real estate
ventures in Southwest Florida;
formerly, President, Naples Property
Management, Inc. and Northgate Village
Development Corporation; Director or
Trustee of the Funds
.

WILLIAM J. COPELAND
ONE PNC PLAZA - 23RD FLOOR
PITTSBURGH, PA DIRECTOROF THE FUND; Director and
Member of the
BIRTHDATE: JULY 4, 1918 Executive Committee, Michael Baker,
Inc.; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank
Corp. and Director, Ryan Homes, Inc.;
Director or Trustee of the Funds.
.
JAMES E. DOWD
571 HAYWARD MILL ROAD
CONCORD, MA DIRECTOR OF THE FUND; Attorney-
at-law; Director,
BIRTHDATE: MAY 18, 1922 The Emerging Germany Fund, Inc.;
Director or Trustee of the Funds..

LAWRENCE D. ELLIS, M.D.*
3471 FIFTH AVENUE, SUITE 1111
PITTSBURGH, PA DIRECTOR OF THE FUND; Professor of
Medicine,
BIRTHDATE: OCTOBER 11, 1932 University of Pittsburgh; Medical
Director, University of Pittsburgh
Medical Center - Downtown; Member,
Board of Directors, University of
Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and
Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the
Funds.

EDWARD L. FLAHERTY, JR.@
TWO GATEWAY CENTER - SUITE 674
PITTSBURGH, PA DIRECTOR OF THE FUND; Attorney of
Counsel, Miller,
BIRTHDATE: JUNE 18, 1924 Ament, Henny & Kochuba; Director,
Eat'N Park Restaurants, Inc.;
formerly, Counsel, Horizon Financial,
F.A., Western Region; Director or
Trustee of the Funds. .

EDWARD C. GONZALES*
FEDERATED INVESTORS TOWER
PITTSBURGH, PA PRESIDENT, TREASURER AND DIRECTOR OF
THE
BIRTHDATE: OCTOBER 22, 1930 FUND;Vice Chairman, Treasurer, and
Trustee, Federated Investors; Vice
President, Federated Advisers,
Federated Management, Federated
Research, Federated Research Corp.,
Federated Global Research Corp. and
Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee
or Director of some of the Funds;
President, Executive Vice President
and Treasurer of some of the Funds.

PETER E. MADDEN
225 FRANKLIN STREET
BOSTON, MA DIRECTOR OF THE FUND; Consultant;
Former State
BIRTHDATE: MARCH 16, 1942 Representative, Commonwealth of
Massachusetts;formerly, President,
State Street Bank and Trust Company
and State Street Boston Corporation;
Director or Trustee of the Funds.

GREGOR F. MEYER
TWO GATEWAY CENTER - SUITE 674
PITTSBURGH, PA DIRECTOR OF THE FUND; Attorney,
Member of Miller,
BIRTHDATE: OCTOBER 6, 1926 Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park
Restaurants, Inc.; Director or Trustee
of the Funds.

JOHN E. MURRAY, JR., J.D., S.J.D.
DUQUESNE UNIVERSITY
PITTSBURGH, PA DIRECTOR OF THE FUND;
President, Law Professor,
BIRTHDATE: DECEMBER 20, 1932 Duquesne University; Consulting
Partner, Mollica, Murray and Hogue;
Director or Trustee of the Funds.

WESLEY W. POSVAR
1202 CATHEDRAL OF LEARNING
UNIVERSITY OF PITTSBURGH
PITTSBURGH, PA DIRECTOR OF THE FUND; Professor,
International
BIRTHDATE: SEPTEMBER 14, 1925 Politics; Mangement Consultant;
Trustee, Carnegie Endowment for
International Peace, RAND Corporation,
Online Computer Library Center, Inc.,
National Defense University, U.S.
Space Foundation and Czech Managment
Center; President Emeritus, University
of Pittsburgh; Founding Chairman;
National Advisory Council for
Environmentsal Policy and Technology,
Federal Emergency Management Advisory
Board and Czech Management Center;
Director or Trustee of the Funds. .

MARJORIE P. SMUTS
4905 BAYARD STREET
PITTSBURGH, PA DIRECTOR OF THE FUND; Public
BIRTHDATE: JUNE 21, 1935 Relations/Marketing/Conference
Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick
Art & History Center; Conference
Coordinator, University of Pittsburgh
Art History Department; Director or
Trustee of the Funds.

J. CHRISTOPHER DONAHUE
FEDERATED INVESTORS TOWER
PITTSBURGH, PA EXECUTIVE VICE PRESIDENT OF THE FUND;
President
BIRTHDATE: APRIL 11, 1949 and Trustee, Federated Investors,
Federated Advisers, Federated
Management, and Federated Research:;
President and Director, Federated
Research Corp. and Federated Global
Research Corp.; President, Passport
Research, Ltd.;Trustee, Federated
Shareholder Services Company, and
Federated Shareholder Services;
Director, Federated Services Company;
President or Executive Vice President
of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the
son of John F. Donahue, Chairman and
Trustee of the Trust.

JOHN W. MCGONIGLE
FEDERATED INVESTORS TOWER
PITTSBURGH, PA EXECUTIVE VICE PRESIDENT AND SECRETARY
BIRTHDATE: OCTOBER 26, 1938 OF THE FUND; Executive Vice President,
Secretary, and Trustee, Federated
Investors; Trustee, Federated
Advisers, Federated Management, and
Federated Research; Director,
Federated Research Corp. and Federated
Global Research Corp.; Trustee,
Federated Shareholder Services
Company; Director, Federated Services
Company; President and Trustee,
Federated Shareholder Services;
Director, Federated Securities Corp.;
Executive Vice President and Secretary
of the Funds.

RICHARD B. FISHER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA VICE PRESIDENT OF THE FUND; Executive
Vice
BIRTHDATE: MAY 17, 1923 President and Trustee, Federated
Investors, Chairman and Director,
Federated Securities Corp.; President
or Vice President of some of the
Funds; Director or Trustee of some of
the Funds.

* This Director is deemed to be an "interested person" of the
Corporation as defined in the Investment Company Act of 1940, as
amended.

@ 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.

THE FUNDS

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

111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable
Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Master Trust; Federated Municipal
Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.; High
Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty
Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; and World Investment Series.

FUND OWNERSHIP

As of August 15, 1996, Officers and Directors own less than 1%
of the outstanding shares of each Fund.
To the best knowledge of the FUND, as of August 15, 1996, the
following shareholders owned 5% or more of the outstanding shares of the
FUND: Charles Schwab & Co. Inc., San Francisco, California, owned
approximately 509,341 shares (5.19%) and National Financial Services
Corp., New York, New York, owned approximately 496,188 shares (5.06%).

OFFICERS AND DIRECTORS COMPENSATION

AGGREGATE TOTAL COMPENSATION PAID
NAME, COMPENSATION TO DIRECTORS FROM
POSITION WITH FROM CORPORATION
CORPORATION CORPORATION AND FUND COMPLEX*

John F. Donahue, $0 $0 for the Fund Complex
Chairman and Director

Thomas G. Bigley, Director $99.55 $2647.78 for the Fund
Complex
John T. Conroy, Jr., Director $108.41 $3441.37 for the
Fund Complex
William J. Copeland, Director $108.41 $3441.37 for the
Fund Complex
James E. Dowd, Director $108.41 $3441.37 for the Fund
Complex
Lawrence D. Ellis, M.D., $99.55 $3145.78 for the Fund
Complex
Director
Edward L. Flaherty, Jr., Director $108.41 $3441.37 for the
Fund Complex
Edward C. Gonzales, President $0 $0 for the Fund
Complex
and Director
Peter E. Madden, Director $99.55 $2846.78 for the Fund
Complex
Gregor F. Meyer, Director $99.55 $3145.78 for the Fund
Complex
John E. Murray, Jr., J.D., $99.55 $3145.78- for the
Fund Complex
S.J.D., Director
Wesley W. Posvar, Director $99.55 $3145.78 for the Fund
Complex
Marjorie P. Smuts, $99.55 $3145.78 for the Fund Complex
Director

*The total compensation is provided for the Fund Complex, which consists
of the Blanchard Funds, The Virtus Funds, and the Corporation. The
information is provided for Blanchard Precious Metals Fund, Inc. and
Blanchard Funds for the fiscal year ended 4/30/96, and for The Virtus
Funds for the fiscal year ended 9/30/95.

MANAGEMENT SERVICES

MANAGER OF THE FUND

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

The Manager 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.

MANAGEMENT FEES

For its services, VCM receives an annual management fee as
described in the prospectus. VCM became the FUND's Manager on July 12,
1995. Prior to July 12, 1995, Sheffield Management Company served as the
FUND's Manager. For the fiscal year ended April 30, 1996, VCM earned
$675,300 and Sheffield Management Company earned $165,642. For the fiscal
years ended April 30, 1995, and 1994, the aggregate amounts paid or
accrued by the Fund to the Sheffield Management Company under the then
existing management agreement were $765,766, and $602,610, respectively.
The prior manager was not required to reimburse the Fund for any expenses
during the years ended April 30, 1995, and 1994.

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,
1996, 1995, and 1994, the aggregate amounts paid or accrued by the prior
manager to the Portfolio Manager under the Sub-Advisory Agreement were
$263,638, $227,033, $170,058, respectively.

The Sub-Advisory Agreement, dated July 11, 1995, was approved
by the Fund's Directors on March 24, 1995 and the Fund's shareholders on
July 11, 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 cast in person at a meeting
called for the purpose of voting on such approval.

CUSTODIAN

Signet Trust Company is custodian for the securities and cash
of the Fund. Under the Custodian Agreement, Signet Trust Company holds
the Funds' portfolio securities in safekeeping and keeps all necessary
records and documents relating to its duties. The custodian receives a
fee at an annual rate of .05 of 1% on the first $10 million of average
net assets of each of the six respective portfolios and .025 of 1% on
average net assets in excess of $10 million. There is a $20 fee imposed
on each transaction. The custodian fee received during any fiscal year
shall be at least $1,000 per Fund.

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 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 investment of client account designations, and addresses; and
providing such other services as the Director reasonably requests. For
the fiscal year ended April 30, 1996, the FUND accrued payments under the
Plan amounting to $630,406.

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 consist 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.

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.

The financial statements for the fiscal period ended April 30,
1996, are incorporated herein by reference from the Fund's Annual Report
dated April 30, 1996. A copy of the Annual Report for the Fund may be
obtained without charge by contacting Signet Financial Services, Inc. at
1-800-829-3863.

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements. To be filed by amendment.

(b) Exhibits
1. (a) Declaration of Trust of Registrant.(1)
(b) Amendment of Declaration of Trust.(2)
2. By-laws of Registrant.(1)
3. Not Applicable
4. Specimen certificate for shares of
beneficial interest of Registrant.(2)
5. (i) Conformed copy of Management Contract
between Registrant and Virtus Capital
Management, Inc. +
(ii) Conformed copy of the Sub-Advisory
Agreement between the Blanchard Precious
Metals Fund, Inc., and Cavelti Capital
Management Ltd. +
6. (i) Conformed copy of Distributor's Contract
through and including Exhibit A, between
Registrant and Federated Securities
Corp. +
7. Not Applicable.
8. (i) Conformed copy of Custodian Contract
between Registrant, and Signet Trust
Company.(6)
(ii) Form of Agreement for Fund Accounting,
Shareholder Recordkeeping and Custody
Services Procurement between Registrant,
and Federated Services Company.(17)
(iii) Conformed copy of Subcustodian Agreement
between Signet Trust Company and
Canadian Imperial Bank of Commerce. +
+ All Exhibits Have been filed electronically.
1 Previously filed on August 23, 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.

9. (i) Conformed copy of Administrative
Services Agreement between Registrant,
and Federated Administrative Services. +
10. None.
11. Conformed copy of consent of Deloitte
and Touche LLP, independent accountants.
+
12. Not applicable.
13. Agreement re: initial $100,000
capital.(3)
14. Copies of model tax-sheltered retirement
plans.(3)
15. (i) Conformed copy of Distribution Plan. +
(ii) Copy of 12b-1 Agreement.(6)
16. (i) Schedule of Performance Quotations. (4)
17. Copy of Financial Data Schedules. +
18. Not applicable.
19. Conformed Copy of Power of Attorney. (6)
+ All Exhibits Have been filed electronically.
1 Previously filed on August 23, 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 Manager and Management Agreement" in the Prospectus
and Statement of Additional Information.

ITEM 26. Number of Holders or Securities

Number of Record Holders
Title of Class as of August 14, 1996

BPMF, Inc. 8,482

ITEM 27. Indemnification (20)

ITEM 28. Business and Other Connections or Investment Adviser

For a description of the other business of Virtus Capital
Management, Inc. see "Management of the Funds" in Part A. The officers
of Virtus Capital Management, Inc. are:

Gary M. Allen President and Chief Investment Officer,
Director VCM, since March 1995; Senior
Vice President STC (March 1994
to March 1995); Managing
Director of U.S. Equities
(November 1990 to March 1994)
and Director, Internal Asset
Management (June 1985 to
November 1990) of the Virginia
Retirement System.
E. Christian Goetz Senior Vice President Director of Fixed Income,
and Director VCM, since March 1995;
Portfolio Manager STC
(November 1990 to March 1995).

Tanya Orr Bird Vice President and Director of Client Services,
Director VCM, since March 1995; Vice
President of Client Services,
STC (October 1994 to March
1995); Consultant, William M.
Mercer Asset Planning Inc.,
1989 to October 1994.
Kevin M. Lewis Vice President and Senior Equity Manager, VCM,
Director since March 1995; Equity
Manager, STC, from 1987 to
March 1995.

ITEM 29. Principal Underwriters

(a) Federated Securities Corp., the Distributor for shares of
the Registrant, also acts as principal underwriter for the following
open-end investment companies: 111 Corcoran Funds; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; BayFunds;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government
Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;
Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Utility Fund, Inc.; High Yield Cash Trust; Independence One Mutual Funds;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Trust; Municipal Securities Income Trust; Newpoint
Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds;
Star Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Tower Mutual Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; Vision Group of Funds,
Inc.; andWorld Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With
Registrant

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

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

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

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

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

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

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

John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Assistant Secretary,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

ITEM 30. Location of Accounts and Records

The accounts and records required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:

Blanchard Funds Federated Investors Tower
Pittsburgh, PA

Federated Shareholder Services P.O. Box 8600
Company (Transfer Agent,Dividend Boston, MA
Disbursing Agent and
Portfolio Recordkeeper)

Federated Administrative Federated Investors Tower
Services (Administrator) Pittsburgh, PA

Virtus Capital Management, Inc. 707 East Main Street
(Adviser) Suite 1300
Richmond, VA

Signet Trust Company 7 North Eighth Street
(Custodian) Richmond, VA

ITEM 31. Management Services

Not applicable.

ITEM 32. Undertakings
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of Trustees and
the calling of special shareholder meetings by shareholders.

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

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, BLANCHARD FUNDS, has duly
caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 19st day of August,
1996.

BLANCHARD FUNDS

BY: /s/C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
August 19, 1996

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:

NAME TITLE DATE
By:/s/C. Grant Anderson
C. Grant Anderson Attorney In Fact August 19, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

John F. Donahue* Chairman and Trustee
(Chief Executive Officer)

Edward C. Gonzales* President, Treasurer and
Trustee
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

William J. Copeland* Trustee

James E. Dowd* Trustee

Lawrence D. Ellis, M.D.* Trustee

Edward L. Flaherty, Jr.* Trustee

Peter E. Madden* Trustee

Gregor F. Meyer* Trustee

John E. Murray, Jr.* Trustee

Wesley W. Posvar* Trustee

Marjorie P. Smuts* Trustee

* By Power of Attorney

Exhibit (11) under Form N-1A
Exhibit 23 under Item 601/Reg SK

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors and Shareholders of
BLANCHARD PRECIOUS METALS FUND, INC.:

We consent to the incorporation by reference in Post-Effective Amendment
No. 11 to Registration Statement (No. 33-16755) of Blanchard Precious
Metals Fund, Inc. of our report dated June 19, 1996, appearing in the
Annual Report, which is incorporated by reference in such Registration
Statement, and to the reference to us under the heading `Financial
Highlights''in such Prospectus.

By: DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania,
August 26, 1996

Exhibit 10 under Form N-1A
Exhibit 9 under Item 601/Reg S-K
BLANCHARD PRECIOUS METALS FUND, INC.

ADMINISTRATIVE SERVICES AGREEMENT

This Administrative Services Agreement is made as of this 12 day July,
1995, between Blanchard Precious Metals Fund, Inc., a Maryland corporation
(herein called the "Fund"), and Federated Administrative Services, a
Dealaware business trust (herein called "FAS").

WHEREAS, the Fund is a Maryland corporation consisting of one or more
portfolios, which operates as an open-end management investment company and
will so register under the Investment Company Act of 1940; and

WHEREAS, the Fund desires to retain FAS as its Administrator to
provide it with Administrative Services (as herein defined), and FAS is
willing to render such services;

NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:

1. Appointment of Administrator. The Fund hereby appoints FAS as
Administrator of the Fund on the terms and conditions set forth in this
Agreement; and FAS hereby accepts such appointment and agrees to perform
the services and duties set forth in Section 2 of this Agreement in
consideration of the compensation provided for in Section 4 hereof.

2. Services and Duties. As Administrator, and subject to the supervision
and control of the Fund's Board of Trustees, FAS will provide facilities,
equipment, and personnel to carry out the following administrative services
for operation of the business and affairs of the Fund and each of its
portfolios:

(a) prepare, file, and maintain the Fund's governing documents and
any amendments thereto, including the Declaration of Trust
(which has already been prepared and filed), the By-laws and
minutes of meetings of Trustees and shareholders;

(b) prepare and file with the Securities and Exchange Commission
and the appropriate state securities authorities the
registration statements for the Fund and the Fund's shares and
all amendments thereto, reports to regulatory authorities and
shareholders, prospectuses, proxy statements, and such other
documents all as may be necessary to enable the Fund to make a
continuous offering of its shares;

(c) prepare, negotiate, and administer contracts on behalf of the
Fund with, among others, the Fund's investment adviser,
distributor, custodian, and transfer agent;

(d) supervise the Fund's custodian in the maintenance of the Fund's
general ledger and in the preparation of the Fund's financial
statements, including oversight of expense accruals and
payments, of the determination of the net asset value of the
Fund and of the declaration and payment of dividends and other
distributions to shareholders;

-2-
(e) calculate performance data of the Fund for dissemination to
information services covering the investment company industry;

(f) prepare and file the Fund's tax returns;

(g) examine and review the operations of the Fund's custodian and
transfer agent;

(h) coordinate the layout and printing of publicly disseminated
prospectuses and reports;

(i) perform internal audit examinations in accordance with a
charter to be adopted by FAS and the Fund;

(j) assist with the design, development, and operation of the Fund;

(k) provide individuals reasonably acceptable to the Fund's Board
of Trustees for nomination, appointment, or election as
officers of the Fund, who will be responsible for the
management of certain of the Fund's affairs as determined by
the Fund's Board of Trustees; and

(l) consult with the Fund and its Board of Trustees on matters
concerning the Fund and its affairs.

The foregoing, along with any additional services that FAS shall agree
in writing to perform for the Fund hereunder, shall hereafter be referred
to as "Administrative Services." Administrative Services shall not include

-3-
any duties, functions, or services to be performed for the Fund by the
Fund's investment adviser, distributor, custodian, or transfer agent
pursuant to their respective agreements with the Fund.

3. Expenses. FAS shall be responsible for expenses incurred in
providing office space, equipment, and personnel as may be necessary or
convenient to provide the Administrative Services to the Fund, including
the compensation of FAS employees who serve as Trustees or officers of the
Fund. The Fund shall be responsible for all other expenses incurred by FAS
on behalf of the Fund, including without limitation postage and courier
expenses, printing expenses, travel expenses, registration fees, filing
fees, fees of outside counsel and independent auditors, insurance premiums,
fees payable to Trustees who are not FAS employees, and trade association
dues.

4. Compensation. For the Administrative Services provided, the Fund
hereby agrees to pay and FAS hereby agrees to accept as full
compensation for its services rendered hereunder an administrative fee
at an annual rate per portfolio of the Fund's shares, payable daily,
as specified below:

Maximum Administrative Average Daily Net Assets
Fee of the Fund

.15% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million

-4-

However, in no event shall the administrative fee received during any
year of this Agreement be less than, or be paid at a rate less than would
aggregate (i) for portfolios existing on the date of this Agreement,
$75,000 per portfolio plus $30,000 per each additional class of shares
related to such portfolio added after the date of this Agreement; and (ii)
for portfolios created after the date of this Agreement, $150,000 per
portfolio having a single class of shares, plus $30,000 per each additional
class of shares related to such portfolio.

5. Responsibility of Administrator.

(a) FAS shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement. FAS
shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted
pursuant to such advice. Any person, even though also an
officer, trustee, partner, employee or agent of FAS, who may be
or become an officer, Trustee, employee or agent of the Fund,
shall be deemed, when rendering services to the Fund or acting on
any business of the Fund (other than services or business in
connection with the duties of FAS hereunder) to be rendering such
services to or acting solely for the Fund and not as an officer,

-5-
trustee, partner, employee or agent or one under the control or
direction of FAS even though paid by FAS.

(b) FAS shall be kept indemnified by the Fund and be without
liability for any action taken or thing done by it in performing
the Administrative Services in accordance with the above
standards. In order that the indemnification provisions
contained in this Section 5 shall apply, however, it is
understood that if in any case the Fund may be asked to indemnify
or save FAS harmless, the Fund shall be fully and promptly
advised of all pertinent facts concerning the situation in
question, and it is further understood that FAS will use all
reasonable care to identify and notify the Fund promptly
concerning any situation which presents or appears likely to
present the probability of such a claim for indemnification
against the Fund. The Fund shall have the option to defend FAS
against any claim which may be the subject of this
indemnification. In the event that the Fund so elects, it will
so notify FAS and thereupon the Fund shall take over complete
defense of the claim, and FAS shall in such situation initiate no
further legal or other expenses for which it shall seek
indemnification under this Section. FAS shall in no case confess
any claim or make any compromise in any case in which the Fund
will be asked to indemnify FAS except with the Fund's written
consent.

6. Duration and Termination.

-6-
(a) The initial term of this Agreement shall commence on the date
hereof, and extend for a period of two years following the
first date upon which each of the Fund's existing portfolios
has sufficient average daily net assets, in each case, such
that FAS will begin to earn a sum not less than its minimum
("annualized") administrative fee per existing portfolio,
pursuant to Section 4 of this Agreement ("Initial Term").

(b) During any term of this Agreement, each time the Fund adds a
new portfolio, an additional term shall commence on the first
date upon which the new portfolio has sufficient average daily
net assets such that FAS will begin to earn a sum not less than
its minimum ("annualized") administrative fee in connection
with the new portfolio pursuant to Section 4 of this Agreement
("Additional Term"). Such Additional Term shall extend to the
later to occur of (i) the second anniversary of the
commencement of the Additional Term, or (ii) the expiration of
the Initial Term.

(c) During any term of this Agreement, each time the Fund adds a
class of shares to any portfolio, an additional term shall
commence on the later to occur of (i) the first date upon which
the relevant portfolio has sufficient average daily net assets
such that FAS will begin to earn a sum not less than its
minimum ("annualized") administrative fee pursuant to Section 4
of this Agreement, or (ii) the effective date of the
registration statement or post-effective amendment registering
the new class of shares ("Class Term"). Such Class Term shall

-7-
extend to the later to occur of (i) the second anniversary of
the commencement of the Class Term, or (ii) the expiration of
the Initial Term.

(d) Upon the expiration of any term, this Agreement shall be
automatically renewed each year for an additional term of one
year, unless notice of termination has been delivered by either
party to the other no less than one year before the beginning
of any such additional term.

7. Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.

8. Limitations of Liability of Trustees or Officers, Employees, Agents
and Shareholders of the Fund. FAS is expressly put on notice of the
limitation of liability as set forth in the Fund's Declaration of Trust and
agrees that the obligations assumed by the Fund pursuant to this Agreement
shall be limited in any case to the Fund and its assets and that FAS shall
not seek satisfaction of any such obligations from the shareholders of the
Fund, the Trustees, Officers, Employees or Agents of the Fund, or any of
them.

9. Limitations of Liability of Trustees and Shareholders of FAS. The
execution and delivery of this Agreement have been authorized by the
Trustees of FAS and signed by an authorized officer of FAS, acting as such,
and neither such authorization by such Trustees nor such execution and

-8-
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees or
shareholders of FAS, but bind only the trust property of FAS as provided in
the Declaration of Trust of FAS.

10. Notices. Notices of any kind to be given hereunder shall be in
writing (including facsimile communication) and shall be duly given if
delivered to the Fund and to its investment adviser at the following
address: Virtus Capital Management, Inc., 707 East Main Street, Suite
1300, Richmond, Virginia 23219 Attention: President and if delivered to
FAS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.

11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court or
regulatory agency decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. Subject to the provisions of
Section 5, hereof, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and shall
be governed by Pennsylvania law; provided, however, that nothing herein
shall be construed in a manner inconsistent with the Investment Company Act
of 1940 or any rule or regulation promulgated by the Securities and
Exchange Commission thereunder.

-9-
12. Counterparts. This Agreement may be executed by different parties on
separate counterparts, each of which, when so executed and delivered, shall
be an original, and all such counterparts shall together constitute one and
the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.

Blanchard Precious Metals Fund, Inc.

By: /s/ Joseph S. Machi
Vice President

Attest: /s/ John W. McGonigle
-
Secretary

Federated Administrative Services

By: /s/ Edward C. Gonzales
Chairman

Attest: /s/ John W. McGonigle
Secretary

Exhibit 10 under Form N-1A
Exhibit 9 under Item 601/Reg S-K

BLANCHARD PRECIOUS METALS FUND, INC.
SUB-ADVISORY AGREEMENT

THIS AGREEMENT is made this 12th day of July, 1995 by and between
VIRTUS CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Manager"),
and CAVELTI CAPITAL MANAGEMENT LTD., a Canadian money management firm
(the "Portfolio Manager" or "Cavelti") with respect to the following
recital of fact:

RECITAL

WHEREAS, Blanchard Precious Metals Fund, Inc. (the "Corporation") is
registered as an open-end non-diversified management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act") and
the rules and regulations promulgated thereunder; and

WHEREAS, the Portfolio Manager is registered as an investment
advisor under the Investment Advisers Act of 1940, as amended, and
engages in he business of acting as an investment advisor; and

WHEREAS, the Corporation is authorized to issue shares of Common
Stock in separate series, with each such series representing interests in
a separate portfolio of securities and other assets; and

WHEREAS, the Corporation intends to initially offer shares in one
series called the BLANCHARD PRECIOUS METALS FUND, INC. (such series,
being referred to as the "Fund"); and

WHEREAS, the Portfolio Manager proposes to render investment
advisory services to the Manager in connection with the Manager's
responsibilities to the Fund on the terms and conditions hereinafter set
forth.

NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable considerations, the receipt of
which is hereby acknowledge, the parties hereto agree as follows:

1. Investment Management. Cavelti shall act as the Portfolio
Manager for the Fund and shall, in such capacity, supervise the
investment and reinvestment of the cash, securities or other properties
comprising the Fund's portfolio, subject at all times to the director of
the Manager and the policies and control of the Corporation's Board of
Directors. Cavelti shall give the Fund the benefit of its best judgment,
efforts and facilities in rendering it services as Portfolio Manager.

2.. Investment Analysis and Implementation. In carrying out its
obligation under paragraph 1 hereof, the Portfolio Manager shall:

(a) use the same skill and care in providing such service as
it uses in providing services to fiduciary accounts for which it has
investment responsibilities;

(b) obtain and evaluate pertinent information about
significant developments and economics, statistical and financial
data, domestic, foreign or otherwise, whether affecting the economy
generally or the Fund's portfolio and whether concerning the
individual issuers whose securities are included in the Fund's
portfolio or the activities in which the issuers engage, or with
2
respect to securities which the Portfolio Manager considers
desirable for inclusion in the Fund's portfolio;

(c) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to
the Manager;

(d) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers and regularly
reports thereon to the Manager; and

(e) take, on behalf of the Fund, all actions which appear to
the Fund and the Manager necessary to carry into effect such
purchase and sale programs and supervisory functions as aforesaid,
including the placing of orders for the purchase and sale of
securities for the Fund and the prompt reporting to the Manager of
such purchases and sales.

3. Broker-Dealer Relationships, The Portfolio Manager is
responsible for decisions to but and sell securities for the Fund's
portfolio, broker-dealer selection, and negotiation of brokerage
commission rates. The Portfolio Manager's primary consideration in
effecting a security transaction will be execution at the most favorable
price. In selecting a broker-dealer to execute each particular
transaction, the Portfolio Manager will take the following into
consideration: the best net price available, the reliability, integrity
and financial condition of the broker-dealer; the size of an difficulty
in executing the order; and the value of the expected contribution of the
broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the
3
difference is reasonably justified by other aspects of the portfolio
execution of services offered. Subject to such policies as the Board of
Directors may determine, the Portfolio Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to
pay a broker for effecting a portfolio investment transaction in excess
of the amount of commission another broker or dealer would have charged
for effecting that transaction, if the Portfolio Manager determines in
good faith that such amount of commission was reasonable in relation to
the value of the brokerage and research services provided by such broker
or dealer, viewed in terms of either that particular transaction or the
Portfolio Manager's overall responsibilities with respect to the Fund and
to its other clients as to which it exercises investment discretion. The
Portfolio Manager is further authorized to allocate the order placed by
it on behalf of the Fund to its affiliated broker-dealer or to such
brokers and dealers who also provide research or statistical material, or
other services to the Fund or the Portfolio Manager. Such allocation
shall be in such amount and proportions as the Portfolio Manger shall
determine and the Portfolio Manager will report on said allocations
regularly to the Manager indicating the brokers to whom such allocations
have been made and the bases therefor.

4. Control by Board of Directors. Any investment program
undertaken by the Portfolio Manager pursuant to this Agreement, as well
as any other activities undertaken by the Portfolio Manager on behalf of
the Fund pursuant thereto, shall at all time be subject to any directives
of the Board of Directors of the Corporation. The Manager shall provide
the Portfolio Manager with written notice of all such directives, so long
as this Agreement remains in effect.

4
5. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Portfolio Manager shall at all
times conform to:

(a) all applicable provisions of the 1940 Act;

(b) the provisions of the Registration Statement of the
Corporation under the Securities Act of 1933 and the 1940 Act; and

6. Expenses. The expenses connected with the Fund shall be borne
by the Portfolio Manager as follows:

The Portfolio Manager shall maintain, at its expense and without
cost to the Manager or the Fund, a trading function in order to carry out
its obligations under subparagraph (e) of paragraph 2 hereof to place
orders for the purchase and sale of portfolio securities for the Fund.

7. Delegation of Responsibilities. Upon request of the Manager and
with the approval of the Corporation's Board of Directors, the Portfolio
Manager may perform services on behalf of the Fund which are not required
by this Agreement. Such services will be performed on behalf of the Fund
and the Portfolio Manager's costs in rendering such services may be
billed monthly to the Manager, subject to examination by the Manager's
independent accountants. Payment or assumption by the Portfolio Manager
of any Fund expense that the Portfolio Manager is not required to pay or
assume under this Agreement shall not relieve the Manager or the
Portfolio Manager of any of their obligations to the Fund or obligate the
Portfolio Manager to pay or assume any similar Fund expense on any
subsequent occasions.
5

8. Compensation. For the services to be rendered and the
facilities furnished hereunder, the Manager shall pay the Portfolio
Manager monthly compensation of the sum of the amounts determined by
applying the following annual rates to the Fund's aggregate 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, plus .225% of the Fund's net assets in excess of $300
million. Compensation under this Agreement shall be calculated and
accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day
of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall
be prorated in a manner consistent with the calculation of the fees as
set forth above. Payment of the Portfolio Manager's compensation for the
preceding month shall be made as promptly as possible after the end of
each month.

9. Expense Limitation. If, for any fiscal year, the total of all
ordinary business expenses of the Fund, including all investment advisory
fees but excluding brokerage commissions and fees, payments pursuant to
the Rule 12b-1 Plan then in effect, taxes, interest and extraordinary
expenses such as litigation, would exceed the most restrictive expense
limits imposed by an statute or regulatory authority of any jurisdiction
in which shares of the Fund are offered for sale, the investment advisory
fee, which the Manager would otherwise receive from the Fund, shall be
reduced by the amount of such excess. The fee which the Portfolio
Manager would otherwise receive from the Manager pursuant to paragraph 8
of this Agreement shall also be reduced proportionately. For example, if
the Manager's fee is reduced by 1/4, the Portfolio Manager's fee from
the Manager will also be reduced by 1/4. Such reduction shall be
6
deducted from the monthly fee otherwise payable to the Portfolio Manager
by the Manager and, if such amount should exceed such monthly fee, the
Portfolio Manager agrees to repay the Manager such amount of its fee
previously received with respect to make up the deficiency no later than
the last day of the first month of the next succeeding fiscal year. For
the purposes of this paragraph, the term "fiscal year" shall exclude the
portion of the current fiscal year which shall have elapsed prior to the
date hereof and shall include the portion of the then current fiscal year
which shall have elapsed at the date of the termination of this
Agreement.

10. Term. This Agreement shall become effective at the close of
business on the date hereof and shall remain in force and effect, subject
to Section 12 hereof, for two years from the date hereof.

11. Renewal . Following the expiration of its initial term, the
Agreement shall continue in force and effect from year to year, provided
that such continuance is specifically approved at least annually:

(a) (i) by the Corporation's Board of Directors or by the vote
of a majority of the Fund's outstanding voting securities (as
defined in Section 2(a)(42) of the 1940 Act), and

(b) by the affirmative vote of a majority of the directors who
are not parties to this Agreement or interested persons of a party
to this Agreement (other than as a director of the Corporation), by
votes cast in person at a meeting specifically called for such
purpose.

12. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Corporation's Board of
7
Directors or by vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act), or by the
Manager or the Portfolio Manger, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate: (a) in
the event of its assignment, the "assignment" having the meaning defined
in Section 2(a)(4) of 1940 Act, or (b) in the event that the Management
Agreement between the Fund and the Manager shall terminate.

13. Liability of the Portfolio Manager. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Portfolio
Manager or its officer, directors or employees, or reckless disregard by
the Portfolio Manager of its duties under this Agreement, the Portfolio
Manager shall not be liable to the Manager, the Corporation or to any
shareholder of the Corporation for any act or omission in the course of,
or connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.

14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of
the Manager for this purpose shall be 707 East Main Street, Suite 1300,
Richmond, Virginia 23219, that of the Corporation for this purpose shall
be Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and
the address of the Portfolio Manager for this purpose shall be 4100 Yonge
Street, Willowdale, Ontario M2P2B6 Canada.

15. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and
8
interpretations thereof, if any, by the United States Courts or in the
absence of an controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued
pursuant to said Act. In addition, where the effect of a requirement of
the 1940 Act reflected in the provisions of this Agreement is revised by
rule, regulations or order of the Securities and Exchange Commission,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the day and year
first above written.

Attest: VIRTUS CAPITAL MANAGEMENT, INC.

/s/ E. Christian Goetz /s/ James R. Eads
Title: E. Christian Goetz Senior Vice President
Sr. Vice President James R. Eads

Attest: CAVELTI CAPITAL MANAGEMENT LTD.

/s/ Carol Cavelti /s/ Peter Cavelti
Title: Corporate Secretary President
Carol Cavelti Peter Cavelti

Exhibit 10 under Form N-1A
Exhibit 8 under Item 601/Reg S-K

SUBCUSTODIAN AGREEMENT

This Agreement dated as of the 12th day of March 1996, between
SIGNET
TRUST COMPANY, a wholly owned subsidiary of Signet Banking Corporation,
having
its principal place of business at 7 North 8th Street, Richmond, Virginia
23219
(`Custodian and/or ``Signet'') and CANADIAN IMPERIAL BANK OF COMMERCE, a
Canadian chartered bank having its principal place of business at
(`Subcustodian'') pertains to the
- -------------------------------
storage of and
related services for precious metals in both coin and bullion form held
on behalf of and
upon the instructions of the appropriate entity listed on Exhibit A
attached hereto (each a
`Fund'' and collectively, the ``Funds'') for which the Custodian is
custodian subject to the
terms and conditions set forth herein.

WHEREAS, the Subcustodian is a bank, which pursuant to Section 17f
of the United States' Investment Company Act of 1940 is eligible to
serve as a custodian of assets of registered investment companies.

NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:

1. PROPERTY TO BE HELD BY SUBCUSTODIAN

A. Precious Metals. The Custodian from time to time, upon at
least one business day's prior notice to the Subcustodian, will deliver
or cause to be delivered to the Subcustodian certain precious metals to
be acquired by the Fund, to be held by the Subcustodian in accordance
with the terms of this Agreement. The Subcustodian shall hold such
precious metals for the account of the Custodian, and physically
segregate such precious metals from precious metals held by the
Subcustodian for the account of any other person and precious metals held
in a proprietary capacity.

The Subcustodian shall have no power or authority to transfer, sell,
assign, hypothecate, pledge or otherwise dispose of any precious metals
held hereunder for the account of the Custodian except pursuant to
instructions given by the Custodian as provided herein.

B. Cash. The Subcustodian shall open and maintain a separate
account in the name of the Custodian (the `Account''), subject to debit
only by order of the Custodian acting pursuant to the terms of this
Agreement. The Subcustodian shall hold in such Account, subject to the
provisions hereof, all cash received by it from or for the account of the
Custodian. The Subcustodian shall make payment of cash out of the
Account only (i) for the payment for precious metals for the portfolio of
the Fund upon the delivery of such precious metals to the Subcustodian,
(ii) to the Custodian for the account of the Custodian for any purpose,
or (iii) as otherwise provided herein.

Without express authority from the Custodian, the Subcustodian may
in its discretion use the Account to make payment for transfer taxes
payable upon transfers of precious metals, for reasonable expenses of
shipping or otherwise handling precious metals, and for all other
necessary and proper disbursements and expenses made or incurred by the
Subcustodian in connection with its duties under this Agreement, and all
such payments shall be accounted for to the Custodian.

2. FEES

Exhibit B hereto sets forth Subcustodian's fees and charges for its
services hereunder. Fees may be changed upon not less than 90 days'
notice to Custodian.

3. INSTRUCTIONS TO SUBCUSTODIAN

The Subcustodian is authorized to rely and act upon written and
manually signed instructions of any officer or employee of the Custodian
(if more than one, so indicated) named in the separate certificate
listing those persons who may authorize the withdrawal of any portion of
the cash from the Account or precious metals being held by the
Subcustodian hereunder (`Authorized Persons''). Such certificates will
be furnished from time to time signed by an officer of the Custodian and
certified by its Secretary or an Assistant Secretary. The Custodian will
provide the Subcustodian with authenticated specimen signatures of
Authorized Persons.

The Subcustodian is further authorized to rely upon any instructions
received by any other means and reasonably believed by the Subcustodian
to have been given or authorized by any Authorized Person, provided that,
(a) the Subcustodian and the Custodian shall have previously agreed in
writing upon the means of transmission and the method of identification
for such instructions; and (b) the Subcustodian has not been notified by
the Custodian to cease to recognize such means and methods.

4. TRANSFER AND DELIVERY OF PRECIOUS METALS
The Subcustodian shall have sole power to release or deliver
precious metals held for the account of the Custodian pursuant to this
Agreement. The Subcustodian agrees to transfer or deliver such precious
metals only to the Custodian or upon instruction by the Custodian that
such precious metals have been sold and receipt of the Subcustodian of
payment therefor for the account of the Custodian.

5. AUTHENTICITY

The Subcustodian shall not ascertain and will not be responsible for
the authenticity or correctness of markings on, or the weight, contents
or fineness of precious metals held hereunder for the Account of the
Custodian.

6. INSURANCE

Subcustodian agrees to maintain adequate insurance coverage on
precious metals held hereunder for the Account of the Custodian, pursuant
to the Subcustodian's Banker's Blanket Bond. Upon three business days'
notice, Subcustodian will make certificates of insurance evidencing such
coverage available to the Fund or the Custodian for their inspection.

7. BOOKS, RECORDS AND ACCOUNTS

The Subcustodian shall maintain property books of account and
complete records of all transactions authorized in paragraph 1.A. and
1.B. hereof, and shall cause periodic and cumulative statements of
account to be supplied to the Custodian as may be specified by agreement
with the Custodian.

The Subcustodian will make available to and permit inspection by the
Fund or the Custodian, during regular business hours, upon prior notice
and at the expense of the Fund, all books, records and accounts
maintained by the Subcustodian or its agents in connection with its
duties hereunder.

The Subcustodian agrees to make any records relating to any of its
services to the Fund available to the Fund or the Custodian upon the
Fund's request and to preserve for the periods prescribed in Rule 31a-2
under the United States' Investment Company Act of 1940 any of such
records as are required to be maintained by Rule 31a-1.

The Subcustodian agrees to immediately notify the Custodian of any
material adverse change in its financial condition.

8. TRANSFER TAX AND OTHER DISBURSEMENTS

The Custodian shall pay or reimburse the Subcustodian from time to
time for any transfer taxes payable upon transfers of precious metals
made hereunder and for all other necessary and proper disbursements and
expenses made or incurred by the Subcustodian in the performance of this
Agreement, as required by United States law or the laws of the
jurisdiction in which the precious metal is held, as the case may be.

9. LIABILITY

The physical safekeeping and the settlement of purchase and sale
transactions are the responsibility of Subcustodian, and Custodian shall
have the right to bring directly against Subcustodian any claim for
failure of Subcustodian to perform its obligations hereunder.

Subcustodian shall not be liable for any action taken in good faith
upon either any instructions pursuant to paragraph 3 herein described or
a certified copy of any resolution of the Board of Directors of
Custodian, and may rely on the genuineness of any such document which it
may in good faith believe to have been validly executed.

So long as and to the extent that it is in the exercise of
reasonable care, Subcustodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Agreement and shall be
held harmless in acting upon any notice, request, consent, certificate or
other instrument from Custodian reasonably believed by it to be genuine
and to be signed by the proper party or parties.

Subcustodian shall be entitled to rely on and may act upon advice of
counsel (who may be outside counsel for Subcustodian or outside counsel
for Custodian) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.

Subcustodian shall be liable only for its own negligent or bad faith
acts or failures to act. Subcustodian agrees to indemnify and hold
harmless Custodian from all taxes, charges, expenses, assessments, claims
and liabilities incurred or assessed against Custodian which arise from
Subcustodian's negligence or bad faith.

Custodian shall indemnify Subcustodian and hold it harmless from and
against all claims, liabilities, and expenses (including attorneys' fees)
which Subcustodian may suffer or incur on account of any error in
instructions from Custodian to Subcustodian.

If Custodian requires Subcustodian to take any action, which action
involves the payment of money or which action may, in the opinion of
Subcustodian, result in Subcustodian being liable for the payment of
money or incurring liability of some other form, Custodian as a
prerequisite to requiring Subcustodian to take such action, shall provide
indemnity to Subcustodian in an amount and form satisfactory to it.

10. TERMINATION OR ASSIGNMENT

This Agreement may be terminated by the Custodian, or by the
Subcustodian, on ninety (90) days' notice to the other party. Upon
termination of this Agreement, pending appointment of a successor to the
Subcustodian, the Subcustodian shall not deliver the precious metals held
hereunder for the Account of the Custodian to the Fund, but shall deliver
them to the Custodian or such other depository as the Custodian may
instruct; provided, however, that the Subcustodian shall not be required
to make any such delivery or payment until full payment shall have been
made by the Custodian of all liabilities constituting a charge on or
against the precious metals then held by the Subcustodian or on or
against the Subcustodian.

11. NOTICE

(a) Account statements and bills sent from Subcustodian to
Custodian shall be sent as follows:

Signet Trust Company
Attention: J. Rose
7 North 8th Street
Richmond, VA 23219

(b) All notices sent by Signet to Subcustodian shall be sent as
follows:

Canadian Imperial Bank of Commerce
Commerce Court Postal Station
Toronto, Ontario M5L 1A2
Canada

12. FORCE MAJEUR

Subcustodian shall not be liable for any failure to transfer or
redeliver or physically deliver precious metals as provided in
instructions to it pursuant to this Agreement during any period in which
Subcustodian is prevented from doing so as the direct and proximate
result of war (whether an actual declaration thereof is made or not),
sabotage, insurrection, riot, act of civil disobedience, act of public
enemy, act of any government or any agency or subdivision thereof,
judicial action, labor dispute, explosion, storm, technical failure, fire
or flood, provided, however, that nothing contained herein shall impair
the obligation which Subcustodian shall have to substitute insurance
proceeds therefor unless such proceeds are not payable by the appropriate
insurance carriers by reason of an exclusion contained in applicable
policies.

13. CONSTRUCTION

This Agreement shall be governed and construed under the laws of New
York.

SIGNET TRUST COMPANY

By: /s/ Joseph A. Rose
Title: Senior Vice President

CANADIAN IMPERIAL BANK OF COMMERCE

By: /s/ Conor Murphy
Title: Director Commodity Products

EXHIBIT A

Name of Fund

Blanchard Precious Metals Fund, Inc.

SIGNET TRUST COMPANY

By: /s/ Joseph A. Rose
Title: Senior Vice President

CANADIAN IMPERIAL BANK OF
COMMERCE

By: /s/ Conor Murphy
Title: Director Commodity Products

Exhibit 1 under Form N-1A
Exhibit 6 under Item 601/Reg S-K

BLANCHARD PRECIOUS METALS FUND, INC.
DISTRIBUTOR'S CONTRACT

AGREEMENT made this 12th day of July, 1995, by and between
Blanchard Precious Metals Fund, Inc. (the "Corporation"), a Maryland
corporation, and FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania
Corporation.

In consideration of the mutual covenants hereinafter contained, it
is hereby agreed by and between the parties hereto as follows:

1. The Corporation hereby appoints FSC as its agent to sell and
distribute shares of the Corporation which may be offered in one or more
series (the "Funds") consisting of one or more classes (the "Classes")
of shares (the "Shares"), as described and set forth on one or more
exhibits to this Agreement, at the current offering price thereof as
described and set forth in the current Prospectuses of the Corporation.
FSC hereby accepts such appointment and agrees to provide such other
services for the Corporation, if any, and accept such compensation from
the Corporation, if any, as set forth in the applicable exhibits to this
Agreement.

2. The sale of any Shares may be suspended without prior notice
whenever in the judgment of the Corporation it is in its best interest
to do so.

3. Neither FSC nor any other person is authorized by the
Corporation to give any information or to make any representation
relative to any Shares other than those contained in the Registration
Statement, Prospectuses, or Statements of Additional Information
("SAIs") filed with the Securities and Exchange Commission, as the same
may be amended from time to time, or in any supplemental information to
said Prospectuses or SAIs approved by the Corporation. FSC agrees that
any other information or representations other than those specified
above which it or any dealer or other person who purchases Shares
through FSC may make in connection with the offer or sale of Shares,
shall be made entirely without liability on the part of the Corporation.
No person or dealer, other than FSC, is authorized to act as agent for
the Corporation for any purpose. FSC agrees that in offering or selling
Shares as agent of the Corporation, it will, in all respects, duly
conform to all applicable state and federal laws and the rules and
regulations of the National Association of Securities Dealers Inc.,
including its Rules of Fair Practice. FSC will submit to the Corporation
copies of all sales literature before using the same and will not use
such sales literature if disapproved by the Corporation

4. This Agreement is effective with respect to each Class as of the
date of execution of the applicable exhibit and shall continue in effect
with respect to each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the initial term
of this Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such continuance is
approved at least annually by the Directors of the Corporation including
a majority of the members of the Board of Directors of the Corporation
who are not interested persons of the Corporation and have no direct or
indirect financial interest in the operation of any Distribution Plan
relating to the Corporation or in any related documents to such Plan
("Disinterested Directors") cast in person at a meeting called for that
purpose. If a Class is added after the first annual approval by the
Directors as described above, this Agreement will be effective as to
that Class upon execution of the applicable exhibit and will continue in
effect until the next annual approval of this Agreement by the Directors
and thereafter for successive periods of one year, subject to approval
as described above.

5. This Agreement may be terminated with regard to a particular
Fund or Class at any time, without the payment of any penalty, by the
vote of a majority of the Disinterested Directors or by a majority of
the outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement. This Agreement may be terminated with regard to a particular
Fund or Class by FSC on sixty (60) days' written notice to the
Corporation.

6. This Agreement may not be assigned by FSC and shall
automatically terminate in the event of an assignment by FSC as defined
in the Investment Company Act of 1940, as amended, provided, however,
that FSC may employ such other person, persons, corporation or
corporations as it shall determine in order to assist it in carrying out
its duties under this Agreement

7. FSC shall not be liable to the Corporation 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
by this Agreement.

8. This Agreement may be amended at any time by mutual agreement in
writing of all the parties hereto, provided that such amendment is
approved by the Directors of the Corporation including a majority of the
Disinterested Directors of the Corporation cast in person at a meeting
called for that purpose.

9. This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Corporation
agrees to indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act of
1933 and Section 20 of the Securities Act of 1934, as amended, against
any and all loss, liability, claim, damage and expense whatsoever
(including but not limited to any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever) arising
out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any
Prospectuses or SAIs (as from time to time amended and supplemented) or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the Corporation
about FSC by or on behalf of FSC expressly for use in the Registration
Statement, any Prospectuses and SAIs or any amendment or supplement
thereof.

If any action is brought against FSC or any controlling person thereof
with respect to which indemnity may be sought against the Corporation
pursuant to the foregoing paragraph, FSC shall promptly notify the
Corporation in writing of the institution of such action and the
Corporation shall assume the defense of such action, including the
employment of counsel selected by the Corporation and payment of
expenses. FSC or any such controlling person thereof shall have the
right to employ separate counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of FSC or such
controlling person unless the employment of such counsel shall have been
authorized in writing by the Corporation in connection with the defense
of such action or the Corporation shall not have employed counsel to
have charge of the defense of such action, in any of which events such
fees and expenses shall be borne by the Corporation. Anything in this
paragraph to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim of action effected without
its written consent. The Corporation agrees promptly to notify FSC of
the commencement of any litigation or proceedings against the
Corporation or any of its officers or Directors or controlling persons
in connection with the issue and sale of Shares or in connection with
the Registration Statement, Prospectuses, or SAIs.

(b) FSC agrees to indemnify and hold harmless the Corporation, each
of its Directors, each of its officers who have signed the Registration
Statement and each other person, if any, who controls the Corporation
within the meaning of Section 15 of the Securities Act of 1933, but only
with respect to statements or omissions, if any, made in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof in reliance upon, and in conformity with, information
furnished to the Corporation about FSC by or on behalf of FSC expressly
for use in the Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof. In case any action shall be brought
against the Corporation or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof, and with respect to which indemnity may be sought
against FSC, FSC shall have the rights and duties given to the
Corporation, and the Corporation and each other person so indemnified
shall have the rights and duties given to FSC by the provisions of
subsection (a) above.

(c) Nothing herein contained shall be deemed to protect any person
against liability to the Corporation or its shareholders to which such
person would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the duties of such
person or by reason of the reckless disregard by such person of the
obligations and duties of such person under this Agreement.
(d) Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940, as
amended, for Directors, officers, FSC and controlling persons of the
Corporation by the Corporation pursuant to this Agreement, the
Corporation is aware of the position of the Securities and Exchange
Commission as set forth in the Investment Company Act Release No. IC-
11330 Therefore, the Corporation undertakes that in addition to
complying with the applicable provisions of this Agreement, in the
absence of a final decision on the merits by a court or other body
before which the proceeding was brought, that an indemnification payment
will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a majority
vote of a quorum of non-party Disinterested Directors, or (ii) by
independent legal counsel in a written opinion that the indemnitee was
not liable for an act of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties. The Corporation further
undertakes that advancement of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an officer,
Director, FSC or controlling person of the Corporation will not be made
absent the fulfillment of at least one of the following conditions: (i)
the indemnitee provides security for his undertaking; (ii) the
Corporation is insured against losses arising by reason of any lawful
advances; or (iii) a majority of a quorum of non-party Disinterested
Directors or independent legal counsel in a written opinion makes a
factual determination that there is reason to believe the indemnitee
will be entitled to indemnification.

11. FSC is hereby expressly put on notice of the limitation of
liability as set forth in the Articles of Incorporation and agrees that
the obligations assumed by the Corporation pursuant to this Agreement
shall be limited in any case to the Corporation and its assets and FSC
shall not seek satisfaction of any such obligation from the shareholders
of the Corporation, the Directors, officers, employees or agents of the
Corporation, or any of them.

12. If at any time the Shares of any Fund are offered in two or
more Classes, FSC agrees to adopt compliance standards as to when a
class of shares may be sold to particular investors.

13. This Agreement will become binding on the parties hereto upon
the execution of the attached exhibits to the Agreement.

Exhibit A
to the
Distributor's Contract

BLANCHARD PRECIOUS METALS FUND, INC.

The following provisions are hereby incorporated and made part of
the Distributor's Contract dated of even date herewith, between
Blanchard Precious Metals Fund, Inc. and Federated Securities Corp. with
respect to the Class of the Fund set forth above:

1. The Corporation hereby appoints FSC to select a group of
financial institutions ("Financial Institutions") to sell shares of the
above-listed series and Class ("Shares"), at the current offering price
thereof as described and set forth in the prospectuses of the
Corporation.

2. FSC will enter into separate written agreements with various
firms to provide the services set forth in Paragraph 1 herein. During
the term of this Agreement, the Corporation will reimburse FSC for
payments made by FSC to obtain services pursuant to this Agreement, a
monthly fee computed at the annual rate of up to .75 of 1% of the
average aggregate net asset value of the Shares held during the month.
For the month in which this Agreement becomes effective or terminates,
there shall be an appropriate proration of any fee payable on the basis
of the number of days that the Agreement is in effect during the month.
The fees paid hereunder shall be in an amount equal to the aggregate
amount of periodic fees paid by FSC to Financial Institutions pursuant
to Paragraph 3 herein.

3. FSC, in its sole discretion, may pay Financial Institutions a
periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time the
Corporation's Board of Directors.

4. FSC will prepare reports to the Board of Directors of the
Corporation on a quarterly basis showing amounts paid to the various
firms and the purpose for such payments.

5. In the event any amendment to this Agreement matterially
increases the fees set forth in Paragraph 2, such amendment must be
approved by a vote of a majority of the outstanding voting securities of
the appropriate Fund or Class.

In consideration of the mutual covenants set forth in the
Distributor's Contract dated of even date herewith between Blanchard
Precious Metals Fund, Inc. and Federated Securities Corp., Blanchard
Precious Metals Fund, Inc. executes and delivers this Exhibit on behalf
of the Fund and with respect to the classes first set forth in this
Exhibit.

Witness the due execution hereof this 12 day of July, 1995.

ATTEST: Blanchard Precious Metals Fund, Inc.

By: /s/ John W. McGonigle /s/Joseph S. Machi
Secretary Vice President

(SEAL)

ATTEST: FEDERATED SECURITIES CORP.

By: /s/ S. Elliott Cohan /s/ John W. McGonigle
Secretary Executive Vice President

(SEAL)

Exhibit 1 under Form N-1A
Exhibit 15 under Item 601/Reg S-K

BLANCHARD PRECIOUS METALS FUND, INC
DISTRIBUTION PLAN

This Distribution Plan ("Plan') is adopted as of this July 12, 1995,
by the Board of Directors of Blanchard Precious Metals Fund, Inc. (the
"Corporation"), a Maryland Corporation with respect to certain classes of
shares ("Classes") of the portfolios of the Corporation (the "Funds") set
forth in exhibits hereto.

1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 ("Act") so as to allow the Corporation to make payments
as contemplated herein, in conjunction with the distribution of Classes of
the Funds ("Shares").

2. This Plan is designed to provide incentives to financial
institutions ("Financial Institutions") to sell Shares and enable the Funds
to pay for the costs and expenses of preparing, printing and distributing
prospectuses and sales literature (including those sent to
shareholders, prospective shareholders, and Financial Institutions) and
the costs of the expenses of the implementation and operation of the Plan.
Federated Securities Corp. ("FSC") will pay Financial Institutions a fee in
respect of Shares of the Funds owned from time to time by their clients or
customers. The schedules of such fees paid or reimbursed by the Corporation
and the basis upon which such fees shall be paid or reimbursed shall be
determined from time to time by the Corporation's Board of Directors in
respect of the Classes as set forth on the applicable exhibit.

3. Any payment to Financial Institutions paid or reimbursed by the
Corporation will be made by FSC pursuant to the "Distributor s Contract"
and the "Rule 12b-1 Agreement" which are related documents to the Plan.

4. FSC has the right (i) to select, in its sole discretion, the
Financial Institutions to participate in the Plan and (ii) to terminate
without cause and in its sole discretion any Rule 12b-1 Agreement.

5. Quarterly in each year that this Plan remains in effect, the Funds'
distributor shall prepare and furnish to the Board of Directors of the
Corporation, and the Board of Directors shall review, a written report of
the amounts expended under the Plan and the purpose for which such
expenditures were made.

6. This Plan shall become effective with respect to each Class (i)
after approval by majority votes of: (a) the Corporation's Board of
Directors; (b) the Disinterested Directors of the Corporation, cast in
person at a meeting called for the purpose of voting on the Plan; and (c)
the outstanding voting securities of the particular Class, as defined in
Section 2(a)(42) of the Act and (ii) upon execution of an exhibit adopting
this Plan with respect to such Class.

7. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added pursuant
to an exhibit during the initial year of this Plan for the period of one
year from the date set forth above and may be continued thereafter if this
Plan is approved with respect to each Class at least annually by a majority
of the Corporation's Board of Directors and a majority of the Disinterested
Directors, cast in person at a meeting called for the purpose of voting on
such Plan. If this Plan is adopted with respect to a Class after the first
annual approval by the Directors as described above, this Plan will be
effective as to that Class upon execution of the applicable exhibit
pursuant to the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the Directors and
thereafter for successive periods of one year subject to approval as
described above.

8. All material amendments to this Plan must be approved by a vote of
the Board of Directors of the Corporation and of the Disinterested
Directors, cast in person at a meeting called for the purpose of voting on
it.

9. This Plan may not be amended in order to increase materially the
costs which the Funds may bear for distribution pursuant to the Plan
without being approved by a majority vote of the outstanding voting
securities of the Funds as defined in Section 2(a)(42) of the Act.

10. This Plan may be terminated with respect to a particular Fund at
any time by: (a) a majority vote of the Disinterested Directors; or (b) a
vote of a majority of the outstanding voting securities of the particular
Fund as defined in Section 2(a)(42) of the Act; or (c) by FSC on 60 days
notice to the particular Fund.

11. While this Plan shall be in effect, the selection and nomination
of Disinterested Directors of the Corporation shall be committed to the
discretion of the Disinterested Directors then in office.

12. All agreements with any person relating to the implementation of
this Plan shall be in writing and any agreement related to this Plan shall
be subject to termination, without penalty, pursuant to the provisions of
Paragraph 10 herein.

13. This Plan shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.

EXHIBIT A
to the
Distribution Plan

BLANCHARD PRECIOUS METALS FUND, INC.

This Distribution Plan is adopted by Blanchard Precious Metals Fund,
Inc. with respect to the Class of Shares of the portfolio of the
Corporation set forth above.

The fees to be paid by FSC and reimbursed by the Class shall not
exceed the annual rate of .75 of 1% of the average aggregate net asset
value of the Shares held during the month.

Witness the due execution hereof this 12th day of July , 1995.

Blanchard Precious Metals Fund, Inc.

By: /s/ Joseph S. Machi
Vice President

Exhibit 10 under Form N-1A
Exhibit 9 under Item 601/Reg S-K

BLANCHARD PRECIOUS METALS FUND, INC
INVESTMENT MANAGEMENT CONTRACT

This Contract is made this 12th day of July, 1995 between Virtus
Capital Management, Inc., a Maryland corporation having its principal
place of business in Richmond, Virginia (the "Manager"), and Blanchard
Precious Metals Fund, Inc., a Maryland corporation having its principal
place of business in Pittsburgh, Pennsylvania (the "Corporation").

WHEREAS the Corporation is an open-end management investment company
as that term is defined in the Investment Company Act of l940, as amended,
and is registered as such with the Securities and Exchange Commission; and

WHEREAS Manager is engaged in the business of rendering investment
advisory and management services.

NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:

1. The Trust hereby appoints Manager as manager for each of the
portfolios ("Funds") of the Trust which executes an exhibit to this
Contract, and Manager accepts the appointments. Subject to the direction
of the Directors of the Corporation, Manager shall provide or procure on
behalf of each of the Funds all management and administrative services. In
carrying out its obligations under this paragraph, the Manager shall: (i)
provide or arrange for investment research and supervision of the
investments of the Funds; (ii) select and evaluate the performance of
each Fund's Portfolio Sub-Manager; (iii) select and evaluate the
performance of the Administrator; and (iv) conduct or arrange for a
continuous program of appropriate sale or other disposition and
reinvestment of each Fund's assets.

2. Manager, in its supervision of the investments of each of the
Funds, will
be guided by each of the Fund's investment objective and policies and the
provisions and restrictions contained in the Articles of Incorporation and
By-Laws of the Corporation and as set forth in the Registration Statements
and exhibits as may be on file with the Securities and Exchange Commission.

3. Each Fund shall pay or cause to be paid all of its own expenses
and its allocable share of Corporation expenses, including, without
limitation, the expenses of organizing the Corporation and continuing its
existence; fees and expenses of Directors and officers of the
Corporation; fees for Management services and administrative personnel
and services; expenses incurred in the distribution of its shares
("Shares"), including expenses of administrative support services; fees and
expenses of preparing and printing its Registration Statements under the
Securities Act of 1933 and the Investment Company Act of 1940, as
amended, and any amendments thereto; expenses of registering and
qualifying the Corporation, the Funds, and Shares of the Funds under
federal and state laws and regulations; expenses of preparing, printing,
and distributing prospectuses (and any amendments thereto) to
shareholders; interest expense, taxes, fees, and commissions of every kind;
expenses of issue (including cost of Share certificates), purchase,
repurchase, and redemption of Shares, including expenses attributable to a
program of periodic issue; charges and expenses of custodians, transfer
agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing and mailing costs, auditing, accounting, and legal
expenses; reports to shareholders and governmental officers and
commissions; expenses of meetings of Directors and shareholders and proxy
solicitations therefor; insurance expenses; association membership dues;
and such nonrecurring items as may arise, including all losses and
liabilities incurred in administering the Corporation and the Funds.
Each Fund will also pay its allocable share of such extraordinary expenses
as may arise including expenses incurred in connection with litigation,
proceedings, and claims and the legal obligations of the Corporation to
indemnity its officers and Directors and agents with respect thereto.

4. Each of the Funds shall pay to Manager, for all services rendered
to each Fund by Manager hereunder, the fees set forth in the exhibits
attached hereto.

5. If, for any fiscal year, the total of all ordinary business
expenses of the Fund, including all management fees but excluding
distribution fees, taxes, interest and extraordinary expenses and certain
other excludable expenses, would exceed the most restrictive expense limits
imposed by any statute or regulator authority of any jurisdiction in
which shares of the Fund are offered for sale, the Manager shall reduce its
management fee in order to reduce such excess expenses, but will not be
required to reimburse the Fund for any ordinary business expenses which
exceed the amount of its management fee for such fiscal year. The amount
of any such reduction is to be borne by the Manager and shall he deducted
from the monthly management fee otherwise payable to the Manager during
such fiscal year. For the purposes of this paragraph, the term "fiscal
year" shall exclude the portion of the current fiscal year which shall have
elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of
this Agreement.

6. The net asset value of each Fund's Shares asused herein will be
calculated to the nearest 1/10th of one cent.

7. The Manager may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses
of one or more of the Funds) to the extent that any Fund's expenses exceed
such lower expense limitation as the Manager may, by notice to the Fund,
voluntarily declare to be effective.

8. This Contract shall begin for each Fund as of the date of
execution of the applicable exhibit and shall continue in effect with
respect to each Fund presently set forth on an exhibit (and any subsequent
Funds added pursuant to an exhibit during the initial term of this
Contract) for two years from the date of this Contract set forth above and
thereafter for successive periods of one year, subject to the provisions
for termination and all of the other terms and conditions hereof if: (a)
such continuation shall be specifically approved at least annually by the
vote of a majority of the Directors of the Corporation, including a
majority of the Directors who are not parties to this Contract or
interested persons of any such party cast in person at a meeting called for
that purpose; and (b) Manager shall not have notified a Fund in writing
at least sixty (60) days prior to the anniversary date of this Contract
in any year thereafter that it does not desire such continuation with
respect to that Fund. If a Fund is added after the first approval by the
Directors as described above, this Contract will be effective as to that
Fund upon execution of the applicable exhibit and will continue in effect
until the next annual approval of this Contract by the Directors and
thereafter for successive periods of one year,
subject to approval as described above.

9. Notwithstanding any provision in this Contract, it may be
terminated at any time with respect to any Fund, without the payment of any
penalty, by the Directors of the Corporation or by a vote of the
shareholders of that Fund on sixty (60) days' written notice to Manager.

10. This Contract may not be assigned by Manager and shall
automatically terminate in the event of any assignment. Manager may employ
or contract with such other person, persons, corporation, or corporations
at its own cost and expense as it shall determine in order to assist it in
carrying out this Contract.

11. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties under this
Contract on the part of Manager, Manager shall not be liable to the
Corporation or to any of the Funds or to any shareholder for any act or
omission in the course of or connected in any way with rendering services
or for any losses that may be sustained in the purchase, holding, or sale
of any security.

12. This Contract may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by the vote of a
majority of the Directors of the Corporation, including a majority of the
Directors who are not parties to this Contract or interested persons of
any such party to this Contract (other than as Directors of the
Corporation) cast in person at a meeting called for that purpose, and,
where required by Section 15(a)(2) of the Act, on behalf of a Fund by a
majority of the outstanding voting securities of such Fund as defined in
Section 2(a)(42) of the Act.

13. The Manager acknowledges that all sales literature for investment
companies (such as the Corporation) are subject to strict regulatory
oversight. The Manager agrees to submit any proposed sales literature for
the Corporation (or any Fund) or for itself or its affiliates which
mentions the Corporation (or any Fund) to the Corporation's distributor
for review and filing with the appropriate regulatory authorities prior
to the public release of any such sales literature, provided, however,
that nothing herein shall be construed so as to create any obligation or
duty on the part of the Manager to produce sales literature for the
Corporation (or any Fund). The Corporation agrees to cause its distributor
to promptly review all such sales literature to ensure compliance with
relevant requirements, to promptly advise Manager of any deficiencies
contained in such sales literature, to promptly file complying sales
literature with the relevant authorities, and to cause such sales
literature to be distributed to prospective investors in the Corporation.

14. Notice is hereby given that this instrument is executed on behalf
of the Directors of the Corporation as Directors and not individually and
that the obligations of this instrument are not binding upon any of the
Trustees, or any of the officers, employees, agents or shareholders of the
Trust individually but are binding only upon the assets and property of the
Fund. Notice is also hereby given that the obligations pursuant to this
instrument of a particular Fund of the Trust and of the Trust with respect
to that particular Fund shall be limited solely to the assets of that
particular Fund.

15. This Contract shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.

16. This Contract will become binding on the parties hereto upon
their
execution of the attached exhibits to this Contract.

EXHIBIT A
to the
Investment Management Contract

BLANCHARD PRECIOUS METALS FUND, INC.

For all services rendered by Manager hereunder, the above-named Funds
of the Corporation shall pay to Manager and Manager agrees to accept as
full compensation for all services rendered hereunder, an annual management
fee equal to the following percentage ("the applicable percentage") of
the average daily net assets of each Fund.

Name of Fund Percentage of Net Assets

Blanchard Precious Metals Fund, Inc. 1% of the first $150 million
of average daily net asets, .875% of
the Fund's average daily net assets
in excess of $150 million but not
exceeding $300 million and .75% of
average daily net assets in excess of
$300 million.

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 management fee so accrued shall be paid to Manager daily.

Witness the due execution hereof this day of , 1995.

VIRTUS CAPITAL MANAGEMENT, INC.

Attest: /s/ J. David Faulders By /s/ James R. Eads
Assistant Secretary Senior Vice President

BLANCHARD FUNDS

Attest:/s/ C. Grant Anderson By /s/ Joseph S. Machi
Assistant Secretary Vice President

<S> <C>

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<NAME> Blanchard Precious Metals Fund, Inc.

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Apr-30-1996
<PERIOD-END> Apr-30-1996
<INVESTMENTS-AT-COST> 124,476,951
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