- --------------------------------------------------------------------------------
MARSHALL
- --------------------------------------------------------------------------------
TAX-FREE
- --------------------------------------------------------------------------------
FUNDS
- --------------------------------------------------------------------------------
- Marshall Short-Term Tax-Free Fund
- Marshall Intermediate Tax-Free Fund
(Portfolios of Marshall Funds, Inc.)
COMBINED SEMI-ANNUAL REPORT
AND SUPPLEMENT
TO COMBINED PROSPECTUS
DATED JANUARY 1, 1994
April 30, 1994
---------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
---------------------------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
4030403 (4/94)
---------------------------------------------------
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the First Semi-Annual Report of the Marshall Tax-Free
Funds for the six-month period ended February 28, 1994. This report provides you
with complete financial information for the Funds, including investment reviews
by the portfolio managers, a list of investments for each Fund, and the
financial statements.
We introduced these Funds on February 1, 1994 to help you keep more of what you
earn in your pockets--and out of the government's. As taxes continue to rise,
this objective is more critical than ever.
Both Funds invest in a diversified portfolio of tax-free securities issued by
municipalities across the country. Net assets in the Marshall Short-Term
Tax-Free Fund reached $11.5 million, while assets in the Marshall Intermediate
Tax-Free Fund--a more aggressive approach to tax-free income--grew to $19.8
million.
Thank you for selecting one or both of these Funds as a way to keep more of what
you earn. We'll keep you informed about your progress as we strive to provide
you with the highest level of service.
Sincerely,
James F. Duca, II
President
Marshall Funds, Inc.
April 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Interest rates are not waiting! Economic growth is slowing from the blistering
pace of the last quarter of 1993, during which real GDP soared at a 7.5% rate.
When taxes were raised last year, politicians insisted a shrinking Federal
budget deficit would placate investors' fears. Inflation remains in check, with
the Consumer Price Index ("CPI") up 2.5% in the last year and other measures
showing even less price pressure.
Still, interest rates are already heading higher. Worries about the possibility
of accelerating inflation later this year--or even next--sparked an almost 1%
rise in long-term Treasury yields from the October low through the end of
February. Short-term rates, which held steady for more than a year, also began
edging higher in early February, following the Federal Reserve's first
tightening move.
Rising interest rates make all but certain a deceleration from the late 1993
pace of economic growth. Housing and related purchases accounted for a
disproportionate share of the gain last year. In addition, lower monthly
payments on mortgages refinanced at historically low rates freed up funds for
other purchases. With these forces now diminished, economic growth for all of
1994 should only marginally exceed that of the last two years.
For the months ahead, inflation should stay under 3%, but investors worry,
perhaps prematurely, that it will not remain at these relatively restrained
rates. Unit labor costs, up less than 1% in the last year, however, foreshadow
modest inflation numbers. Over the long run, the rise in the cost of labor and
the CPI closely correlate. Increasing commodity prices, rising capacity
utilization rates, and a more restrictive Fed are the focus of current concerns.
The emergence of these typically late cycle characteristics apparently is
convincing markets not to wait for actual manifestations of accelerating
inflation.
MARSHALL SHORT-TERM TAX-FREE FUND
The fund was launched in February 1994, and for the month, the Fund generated a
total return of +0.06%.* This positive return was produced at a time when nearly
all municipal bonds suffered losses as interest rates spiked upward throughout
the month. Certainly, the municipal bond market could deteriorate further if the
Treasury market continues its downward spiral. It appears the fear of inflation,
however, is currently overshadowing the reality that municipal bond supply is
diminishing. Our strategy will be to ease into the market to take advantage of
higher interest rates, while maintaining a relatively short maturity structure.
This should provide a safe haven for municipal bond investors fearful of the
current economic and political uncertainty.
MARSHALL INTERMEDIATE TAX-FREE FUND
The Fund commenced in February 1994, and for the month, the Fund was down 1.10%*
on a total return basis. This performance compares favorably to most other
intermediate funds, which posted negative returns of 3.00% or more. However,
investors should not focus on one month of history. Municipal bond yields are
now back to levels last seen in July 1993. Although the individual investor's
appetite for municipals is not currently robust, with rates up dramatically,
renewed demand eventually will follow. We will strive to have the Fund
positioned to take advantage of the higher levels of interest rates that will
likely be available during 1994.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
A. Please delete the "Summary of Fund Expenses" table on page 2 and replace it
with the following table:
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE
FUND FUND
----------- ------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................... None None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)......................... None None
Redemption Fees (as a percentage of amount redeemed, if applicable)............. None None
Exchange Fee.................................................................... None None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)................................................ 0.00% 0.08%
12b-1 Fees...................................................................... None None
Total Other Expenses (after waiver)(2).......................................... 0.50% 0.52%
Shareholder Services Fee............................................... 0.02%
Total Annual Fund Operating Expenses(3)..................................... 0.50% 0.60%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser may terminate this
voluntary waiver at any time at its sole discretion. The maximum management fee
is 0.50% for the Short-Term Fund and 0.60% for the Intermediate Fund.
(2) Total Other Expenses are estimated to be 0.95% for the Short-Term Fund and
0.57% for the Intermediate Fund, absent the anticipated voluntary waivers by the
custodian and administrator and the anticipated voluntary reimbursement by the
investment adviser. The custodian, administrator and adviser may terminate the
waivers and reimbursements at any time at their sole discretion.
(3) Total Annual Fund Operating Expenses are estimated to be 1.45% for the
Short-Term Fund and 1.17% for the Intermediate Fund, absent the anticipated
voluntary waivers and reimbursement described above in notes 1 and 2.
* Annual Fund Operating Expenses are estimated based on average assets expected
to be incurred during the fiscal year ending August 31, 1994. During the course
of this period, expenses may be more or less than the average amounts shown.
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 "MARSHALL FUNDS, INC. INFORMATION." Wire-transferred redemptions
may be subject to an additional fee.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- ------------------------------------------------------------------------------------------ ------ -------
<S> <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.
Short-Term Fund........................................................................... $5 $16
Intermediate Fund......................................................................... $6 $19
</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. THE
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING AUGUST 31, 1994.
B. Please insert the following "Financial Highlights" tables as pages 3 and 4
following the "Summary of Fund Expenses" and before the section entitled
"Objective of Each Fund." In addition, please add the heading "Financial
Highlights" to the Table of Contents after the heading "Summary of Fund
Expenses."
MARSHALL SHORT-TERM TAX-FREE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
1994*
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------
Net investment income 0.02
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.01)
- ---------------------------------------------------------------------------- -------------
Total from investment operations 0.01
- ----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02)
- ---------------------------------------------------------------------------- -------------
NET ASSET VALUE, END OF PERIOD $9.99
- ---------------------------------------------------------------------------- -------------
TOTAL RETURN** 0.06%
- ----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------
Expenses (a) 0.50%(b)
- ----------------------------------------------------------------------------
Net investment income (a) 2.42%(b)
- ----------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.51%(b)
- ----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $11,517
- ----------------------------------------------------------------------------
Portfolio turnover rate 0%
- ----------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from February 1, 1994 (date of initial
public investment) to February 28, 1994 (unaudited).
** Based on net asset value.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
MARSHALL INTERMEDIATE TAX-FREE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
1994*
--------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ---------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------
Net investment income 0.02
- ---------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.13)
-----
- ---------------------------------------------------------------------------
Total from investment operations (0.11)
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.02)
-----
- ---------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.87
-----
- ---------------------------------------------------------------------------
TOTAL RETURN** (1.10)%
- ---------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------
Expenses (a) 0.60%(b)
- ---------------------------------------------------------------------------
Net investment income (a) 3.15%(b)
- ---------------------------------------------------------------------------
Expense waiver/reimbursement (a) 0.53%(b)
- ---------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------
Net assets, end of period (000 omitted) $19,861
- ---------------------------------------------------------------------------
Portfolio turnover rate 7%
- ---------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from February 1, 1994 (date of initial
public investment) to February 28, 1994 (unaudited).
** Based on net asset value.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(b) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
5
C. Please insert the following "Redemption Before Purchase Instruments Clear"
section before the section entitled "Accounts with Low Balances" on page 13.
In addition, please add the heading "Redemption Before Purchase Instruments
Clear" to the Table of Contents immediately before the heading "Accounts with
Low Balances."
"REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares of the Fund are purchased by check or through the Automated Clearing
House system, the proceeds from the redemption of those shares (whether redeemed
by mail or by telephone) are not available, and the shares may not be exchanged,
until MFIS is reasonably certain that the purchase check has cleared, which
could take up to seven calendar days."
D. Please insert the following information as the fourth and fifth sentences
under the sub-section entitled "Voting Rights and Common Stock" under the
main section entitled "Shareholder Information" on page 13:
"As of March 30, 1994, Mitra & Co., Marshall & Ilsley Trust Company, acting in
various capacities for numerous accounts, was the owner of record of 1,035,828
shares (72.51%) of the Short-Term Fund, and therefore, may for certain purposes,
be deemed to control the Short-Term Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders. With respect to the
Intermediate Fund, Maril & Co., Marshall & Ilsley Trust Company, acting in
various capacities for numerous accounts, was the owner of record of 1,971,665
shares (79.60%) of the Intermediate Fund, and therefore, may for certain
purposes, be deemed to control the Intermediate Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders."
E. Please insert the following financial statements after the "Performance
Information" section on page 16. In addition, please add the heading
"Financial Statements" to the Table of Contents immediately before
"Addresses."
MARSHALL SHORT-TERM TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
SHARES OR RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ----------------------------------------------------------- -------- ----------
<C> <S> <C> <C>
MUTUAL FUND SHARES--4.5%
- -------------------------------------------------------------------------
250,000 Federated Tax-Free Trust AAA $ 250,000
-----------------------------------------------------------
262,501 Fidelity Tax Exempt Money Market Fund AAA 262,501
----------------------------------------------------------- ----------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) (NOTE 2A) 512,501
----------------------------------------------------------- ----------
SHORT-TERM MUNICIPAL SECURITIES--14.9%
- -------------------------------------------------------------------------
ARIZONA--2.6%
-----------------------------------------------------------
$300,000 Maricopa County, AZ, School District, 5.50% (MBIA Insured),
7/1/94 AAA 302,508
----------------------------------------------------------- ----------
FLORIDA--3.5%
-----------------------------------------------------------
100,000 Dade County, FL, 7.00%, Refunding Bond (FGIC Insured),
10/1/94 AAA 102,208
-----------------------------------------------------------
100,000 St. Petersburg, FL, Utility Tax, 5.60%, 10/1/94 ETM AAA 101,402
-----------------------------------------------------------
200,000 Tampa, FL, 6.70%, Water & Sewer Revenue (Series B)/
(AMBAC Insured), 10/1/94 AAA 203,750
----------------------------------------------------------- ----------
Total 407,360
----------------------------------------------------------- ----------
ILLINOIS--1.8%
-----------------------------------------------------------
200,000 Naperville, IL, 4.00%, Electric Revenue, 5/1/94 AA 200,404
----------------------------------------------------------- ----------
IOWA--2.6%
-----------------------------------------------------------
300,000 Davenport, IA, 4.65%, 6/1/94 AA- 301,284
----------------------------------------------------------- ----------
</TABLE>
MARSHALL SHORT-TERM TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ----------------------------------------------------------- -------- ----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------
NEW YORK--3.5%
-----------------------------------------------------------
$200,000 Erie County, NY, 2.15%, Water Authority Revenue, 12/1/2016,
1 Day Optional Put VMG1 $ 200,000
-----------------------------------------------------------
200,000 Niagara Falls, NY, Bridge Commission, 2.15%, 10/1/2019,
1 Day Optional Put VMG1 200,000
----------------------------------------------------------- ----------
Total 400,000
----------------------------------------------------------- ----------
OHIO--0.9%
-----------------------------------------------------------
100,000 Ohio State Public Facilities, 7.20%, Community Higher
Education Facilities (Series A), 5/1/94 A+ 100,625
----------------------------------------------------------- ----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(AT AMORTIZED COST) (NOTE 2A) 1,712,181
----------------------------------------------------------- ----------
LONG-TERM MUNICIPAL SECURITIES--57.8%
- -------------------------------------------------------------------------
ALASKA--5.2%
-----------------------------------------------------------
300,000 Alaska Municipal Bond Bank Authority, 4.20%, 6/1/96 A 300,375
-----------------------------------------------------------
300,000 Fairbanks North Star Boro, AK, 4.00% (MBIA Insured), 3/1/96 AAA 301,125
----------------------------------------------------------- ----------
Total 601,500
----------------------------------------------------------- ----------
ARIZONA--8.6%
-----------------------------------------------------------
350,000 Maricopa County, AZ, School District No. 41, 7.50% (Series
B)/ (FGIC Insured), 7/1/95 Prerefunded 7/1/94 @ 100.5 AAA 357,098
-----------------------------------------------------------
300,000 Mesa, AZ, 7.125%, UT GO Bonds, 7/1/99 Prerefunded
7/1/94 @ 102 A+ 326,625
-----------------------------------------------------------
300,000 Phoenix, AZ, 6.875%, 7/1/97 Prerefunded 7/1/94 @ 102 AA+ 310,233
----------------------------------------------------------- ----------
Total 993,956
----------------------------------------------------------- ----------
DISTRICT OF COLUMBIA--1.8%
-----------------------------------------------------------
200,000 District of Columbia, 6.40% (Series D)/(BIG Insured),
6/1/95 AAA 207,000
----------------------------------------------------------- ----------
FLORIDA--2.6%
-----------------------------------------------------------
300,000 Polk County, FL, School Board, 4.20%, Certificates of
Participation (Series A)/(FSA Insured), 1/1/97 AAA 300,750
----------------------------------------------------------- ----------
</TABLE>
MARSHALL SHORT-TERM TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ----------------------------------------------------------- -------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------
ILLINOIS--2.6%
-----------------------------------------------------------
$300,000 Winnebago & Boone Counties, IL, School District, 4.20%
(FGIC Insured), 2/1/96 AAA $ 302,625
----------------------------------------------------------- ----------
MAINE--2.2%
-----------------------------------------------------------
250,000 Maine Municipal Bond Bank, 5.00% (Series B), 11/1/96 AA 255,938
----------------------------------------------------------- ----------
MARYLAND--4.7%
-----------------------------------------------------------
500,000 Maryland State Department of Transportation, 6.60%, Revenue
Bonds, 11/15/97 AA 541,460
----------------------------------------------------------- ----------
MINNESOTA--2.6%
-----------------------------------------------------------
300,000 Minneapolis, MN, Refunding, 3.20% (Series B), 3/1/95 AAA 299,625
----------------------------------------------------------- ----------
NEW JERSEY--2.6%
-----------------------------------------------------------
300,000 New Jersey State Housing & Mortgage Finance, 3.40%
(Series 1993 B-1), 4/1/2024 Mandatory Put 3/29/95 VMG1 299,250
----------------------------------------------------------- ----------
TENNESSEE--4.7%
-----------------------------------------------------------
500,000 Metropolitan Govt. Nashville & Davidson County, TN, 7.00%,
UT GO Bonds, 6/15/97 AA 541,365
----------------------------------------------------------- ----------
TEXAS--8.8%
-----------------------------------------------------------
200,000 Garland, TX, Independent School District, 7.40% (Series
1986), 2/15/2001 Prerefunded 2/15/96 @ 100 AAA 213,500
-----------------------------------------------------------
300,000 Plano, TX, 3.40%, Waterworks & Sewer Refunding Revenue
(AMBAC Insured), 5/1/95 AAA 299,250
-----------------------------------------------------------
300,000 Port Houston Authority, TX, 3.20% (Series 1993), 10/1/95 AA 298,875
-----------------------------------------------------------
200,000 San Antonio, TX, 4.30%, Electric & Gas Revenue, 2/1/96 AA 202,500
----------------------------------------------------------- ----------
Total 1,014,125
----------------------------------------------------------- ----------
</TABLE>
MARSHALL SHORT-TERM TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ----------------------------------------------------------- -------- ----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- -------------------------------------------------------------------------
WASHINGTON--9.6%
-----------------------------------------------------------
$300,000 King County, WA School District 210, 4.00%
(FGIC Insured), 12/1/96 AAA $ 300,750
-----------------------------------------------------------
200,000 Marysville, WA, Water & Sewer Revenue, 4.201%
(MBIA Insured), 12/1/96 AAA 201,000
-----------------------------------------------------------
300,000 Vancouver, WA, 3.45%, Water & Sewer Revenue, 6/1/95 A+ 300,750
-----------------------------------------------------------
300,000 Washington State Refunding, 3.85% (Series R), 10/1/96 AA 300,000
----------------------------------------------------------- ----------
Total 1,102,500
----------------------------------------------------------- ----------
WISCONSIN--1.8%
-----------------------------------------------------------
200,000 Wisconsin State Refunding, 4.70% (Series I), 11/1/98 AA 203,500
----------------------------------------------------------- ----------
TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED COST,
$6,677,569) 6,663,594
----------------------------------------------------------- ----------
TOTAL INVESTMENTS (IDENTIFIED COST, $8,902,251) $8,888,276+
----------------------------------------------------------- ----------
</TABLE>
* Please refer to the Appendix to the Combined Statement of Additional
Information for an explanation of the credit ratings.
+ The cost for federal tax purposes amounts to $8,902,251. The net unrealized
depreciation of investments on a federal tax basis amounts to $13,975, which
is comprised of $3,178 appreciation and $17,153 depreciation at February 28,
1994.
Note: The categories of investments are shown as a percentage of net assets
($11,517,000) at
February 28, 1994.
MARSHALL SHORT-TERM TAX-FREE FUND
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
BIG --Bond Investors Guaranty
ETM --Escrowed to Maturity
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
GO --General Obligation
MBIA --Municipal Bond Investors Assurance
UT --Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARSHALL SHORT-TERM TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost, $8,902,251) $ 8,888,276
- ---------------------------------------------------------------------------------
Receivable for capital stock sold 4,225,000
- ---------------------------------------------------------------------------------
Interest receivable 114,100
- --------------------------------------------------------------------------------- -----------
Total assets 13,227,376
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable for investments purchased $1,708,627
- --------------------------------------------------------------------
Due to bank 152
- --------------------------------------------------------------------
Accrued expenses 1,597
- -------------------------------------------------------------------- ----------
Total liabilities 1,710,376
- --------------------------------------------------------------------------------- -----------
NET ASSETS for 1,153,093 shares of capital stock outstanding $11,517,000
- --------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $11,530,975
- ---------------------------------------------------------------------------------
Unrealized depreciation of investments (13,975)
- --------------------------------------------------------------------------------- -----------
Total Net Assets $11,517,000
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price and Redemption Price Per Share:
($11,517,000 / 1,153,093 shares of capital stock outstanding) $9.99
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARSHALL SHORT-TERM TAX-FREE FUND
STATEMENT OF OPERATIONS
PERIOD ENDED FEBRUARY 28, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest income (Note 2B) $ 11,564
- ------------------------------------------------------------------------------------- --------
EXPENSES--
- -------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 1,978
- --------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 377
- --------------------------------------------------------------------------
Custodian fees (Note 5) 79
- --------------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 249
- --------------------------------------------------------------------------
Legal fees 132
- --------------------------------------------------------------------------
Shareholder services fees (Note 5) 59
- --------------------------------------------------------------------------
Recordkeeping fee (Note 5) 669
- --------------------------------------------------------------------------
Printing and postage 222
- --------------------------------------------------------------------------
Taxes 31
- --------------------------------------------------------------------------
Miscellaneous 209
- -------------------------------------------------------------------------- -------
Total expenses 4,005
- --------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $1,978
- -----------------------------------------------------------------
Waiver of custodian fees (Note 5) 49 2,027
- ----------------------------------------------------------------- ------ -------
Net expenses 1,978
- ------------------------------------------------------------------------------------- --------
Net investment income 9,586
- ------------------------------------------------------------------------------------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (13,975)
- ------------------------------------------------------------------------------------- --------
Net realized and unrealized loss on investments (13,975)
- ------------------------------------------------------------------------------------- --------
Change in net assets resulting from operations $ (4,389)
- ------------------------------------------------------------------------------------- --------
</TABLE>
* For the period from February 1, 1994 (date of initial public investment) to
February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
MARSHALL SHORT-TERM TAX-FREE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
1994*
--------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 9,586
- ---------------------------------------------------------------------------
Net change in unrealized (depreciation) on investments (13,975)
- --------------------------------------------------------------------------- -------------
Change in net assets resulting from operations (4,389)
- --------------------------------------------------------------------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income (9,586)
- --------------------------------------------------------------------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 4)--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 11,574,090
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive
payment of dividends in capital stock 9,585
- ---------------------------------------------------------------------------
Cost of shares redeemed (52,700)
- --------------------------------------------------------------------------- -------------
Change in net assets from capital stock transactions 11,530,975
- --------------------------------------------------------------------------- -------------
Change in net assets 11,517,000
- ---------------------------------------------------------------------------
NET ASSETS--
- ---------------------------------------------------------------------------
Beginning of period --
- --------------------------------------------------------------------------- -------------
End of period $ 11,517,000
- --------------------------------------------------------------------------- -------------
</TABLE>
* For the period from February 1, 1994 (date of initial public investment) to
February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
MARSHALL INTERMEDIATE TAX-FREE FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
SHARES OR RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
MUTUAL FUND SHARES--8.4%
- ------------------------------------------------------------------------
750,000 Federated Tax-Free Trust AAA $ 750,000
----------------------------------------------------------
913,164 Fidelity Tax Exempt Money Market Fund AAA 913,164
---------------------------------------------------------- -----------
TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) (NOTE 2A) 1,663,164
---------------------------------------------------------- -----------
SHORT-TERM MUNICIPAL SECURITIES--30.1%
- ------------------------------------------------------------------------
CALIFORNIA--3.5%
----------------------------------------------------------
$700,000 Irvine Ranch, CA, Water District, 2.25%, 8/1/2016, 1 Day
Optional Put VMG1 700,000
---------------------------------------------------------- -----------
DISTRICT OF COLUMBIA--0.4%
----------------------------------------------------------
75,000 District of Columbia, 6.65% (Series B)/(FSA Insured),
6/1/95 AAA 77,906
---------------------------------------------------------- -----------
FLORIDA--0.8%
----------------------------------------------------------
150,000 Florida State, 5.75%, Certificates of Participation (Cons.
Equip. Fing. Prog.), 5/15/95 A+ 152,812
---------------------------------------------------------- -----------
GEORGIA--2.0%
----------------------------------------------------------
400,000 Georgia State, 3.10% Refunding Revenue Bonds (Series E),
7/1/95 AAA 399,500
---------------------------------------------------------- -----------
ILLINOIS--0.5%
----------------------------------------------------------
100,000 Illinois State Sales Tax Revenue, 5.30%, 6/15/96 AAA 102,875
---------------------------------------------------------- -----------
LOUISIANA--0.3%
----------------------------------------------------------
50,000 Louisiana State Recovery District Tax, 7.00% (Sales Tax
Revenue)/(FGIC Insured), 7/1/94 AAA 50,625
---------------------------------------------------------- -----------
MARYLAND--0.3%
----------------------------------------------------------
50,000 Maryland State (Series 2), 6.70%, 7/15/94 AAA 50,687
---------------------------------------------------------- -----------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
MINNESOTA--0.8%
----------------------------------------------------------
$100,000 Minnesota State, 4.20%. 8/1/95 AA+ $101,125
----------------------------------------------------------
60,000 Roseville, MN, 5.10% (Tax Increment), 2/1/95 AA1 61,050
---------------------------------------------------------- -----------
Total 162,175
---------------------------------------------------------- -----------
NEVADA--0.8%
----------------------------------------------------------
150,000 Clark County, NV, 5.20% (AMBAC Insured), 11/1/95 AAA 154,687
---------------------------------------------------------- -----------
NEW YORK--7.6%
----------------------------------------------------------
800,000 Erie County, NY, 2.15%, Water Authority Revenue,
12/1/2016, 1 Day Optional Put VMG1 800,000
----------------------------------------------------------
700,000 New York, NY, 2.25%, 8/15/2022, 1 Day Optional Put VMG1 700,000
---------------------------------------------------------- -----------
Total 1,500,000
---------------------------------------------------------- -----------
PENNSYLVANIA--0.2%
----------------------------------------------------------
45,000 Washington County, PA, Industrial Development, 4.08%
(Hercules Inc. Proj.), 8/9/95, Floating Rate, 1 Day
Optional Put NR 45,000
---------------------------------------------------------- -----------
PUERTO RICO--0.4%
----------------------------------------------------------
75,000 Puerto Rico Commonwealth, 7.00%, Public Improvement
(Series A), 7/1/96 A+ 79,031
---------------------------------------------------------- -----------
TEXAS--7.0%
----------------------------------------------------------
700,000 North Central, TX, 2.30%, Commercial Paper, Health
Facilities Development (MBIA Insured), Due 3/21/94 VMG1 700,000
----------------------------------------------------------
700,000 Port Corpus Christi Authority, TX, 2.35%, Commercial
Paper,
Due 3/21/94 VMG1 700,000
---------------------------------------------------------- -----------
Total 1,400,000
---------------------------------------------------------- -----------
VERMONT--3.5%
----------------------------------------------------------
700,000 Vermont State, 2.25%, Commercial Paper, Due 3/4/94 A1 700,000
---------------------------------------------------------- -----------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
WASHINGTON--1.1%
----------------------------------------------------------
$ 60,000 Washington State, 8.00%, 10/1/95 AA $ 63,900
----------------------------------------------------------
160,000 Washington State, 4.75% Refunding Revenue Bonds
(Series R 92C), 9/1/96 AA 163,400
---------------------------------------------------------- -----------
Total 227,300
---------------------------------------------------------- -----------
WISCONSIN--0.9%
----------------------------------------------------------
170,00 Appleton, WI, Sewer Revenue, 3.95% BAN, 10/1/95
(Callable 7/1/94 @100) MIGI 170,098
---------------------------------------------------------- -----------
TOTAL SHORT--TERM MUNICIPAL SECURITIES,
(AT AMORTIZED COST) (NOTE 2A) 5,972,696
---------------------------------------------------------- -----------
LONG-TERM MUNICIPAL SECURITIES--78.0%
- ------------------------------------------------------------------------
ARIZONA--5.0%
----------------------------------------------------------
400,000 Arizona Educational Loan Marketing Corp., 6.55%
(Series 1992A), 3/1/99 A 423,500
----------------------------------------------------------
500,000 Maricopa County, AZ, School District, 6.75% (District No.
48 Scottsdale Improvement), 7/1/2010 Prerefunded
7/1/2001 @ 101 AA 566,250
---------------------------------------------------------- -----------
Total 989,750
---------------------------------------------------------- -----------
ALASKA--0.3%
----------------------------------------------------------
50,000 North Slope Boro, AK, 7.50% (Series C)/(AMBAC Insured),
6/30/97 AAA 55,312
---------------------------------------------------------- -----------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
CALIFORNIA--2.3%
----------------------------------------------------------
$ 75,000 Arroyo Grande, CA, 10.375%, Certificates of Participation
(Series A), 11/1/2000 ETM, Subj. to Mandatory Sinking Fund
11/1/95 AAA $ 92,156
----------------------------------------------------------
105,000 Corona, CA, 10.375%, Certificates of Participation (Series
B), 11/1/2000 ETM, Subj. to Sinking Fund 11/1/95 AAA 129,019
----------------------------------------------------------
225,000 Orange County, CA, LOC Transportation, 5.60% (First SR
Measure M), 2/15/2002 AA 235,969
---------------------------------------------------------- -----------
Total 457,144
---------------------------------------------------------- -----------
COLORADO--3.2%
----------------------------------------------------------
125,000 Denver, CO, City & County, 5.10% (Series D), 8/1/99 AA 129,062
----------------------------------------------------------
250,000 Jefferson County, CO, School District, 4.10% (Series A),
12/15/99 AA 244,687
----------------------------------------------------------
250,000 Thornton, CO, 5.65% (FGIC Insured), 12/1/2003 (Callable
12/1/2002 @ 101) AAA 269,062
---------------------------------------------------------- -----------
Total 642,811
---------------------------------------------------------- -----------
CONNECTICUT--6.4%
----------------------------------------------------------
750,000 Connecticut State, 5.80% (Series B), 11/15/99 AA 798,750
----------------------------------------------------------
150,000 Connecticut State, 6.00% (Series B), 11/15/2001 AA 162,375
----------------------------------------------------------
300,000 South Central, CT Regional Water Authority, 5.40%
(Water System)/(FGIC Insured), 8/1/2002 AAA 313,500
---------------------------------------------------------- -----------
Total 1,274,625
---------------------------------------------------------- -----------
DELAWARE--0.3%
----------------------------------------------------------
50,000 Delaware State, 6.85%, 5/1/2000 AA+ 55,750
---------------------------------------------------------- -----------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
DISTRICT OF COLUMBIA--2.4%
----------------------------------------------------------
$200,000 District of Columbia, 7.75%, 6/1/2004 Prerefunded 6/1/96
@ 102 A- $ 220,250
----------------------------------------------------------
175,000 District of Columbia, 7.00% (BIG Insured), 6/1/98,
(Callable 6/1/96 @ 102) AAA 187,687
----------------------------------------------------------
75,000 District of Columbia, 7.70% Refunding Revenue Bonds
(Series A)/(BIG Insured), 6/1/98 (Callable 6/1/96 @ 102) AAA 81,562
---------------------------------------------------------- -----------
Total 489,499
---------------------------------------------------------- -----------
GEORGIA--2.2%
----------------------------------------------------------
450,000 Georgia State, Refunding, 4.50% (Series E), 7/1/2002 AAA 441,000
---------------------------------------------------------- -----------
HAWAII--3.9%
----------------------------------------------------------
750,000 Hawaii State, 5.25% (Series BZ), 10/1/2000 AA 780,000
---------------------------------------------------------- -----------
ILLINOIS--3.1%
----------------------------------------------------------
250,000 Chicago, IL, Met. Wtr. Rclmtn., 5.10%, 12/1/2003 AA 250,625
----------------------------------------------------------
65,000 Illinois Development Financing Authority, 5.35%, 9/1/2000
(Callable 6/1/95 @ 102) NR 67,194
----------------------------------------------------------
300,000 Illinois State Toll Highway Priority, 4.75%, 1/1/2003 A 294,375
---------------------------------------------------------- -----------
Total 612,194
---------------------------------------------------------- -----------
KANSAS--0.3%
----------------------------------------------------------
50,000 Kansas State Department of Highway Transportation, 5.40%
(Series A), 9/1/2002 AA 52,375
---------------------------------------------------------- -----------
LOUISIANA--0.3%
----------------------------------------------------------
50,000 Louisiana Public Facility Revenue Authority, 7.30%,
12/1/2015, Mandatory Put: 6/1/97 @ 100 AA3 53,187
---------------------------------------------------------- -----------
MAINE--0.4%
----------------------------------------------------------
75,000 Maine Municipal Bond Bank, 7.10% (Series B), 11/1/99 AA 83,719
---------------------------------------------------------- -----------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
MARYLAND--3.1%
----------------------------------------------------------
$250,000 Maryland State, 4.90% (State & Local Loan Facilities
Second Series), 10/15/2003 AAA $ 251,562
----------------------------------------------------------
375,000 Maryland State Department of Transportation Cons., 4.20%
(Series 1993 Second Issue), 12/15/2001 AA 362,344
---------------------------------------------------------- -----------
Total 613,906
---------------------------------------------------------- -----------
MASSACHUSETTS--0.5%
----------------------------------------------------------
50,000 Massachusetts State, 7.10% (Cons. Ln. Series A)/
(MBIA Insured), 2/1/97 AAA 54,000
----------------------------------------------------------
50,000 Massachusetts State, 7.10% (Series A)/(FGIC Insured),
2/1/98 AAA 54,875
---------------------------------------------------------- -----------
Total 108,875
---------------------------------------------------------- -----------
MICHIGAN--2.5%
----------------------------------------------------------
500,000 Michigan State Building Revenue Authority, 4.50%
(Series I)/(AMBAC Insured), 10/1/2001 AAA 491,250
---------------------------------------------------------- -----------
NEVADA--4.9%
----------------------------------------------------------
200,000 Clark County, NV Highway Improvement Revenue, 5.625%
(Motor Vehicle Fuel Tax)/(AMBAC Insured), 7/1/2002 AAA 210,500
----------------------------------------------------------
Clark County, NV, School District, 5.00% (FGIC Insured),
5/1/2001 AAA 762,187
---------------------------------------------------------- -----------
Total 972,687
---------------------------------------------------------- -----------
NEW JERSEY--7.0%
----------------------------------------------------------
150,000 Burlington County, NJ, 4.50% Refunding Revenue Bonds
(Series A), 3/15/2002 AA 147,375
----------------------------------------------------------
200,000 Burlington County, NJ, 4.60% Refunding Revenue Bonds
(Series A), 3/15/2003 AA 196,000
----------------------------------------------------------
Hudson County, NJ, 7.60%, Certificates of Participation
(Correctional Facility), 12/1/2021 Prerefunded 12/1/98 @
102 AAA 601,250
----------------------------------------------------------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
$250,000 New Jersey State, 6.25%, 9/15/2000 AA+ $ 272,812
----------------------------------------------------------
165,000 New Jersey State, 5.40% (Series D), 2/15/2003 AA+ 171,806
---------------------------------------------------------- -----------
Total 1,389,243
---------------------------------------------------------- -----------
NORTH CAROLINA--7.7%
----------------------------------------------------------
750,000 North Carolina Eastern Municipal Power Authority, 7.40%
(Series A)/DTD 3/1/86), 1/1/99 (Callable 11/1/96 @ 103) A- 815,625
----------------------------------------------------------
300,000 North Carolina Eastern Municipal Power Authority, 5.25%
(Revenue Refunding Series C)/(FSA Insured), 1/1/2004 AAA 306,375
----------------------------------------------------------
350,000 North Carolina Municipal Power Authority, 7.875%
(No. 1 Catawaba Electric Revenue Refunding), 1/1/2019
Prerefunded 1/1/98 @ 102 AAA 400,750
---------------------------------------------------------- -----------
Total 1,522,750
---------------------------------------------------------- -----------
PENNSYLVANIA--2.1%
----------------------------------------------------------
350,000 Pennsylvania State Turnpike Commission, 7.50%, Turnpike
Revenue (Series K), 12/1/2019 Prerefunded 12/1/99 @ 102 AAA 407,750
---------------------------------------------------------- -----------
PUERTO RICO--3.9%
----------------------------------------------------------
350,000 Puerto Rico Public Building Authority, 7.875% (DTD 6/15/87
Series H), 7/1/2007 Prerefunded 7/1/97 @ 102 AAA 399,000
----------------------------------------------------------
250,000 Puerto Rico Public Building Authority, 6.10% Refunding
Revenue Bonds (Series K), 7/1/2002 (FGIC Insured) AAA 272,500
----------------------------------------------------------
100,000 Puerto Rico Public Building Authority, 6.90% Refunding
Revenue Bonds (Series I)/(FGIC Insured), 7/1/2000 AAA 112,625
---------------------------------------------------------- -----------
Total 784,125
---------------------------------------------------------- -----------
TEXAS--7.2%
----------------------------------------------------------
200,000 Austin, TX, Utilities System Revenue, 7.30% (Series
A)/(FGIC Insured), 11/15/97 AAA 220,500
----------------------------------------------------------
100,000 Dallas/Ft. Worth, TX, Regional Airport, 5.875% (Long Opt.
Period)/(Series A CR 104), 11/1/2006 Optional Put 5/1/98
@ 100 AAA 104,510
----------------------------------------------------------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
TEXAS--CONTINUED
----------------------------------------------------------
$700,000 El Paso, TX, Independent School District, 7.50%, 8/15/2000
(PSF Guaranteed) AAA $ 817,250
----------------------------------------------------------
250,000 Houston, TX, Water & Sewer System Revenue, 7.40%,
12/1/2018 Prerefunded 12/1/2000 @ 102 AAA 293,750
---------------------------------------------------------- -----------
Total 1,436,010
---------------------------------------------------------- -----------
VIRGIN ISLANDS--0.7%
----------------------------------------------------------
125,000 Virgin Islands Public Finance Authority, 7.30% (Revenue
Series A), 10/1/2018 Prerefunded 10/1/2000 @ 101 AAA 146,094
---------------------------------------------------------- -----------
WASHINGTON--1.1%
----------------------------------------------------------
50,000 Spokane, WA, 6.70% (UT), 1/1/99 (Callable 1/1/98 @ 100) AA 53,625
----------------------------------------------------------
100,000 Washington State Public Power Supply, 7.10% (Series B),
7/1/2000 (Callable 1/1/2000 @ 102) AA 111,375
----------------------------------------------------------
50,000 Washington State Public Power Supply, 7.00% Refunding
Revenue Bonds (Series B)/(FGIC Insured), 7/1/99 AAA 55,687
---------------------------------------------------------- -----------
Total 220,687
---------------------------------------------------------- -----------
WEST VIRGINIA--0.3%
----------------------------------------------------------
50,000 Monongalia County, WV, Education Board, 6.80%
(MBIA Insured), 4/1/99 AAA 55,250
---------------------------------------------------------- -----------
WISCONSIN--6.9%
----------------------------------------------------------
250,000 Wisconsin State, 5.30% (Series I), 11/1/2003 AA 257,187
----------------------------------------------------------
225,000 Wisconsin State, 6.00%, 5/1/2002 AA 242,719
----------------------------------------------------------
50,000 Wisconsin State Health & Education Authority, 7.20%
(Authority Revenue)/(FGIC Insured), 8/1/97 AAA 54,562
----------------------------------------------------------
</TABLE>
MARSHALL INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ---------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
- ------------------------------------------------------------------------
WISCONSIN--CONTINUED
----------------------------------------------------------
$ 50,000 Wisconsin State Health & Education Authority, 7.20%, Com-
munity Provider Program (Series A)/(CGIC Insured),
1/15/2001 (Callable 1/15/99 @ 102) AAA $ 55,562
----------------------------------------------------------
750,000 Wisconsin State Transportation Revenue, 5.00%,
Transportation Revenue (Series B), 7/1/2000 A1 764,062
---------------------------------------------------------- -----------
Total 1,374,092
---------------------------------------------------------- -----------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST, $15,745,327) $15,510,085
---------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $23,381,187) $23,145,945+
---------------------------------------------------------- -----------
</TABLE>
* Please refer to the Appendix to the Combined Statement of Additional
Information for an explanation of the credit ratings.
+ The cost for federal tax purposes amounts to $23,381,187. The net unrealized
depreciation of investments on a federal tax basis amounts to $235,242, which
is comprised of $6,083 appreciation and $241,325 depreciation at February 28,
1994.
Note: The categories of investments are shown as a percentage of net assets
($19,861,413) at February 28, 1994.
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMBAC --American Municipal Bond Assurance Corporation
BAN --Bond Anticipation Note
BIG --Bond Investors Guaranty
CGIC --Capital Guaranty Insurance Corporation
ETM --Escrowed to Maturity
FGIC --Financial Guaranty Insurance Company
FSA --Financial Security Assurance
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
NR --Not Rated
PSF --Permanent School Fund
UT --Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARSHALL INTERMEDIATE TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in securities, at value (Note 2A)
(identified and tax cost; $23,381,187) $23,145,945
- ---------------------------------------------------------------------------------
Receivable for investments sold 800,000
- ---------------------------------------------------------------------------------
Interest receivable 261,407
- ---------------------------------------------------------------------------------
Receivable for capital stock sold 215,000
- --------------------------------------------------------------------------------- -----------
Total assets 24,422,352
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable for investments purchased $4,554,073
- --------------------------------------------------------------------
Income distribution payable 1,371
- --------------------------------------------------------------------
Accrued expenses 5,495
- -------------------------------------------------------------------- ----------
Total liabilities 4,560,939
- --------------------------------------------------------------------------------- -----------
NET ASSETS for 2,011,354 shares of capital stock outstanding $19,861,413
- --------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid-in capital $20,098,674
- ---------------------------------------------------------------------------------
Unrealized depreciation of investments (235,242)
- ---------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,019)
- --------------------------------------------------------------------------------- -----------
Total Net Assets $19,861,413
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price and Redemption Price Per Share:
($19,861,413 / 2,011,354 shares of capital stock outstanding) $9.87
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MARSHALL INTERMEDIATE TAX-FREE FUND
STATEMENT OF OPERATIONS
PERIOD ENDED FEBRUARY 28, 1994*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income (Note 2B) $ 40,951
- ------------------------------------------------------------------------------------
EXPENSES--
- ------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 6,546
- -------------------------------------------------------------------------
Directors' fees 37
- -------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 1,038
- -------------------------------------------------------------------------
Custodian fees (Note 5) 218
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 5) 694
- -------------------------------------------------------------------------
Legal fees 368
- -------------------------------------------------------------------------
Shareholder services fees (Note 5) 164
- -------------------------------------------------------------------------
Recordkeeping fee (Note 5) 1,851
- -------------------------------------------------------------------------
Printing and postage 619
- -------------------------------------------------------------------------
Taxes 151
- -------------------------------------------------------------------------
Miscellaneous 669
- ------------------------------------------------------------------------- -------
Total expenses 12,355
- -------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $5,673
- ----------------------------------------------------------------
Waiver of custodian fees (Note 5) 136 5,809
- ---------------------------------------------------------------- ------ -------
Net expenses 6,546
- ------------------------------------------------------------------------------------ ---------
Net investment income 34,405
- ------------------------------------------------------------------------------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------
Net realized loss on investments (identified cost basis) (2,019)
- ------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (235,242)
- ------------------------------------------------------------------------------------ ---------
Net realized and unrealized loss on investments (237,261)
- ------------------------------------------------------------------------------------ ---------
Change in net assets resulting from operations $(202,856)
- ------------------------------------------------------------------------------------ ---------
</TABLE>
* For the period from February 1, 1994 (date of initial public investment) to
February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
MARSHALL INTERMEDIATE TAX-FREE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
1994*
-------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------------
Net investment income $ 34,405
- ----------------------------------------------------------------------------
Net realized loss on investments ($2,019 net loss as computed for federal
tax purposes) (Note 2C) (2,019)
- ----------------------------------------------------------------------------
Change in unrealized depreciation of investments (235,242)
- ---------------------------------------------------------------------------- -------------
Change in net assets from operations (202,856)
- ---------------------------------------------------------------------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- ----------------------------------------------------------------------------
Dividends to shareholders from net investment income (34,405)
- ---------------------------------------------------------------------------- -------------
CAPITAL STOCK TRANSACTIONS (NOTE 4)--
- ----------------------------------------------------------------------------
Proceeds from sale of shares 20,135,305
- ----------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing to receive payment
of dividends in capital stock 33,035
- ----------------------------------------------------------------------------
Cost of shares redeemed (69,666)
- ---------------------------------------------------------------------------- -------------
Change in net assets from capital stock transactions 20,098,674
- ---------------------------------------------------------------------------- -------------
Change in net assets 19,861,413
- ---------------------------------------------------------------------------- -------------
NET ASSETS--
- ----------------------------------------------------------------------------
Beginning of period --
- ---------------------------------------------------------------------------- -------------
End of period $19,861,413
- ---------------------------------------------------------------------------- -------------
</TABLE>
* For the period from February 1, 1994 (date of initial public investment) to
February 28, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS, INC.
TAX-FREE FUNDS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Marshall Funds, Inc. (the "Corporation"), is an open-end, management investment
company established as a Wisconsin corporation under the Articles of
Incorporation on July 31, 1992. The Corporation currently consists of twelve
portfolios. The financial statements included herein are only those of Marshall
Short-Term Tax-Free Fund and Marshall Intermediate Tax-Free Fund (hereinafter
each individually referred to as a "Fund," or collectively as the "Funds"). The
financial statements of Marshall Money Market Fund, Marshall Balanced Fund,
Marshall Equity Income Fund, Marshall Value Equity Fund, Marshall Stock Fund,
Marshall Mid-Cap Stock Fund, Marshall Government Income Fund, Marshall
Intermediate Bond Fund, and Marshall Short-Term Income Fund are presented
separately. As of February 28, 1994, Marshall Tax-Free Money Market Fund was
effective but did not have public investment. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Articles of Incorporation permit shares in any portfolio to
be offered in separate classes.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing service
taking into consideration yield, liquidity, risk, credit, quality, coupon maturity, type
of issue, or any other factors or market data it deems relevant in determining valuations
for normal institutional size trading units of debt securities. The independent pricing
service does not rely exclusively on quoted prices. Debt securities with remaining
maturities of sixty days or less are stated at cost, which approximates value.
Investments in other regulated investment companies are valued at net asset value.
B. INCOME--Interest income is recorded on the accrual basis and includes discount earned
less any premium.
C. FEDERAL TAXES--It is each Fund's policy to continue to comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income, including any net
realized gain on investments. Accordingly, no provision for federal tax is necessary.
</TABLE>
MARSHALL FUNDS, INC.
TAX-FREE FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Funds may engage in when-issued or
delayed delivery transactions. The Funds record when-issued securities and maintain
security positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed delivery
basis are marked to market daily and begin earning interest on the settlement date.
E. DEFERRED EXPENSES--The costs incurred by each Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from each Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
(4) CAPITAL STOCK
The Articles of Incorporation permits the Directors to issue 50 billion full and
fractional shares of common stock (capital stock), par value $0.0001 per share.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE
TAX-FREE TAX-FREE
FUND FUND
PERIOD ENDED PERIOD ENDED
1994* 1994*
- ---------------------------------------------------------- ------------- -------------
<S> <C> <C>
Shares outstanding, beginning of period -- --
- ----------------------------------------------------------
Shares sold 1,157,398 2,014,995
- ----------------------------------------------------------
Shares issued to shareholders electing to receive payment
of dividends in capital stock 960 3,347
- ----------------------------------------------------------
Shares redeemed (5,265) (6,988)
- ---------------------------------------------------------- ------------ ------------
Shares outstanding, end of period 1,153,093 2,011,354
- ---------------------------------------------------------- ------------ ------------
</TABLE>
* For the period from February 1, 1994 (date of initial public investment) to
February 28, 1994.
MARSHALL FUNDS, INC.
TAX-FREE FUNDS
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
M&I Investment Management Corp., the Fund's investment adviser ("Adviser"),
receives for its services an annual investment advisory fee equal to .50 of 1%
of the average daily net assets for Marshall Short-Term Tax-Free Fund and .60 of
1% of the average daily net assets for Marshall Intermediate Tax-Free Fund. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse
certain operating expenses of each Fund.
Federated Administrative Services ("FAS") provides for each Fund certain
administrative personnel and services. The fee is based on the level of average
aggregate net assets for the period. FAS may voluntarily choose to waive a
portion of its fee from each Fund.
Marshall & Ilsley Trust Company is the Funds' custodian. The fee is based on the
level of average net assets for the period plus out-of-pocket expenses. The
custodian may voluntarily choose to waive a portion of its fee from the Funds.
Organizational expenses incurred by Marshall Short-Term Tax-Free Fund and
Marshall Intermediate Tax-Free Fund were borne initially by FAS and are
estimated at $25,000 and $25,000, respectively. The Funds have agreed to
reimburse FAS for the organizational expenses and start-up administrative
expenses initially borne by FAS during the five-year period following December
28, 1993 (date the Funds first became effective). For the period ended February
28, 1994, the Funds paid $417 and $417, respectively, pursuant to this
agreement.
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Funds. The Funds pay fees based on the type, size, number of
accounts and number of transactions made by shareholders.
Federated Services Company also maintains the Funds' accounting records. The fee
is based on the level of average net assets for the period plus out-of-pocket
expenses.
Marshall Funds Investor Services ("MFIS") is the Funds' shareholder servicing
agent. Under the terms of a shareholder service agreement with MFIS, the Funds
will pay MFIS a fee to obtain certain personnel services for shareholders and
the maintenance of shareholder accounts. The fee is based on the level of
average net assets for the period.
Certain Officers and Directors of the Funds are also Officers and Directors or
Trustees of the above companies.
MARSHALL FUNDS, INC.
TAX-FREE FUNDS
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the
period from February 1, 1994 (date of initial public investment) to February 28,
1994 were as follows:
<TABLE>
<CAPTION>
MARSHALL MARSHALL
SHORT-TERM INTERMEDIATE
TAX-FREE TAX-FREE
FUND FUND
- --------------------------------------------------------------- ---------- ------------
<S> <C> <C>
PURCHASES-- $7,309,204 $20,687,560
- --------------------------------------------------------------- --------- -----------
SALES-- $ 0 $ 1,057,713
- --------------------------------------------------------------- --------- -----------
</TABLE>
4030403 (4/94) April 30, 1994
MARSHALL FUNDS, INC.
TAX-FREE FUNDS
COMBINED PROSPECTUS
The shares offered in this prospectus represent interests in the tax-free
portfolios of the Marshall Funds, Inc. (the "Corporation"), an open-end
management investment company (a mutual fund). The Corporation consists of the
following twelve separate investment portfolios, each having a distinct
investment objective and policies:
TAX-FREE FUNDS
- Marshall Short-Term Tax-Free Fund
- Marshall Intermediate Tax-Free Fund
EQUITY FUNDS
- Marshall Balanced Fund
- Marshall Equity Income Fund
- Marshall Value Equity Fund
- Marshall Stock Fund
- Marshall Mid-Cap Stock Fund
INCOME FUNDS
- Marshall Short-Term Income Fund
- Marshall Government Income Fund
- Marshall Intermediate Bond Fund
TAX-FREE FUNDS
- Marshall Money Market Fund
- Investment Shares
- Trust Shares
- Marshall Tax-Free Money Market Fund
This Prospectus relates only to the Tax-Free Funds of the Corporation
(individually referred to as the "Fund" or collectively as the "Funds") and
contains the information you should read and know before you invest in any of
the Funds. Keep this Prospectus for future reference.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, MARSHALL & ILSLEY CORP. OR ANY OF ITS BANKING
SUBSIDIARIES ("M&I CORP."), AND THE SHARES ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
The Funds have also filed a combined Statement of Additional Information dated
January 1, 1994, with the Securities and Exchange Commission. The information
contained in the combined Statement of Additional Information is incorporated by
reference into this Prospectus. You may request a copy of this Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Funds by writing or calling Marshall Funds Investor Services
at 414-287-8500 or 1-800-236-8560, M&I Brokerage Services, Inc. or any M&I Bank.
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 January 1, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES 2
- ------------------------------------------------------
OBJECTIVE OF EACH FUND 3
- ------------------------------------------------------
Short-Term Tax-Free Fund 3
Intermediate Tax-Free Fund 3
PORTFOLIO INVESTMENTS AND STRATEGIES 4
- ------------------------------------------------------
Acceptable Investments 4
Characteristics 4
Municipal Securities 4
Variable Rate Demand Notes 5
Demand Features 5
Participation Interests 5
Municipal Leases 5
When-Issued and Delayed Delivery
Transactions 6
Credit Enhancement 6
Restricted and Illiquid Securities 6
Temporary Investments 6
Investment Risks 7
Investment Limitations 7
MARSHALL FUNDS, INC. INFORMATION 8
- ------------------------------------------------------
Management of Marshall Funds, Inc. 8
Board of Directors 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 9
Distribution of Fund Shares 9
Administrative Arrangements 9
ADMINISTRATION OF THE FUNDS 9
- ------------------------------------------------------
Administrative Services 9
Custodian 10
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 10
Shareholder Servicing Arrangements 10
Legal Counsel 10
Independent Public Accountants 10
Expenses of the Funds 10
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN THE FUNDS 11
- ------------------------------------------------------
Share Purchases 11
Through M&I Trust Companies 11
Through MFIS 11
Through M&I Brokerage Services, Inc. 11
Through Authorized Broker/Dealers 11
By Mail 11
By Wire 12
Minimum Investment Required 12
What Shares Cost 12
Systematic Investment Program 12
Certificates and Confirmations 12
Dividends 13
Capital Gains 13
EXCHANGE PRIVILEGE 13
- ------------------------------------------------------
Exchanging Shares 13
Exchange-by-Telephone 13
REDEEMING SHARES 14
- ------------------------------------------------------
By Mail 14
By Telephone 14
Signatures 15
Redemption Before Purchase 15
Instruments Clear 15
Systematic Withdrawal Program 15
Accounts with Low Balances 16
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights and Common Stock 16
EFFECT OF BANKING LAWS 17
- ------------------------------------------------------
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
The Corporation was incorporated under the laws of the State of Wisconsin on
July 31, 1992. The Articles of Incorporation permit the Corporation to offer
separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
This Prospectus relates only to the shares of the Tax-Free Funds of the
Corporation. Each Tax-Free Fund is designed as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio
investing primarily in high-grade municipal securities, the income from which is
exempt from federal income tax.
As of the date of this Prospectus, shares are offered in the following two
Tax-Free Funds:
- MARSHALL SHORT-TERM TAX-FREE FUND ("Short-Term Fund") -- seeks to provide
current income which is exempt from federal income tax by investing in a
professionally-managed, diversified portfolio of high-grade municipal
securities that generate such income. Under normal circumstances, the
Fund will have a dollar-weighted average portfolio maturity of up to
three years.
- MARSHALL INTERMEDIATE TAX-FREE FUND ("Intermediate Fund") -- seeks to
provide as high a level of income which is exempt from federal income
tax, as is consistent with preservation of capital, by investing in a
professionally-managed, diversified portfolio of high-grade municipal
securities that generate such income. Under normal circumstances, the
Fund will have a dollar-weighted average portfolio maturity of between
three and ten years.
For information on how to purchase shares of either of these Funds, please refer
to "Investing in the Funds." A minimum initial investment of $1,000 is required
for each Fund. Subsequent investments must be in amounts of at least $50. See
"Minimum Investment Required." Shares of the Funds are sold and redeemed at net
asset value without a sales charge. Information on redeeming shares may be found
under "Redeeming Shares." Additionally, information regarding the exchange
privilege offered with respect to the Corporation may be found under "Exchange
Privilege." M&I Investment Management Corp. is the investment adviser to the
Funds.
The Funds may make certain investments and employ certain investment techniques
that involve risks. These risks are described under "Portfolio Investments and
Strategies" and "Investment Risks."
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
SHORT-TERM INTERMEDIATE
FUND FUND
----------- ------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).................................... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................... None None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable).................. None None
Redemption Fee (as a percentage of amount redeemed, if applicable)....... None None
Exchange Fee............................................................. None None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)......................................... 0.% 0.%
12b-1 Fee................................................................ None None
Other Expenses (after waiver)(2)......................................... 0.% 0.%
Total Annual Fund Operating Expenses(3).............................. 0.% 0.%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser may terminate this
voluntary waiver at any time at its sole discretion. The maximum management fee
is 0.50% for the Short-Term Fund and 0.60% for the Intermediate Fund.
(2) Other Expenses are estimated to be 0. % for the Short-Term Fund and
0. % for the Intermediate Fund, absent the anticipated voluntary waivers by
the administrator, custodian, and shareholder servicing agent. The
administrator, custodian, and shareholder servicing agent may terminate these
waivers at any time at their sole discretion.
(3) Total Fund Operating Expenses are estimated to be . % for the
Short-Term Fund and . % for the Intermediate Fund, absent the anticipated
voluntary waivers described above in notes 1 and 2.
* Annual Fund Operating Expenses in this table are estimated based on average
expenses expected to be incurred during the fiscal year ending August 31, 1994.
During the course of this period, expenses may be more or less than the average
amounts shown.
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 "MARSHALL FUNDS, INC. INFORMATION." Wire-transferred redemptions may be
subject to an additional fee.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -------------------------------------------------------------------------------------------------
<S> <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.
Short-Term Fund.................................................................. $ $
Intermediate Fund................................................................ $ $
</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. THE
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING AUGUST 31, 1994.
OBJECTIVE OF EACH FUND
- --------------------------------------------------------------------------------
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Directors ("Directors") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
Additional information about investment limitations, strategies that one or both
of the Funds may employ, and certain investment policies appear in the
"Portfolio Investments and Strategies" section of this Prospectus and in the
Funds' combined Statement of Additional Information.
SHORT-TERM FUND
The investment objective of the Short-Term Fund is to provide current income
which is exempt from federal income tax. The Short-Term Fund pursues this
investment objective by investing in a diversified portfolio of high-grade
municipal securities. As a matter of investment policy which cannot be changed
without shareholder approval, under normal market conditions, at least 80% of
the Short-Term Fund's net assets will be invested in municipal securities, the
income from which is exempt from federal income tax (including the federal
alternative minimum tax). Interest income of the Short-Term Fund that is exempt
from federal income tax retains its tax-free status when distributed to the
Fund's shareholders. Under normal circumstances, the Short-Term Fund will
maintain an average dollar-weighted portfolio maturity of up to three years.
INTERMEDIATE FUND
The investment objective of the Intermediate Fund is to provide as high a level
of income which is exempt from federal income tax, as is consistent with
preservation of capital. The Intermediate Fund pursues its investment objective
by investing in a diversified portfolio of high-grade municipal securities. As a
matter of investment policy which cannot be changed without the approval of
shareholders, under normal market conditions, at least 80% of the Intermediate
Fund's net assets will be invested in municipal securities, the income from
which is exempt from federal income tax (including the federal Alternative
Minimum Tax). Interest income of the Intermediate Fund that is exempt from
federal income tax retains its tax-free status when distributed to the Fund's
shareholders. Under normal circumstances, the Intermediate Fund will maintain an
average dollar-weighted portfolio maturity of between three to ten years.
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
ACCEPTABLE INVESTMENTS. The Funds invest in debt obligations issued by or on
behalf of states, territories and possessions of the United States, including
the District of Columbia, and any political subdivision or financing authority
of any of these, the income from which is, in the opinion of qualified legal
counsel or the Funds' adviser, exempt from federal income tax ("Municipal
Securities") (see below).
CHARACTERISTICS. The Municipal Securities in which the Funds invest are:
- rated within the three highest ratings by one or more nationally
recognized statistical rating organizations ("NRSROs"), such as Aaa, Aa
or A by Moody's Investors Service, Inc. ("Moody's") or AAA, AA or A by
Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch");
- guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
- fully collateralized by an escrow of U.S. government securities or other
securities acceptable to the Funds' adviser;
- rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial
paper rating (P-1) or S&P's highest municipal commercial paper rating
(SP-1) or Fitch's highest short-term municipal obligations rating (FIN-1+
or FIN-1) or the highest rating by another NRSRO;
- unrated if, at the time of purchase, other municipal securities of that
issuer are rated A or better by Moody's, S&P, or Fitch or another NRSRO;
or
- unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Funds' adviser.
A description of the ratings categories is contained in the Appendix to the
combined Statement of Additional Information. Downgrades will be evaluated on a
case-by-case basis by the Funds' adviser. The adviser will determine whether or
not the security continues to be an acceptable investment. If not, the security
will be sold.
MUNICIPAL SECURITIES. Municipal Securities are generally issued to finance
public works such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
Diversification of the Funds' investments is obtained geographically by
purchasing issues representative of various areas of the U.S. and general
obligations of states, cities and school districts as well as some revenue
issues which meet the Funds' acceptable quality criteria.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term Municipal
Securities that have variable or floating interest rates and provide a Fund with
the right to tender the security for repurchase at its stated principal amount
plus accrued interest. Such securities typically bear interest at a rate that is
intended to cause the securities to trade at par. The interest rate may float or
be adjusted at regular intervals (ranging from daily to annually), and is
normally based on a municipal interest index or a stated percentage of a prime
rate or another published rate. Most variable rate demand notes allow a Fund to
demand the repurchase of the security on not more than seven days' prior notice.
Other notes only permit a Fund to tender the security at the time of each
interest rate adjustment or at other fixed intervals.
DEMAND FEATURES. The Funds may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by a Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Funds use these arrangements to provide the Funds with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
PARTICIPATION INTERESTS. The Funds may purchase interests in Municipal
Securities from financial institutions such as commercial and investment banks,
savings and loan associations and insurance companies. These interests may take
the form of participations, beneficial interests in a trust, partnership
interests or any other form of indirect ownership that allows the Funds to treat
the income from the investment as exempt from federal income tax. The financial
institutions from which the Funds purchase participation interests frequently
provide or obtain irrevocable letters of credit or guarantees to attempt to
assure that the participation interests are of acceptable quality. The Funds
invest in these participation interests in order to obtain credit enhancement or
demand features that would not be available through direct ownership of the
underlying Municipal Securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract, or a
participation interest in any of the above.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase portfolio
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time, thereby involving a risk that the yield obtained
from the investment will be less than that available in the market when delivery
takes place. A Fund may engage in when-issued and delayed delivery transactions
for the purpose of acquiring portfolio securities consistent with such Fund's
investment objective and policies. These transactions are made to secure what is
considered to be an advantageous price or yield for the Fund. Settlement days
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
CREDIT ENHANCEMENT. Certain of a Fund's acceptable investments may have been
credit enhanced by a guaranty, letter of credit or insurance. The Funds
typically evaluate the credit quality and ratings of credit enhanced securities
based upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. However, credit
enhanced securities will not be treated as having been issued by the credit
enhancer for diversification purposes, unless the Fund has invested more than
10% of its assets in securities issued, guaranteed or otherwise credit enhanced
by the credit enhancer, in which case the securities will be treated as having
been issued both by the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest up to 10% of their respective total assets in restricted
securities. Restricted securities are any securities in which the Funds may
otherwise invest pursuant to their investment objective and policies but which
are subject to restriction on resale under federal securities law. However, the
Funds will limit investments in illiquid securities (including certain
restricted securities not determined by the Directors to be liquid and
repurchase agreements providing for settlement in more than seven days after
notice).
TEMPORARY INVESTMENTS. From time to time, during periods of other than normal
market conditions, the Funds may invest in short-term temporary investments, the
income from which may or may not be exempt from federal income tax. These
temporary investment include: obligations issued by or on behalf of municipal or
corporate issuers having the same quality characteristics as municipal
securities purchased by the Fund; obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; instruments (including bankers'
acceptances, certificates of deposit, Euro Certificates of Deposit, Yankee
Certificates of Deposit and Euro Time Deposits) issued by banks or other
depository institutions which have capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment and if their deposits are
insured by the Bank Insurance Fund or Savings Association Insurance Fund (which
are administered by the Federal Deposit Insurance Corporation ("FDIC"));
repurchase agreements (arrangements in which the organization is selling the
Fund a temporary investment and agrees at the time of sale to repurchase it at a
mutually agreed upon time and price); money market mutual funds; commercial
paper rated at least A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch; and other
highest-quality short-term credit instruments.
The Fund's investments in other investment companies are subject to the
limitations under the Investment Company Act of 1940, as detailed in the
Statement of Additional Information. In order to
comply with certain state restrictions, the Funds will limit their investments
in securities of other investment companies to those with sales loads of less
than 1.00% of the offering price of such securities. While it is a policy for
the adviser to waive its investment advisory fee on Fund assets invested in
securities of other open-end investment companies, it should be noted that
investment companies incur certain expenses such as custodian and transfer
agency fees, and therefore any investment by the Funds in shares of another
investment company would be subject to such duplicate expenses.
In addition, each of the Funds reserve the right to purchase, sell or write
options on securities that are permissible investments, purchase, sell or write
futures contracts, and purchase, sell or write options on futures contracts in
order to generate income or to hedge all or a portion of its portfolio against
changes in stock prices.
Each Fund may purchase Municipal Securities, the interest from which is subject
to the federal alternative minimum tax, in an amount not to exceed 20% of the
net assets of the Fund.
Although each Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal income tax.
INVESTMENT RISKS
Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Funds to achieve
their investment objectives also depends on the continuing ability of the
issuers of Municipal Securities and demand features, or the credit enhancers of
either, to meet their obligations for the payment of interest and principal when
due.
In the debt market, prices move inversely to interest rates. A decline in market
interest rates results in a rise in the market prices of outstanding debt
obligations. Conversely, an increase in market interest rates results in a
decline in market prices of outstanding debt obligations. In either case, the
amount of change in market prices of debt obligations in response to changes in
market interest rates generally depends on the maturity of the debt obligations:
the debt obligations with the longest maturities will experience the greatest
market price changes.
The market value of debt obligations, and therefore each Fund's net asset value,
will fluctuate due to changes in economic conditions and other market factors
such as interest rates which are beyond the control of the Funds' investment
adviser. The Funds' investment adviser could be incorrect in its expectations
about the direction or extent of these market factors. Although debt obligations
with longer maturities offer potentially greater returns, they have greater
exposure to market price fluctuation. Consequently, to the extent a Fund is
significantly invested in debt obligations with longer maturities, there is a
greater possibility of fluctuation in the Fund's net asset value.
INVESTMENT LIMITATIONS
The Funds will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Funds sell a portfolio instrument for a
percentage of its cash value with an agreement to buy it
back on a set date) or pledge securities except, under certain
circumstances, the Funds may borrow up to one-third of the value of their
respective total assets and pledge up to 15% of the value of those assets
to secure such borrowings;
- with respect to 75% of the value of their respective total assets, invest
more than 5% in securities of any one issuer other than cash, cash items,
or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements
collateralized by such securities, or acquire more than 10% of the voting
securities of any one issuer; or
- invest 25% or more of the value of their respective total assets in any
one industry, except for temporary defensive purposes, each Fund may
invest 25% or more of its total assets in cash, cash items, U.S.
government securities, and repurchase agreements collateralized by such
securities; and in addition, each Fund may invest more than 25% of the
value of its total assets in obligations issued by any state, territory
or possession of the United States, the District of Columbia or any of
their authorities, agencies or instrumentalities or political
subdivisions.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Funds will not:
- invest more than 15% of the value of their respective net assets in
illiquid securities, including repurchase agreements providing for
settlement more than seven days after notice, and certain securities not
determined by the Directors to be liquid.
MARSHALL FUNDS, INC. INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF MARSHALL FUNDS, INC.
BOARD OF DIRECTORS. The Board of Directors is responsible for managing the
business affairs of the Corporation and for exercising all the powers of the
Corporation, except those reserved for the shareholders.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Corporation, investment decisions for the Funds are made by M&I Investment
Management Corp., the Funds' investment adviser (the "Adviser"), subject to
direction by the Directors. The Adviser continually conducts investment research
and supervision for each Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the assets of
each Fund.
ADVISORY FEES. The Adviser is entitled to receive an annual investment advisory
fee equal to 0.50 of 1% of the average daily net assets of the Short-Term Fund
and 0.60 of 1% of the average daily net assets of the Intermediate Fund. The
investment advisory contract allows the voluntary waiver in whole or in part of
the investment advisory fees or the reimbursement of expenses by the Adviser
from time to time. The Adviser can terminate any voluntary waiver of its fees or
reimbursement of expenses at any time in its sole discretion.
Investment decisions for the Funds will be made independently from those of any
fiduciary or other accounts that may be managed by the Adviser or its
affiliates. If, however, such accounts, a Fund, or the Adviser for its own
account are simultaneously engaged in transactions involving the same
securities, the transactions may be combined and allocated to each account. This
system may adversely affect the price a Fund pays or receives, or the size of
the position it obtains.
ADVISER'S BACKGROUND. M&I Investment Management Corp. is a wholly-owned
subsidiary of Marshall & Ilsley Corp., a registered bank holding company
headquartered in Milwaukee, Wisconsin. As of December 31, 1992, M&I Investment
Management Corp. had approximately $5.4 billion in assets under management and
has managed investments for individuals and institutions since its inception in
1973.
The Funds' portfolio manager is John D. Boritzke, who is a Vice President for
M&I Investment Management Corp. responsible for tax-exempt fixed income
portfolio management. He joined M&I Investment Management Corp. in November
1983. Since 1985, he has been managing tax-exempt fixed income portfolios. In
addition, he has managed the M&I Municipal Bond Fund since 1985 and continues to
manage the M&I Arizona Municipal Bond Fund, which he has managed since its
inception in 1989. Both of these funds are common trust funds of Marshall &
Ilsley Trust Company. Mr. Boritzke has been a member of M&I Investment
Management Corp.'s Fixed Income Policy Group since 1985. He is a Chartered
Financial Analyst and holds M.B.A. and B.S. degrees from Marquette University.
DISTRIBUTION OF FUND SHARES
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.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include distributing prospectuses and other
information, providing account assistance, and communicating or facilitating
purchases and redemptions of the Funds' shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
held during the period for which the brokers, dealers, and administrators
provide services. Any fees paid for these services by the distributor will be
reimbursed by the Adviser and not the Funds.
ADMINISTRATION OF THE FUNDS
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds. Such services include certain
shareholder servicing, legal and accounting services. Federated Administrative
Services provides these services at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE CORPORATION
- ------------------ ------------------------------------
<C> <S>
.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 $50,000
per Fund. Federated Administrative Services may choose voluntarily to reimburse
a portion of its fee at any time.
CUSTODIAN. Marshall & Ilsley Trust Company ("M&I Trust Company"), Milwaukee,
Wisconsin, a subsidiary of Marshall & Ilsley Corp., is custodian for the
securities and cash of the Funds. Under the Custodian Agreement, M&I Trust
Company holds the Funds' portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties. Any fee that would be
charged will be reflected in the "Summary of Fund Expenses."
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent for shares of the Funds and dividend disbursing
agent for the Funds. It also provides certain accounting and recordkeeping
services with respect to the Funds' portfolio investments.
SHAREHOLDER SERVICING ARRANGEMENTS. Marshall Funds Investor Services ("MFIS"),
Milwaukee, Wisconsin, is the shareholder servicing agent for the Funds. As such,
MFIS provides shareholder services which include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance, and communicating or facilitating purchases and redemptions of
shares. Each Fund may pay MFIS a fee equal to 0.015 of 1% of the average daily
net asset value of Fund shares for which MFIS provides shareholder services.
MFIS may choose voluntarily to waive all or a portion of its fee at any time.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the Funds
are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
EXPENSES OF THE FUNDS
Each Fund pays all of its own expenses and its allocable share of the
Corporation's expenses. These expenses include, but are not limited to, the cost
of: organizing the Corporation and continuing its existence; Directors' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Corporation, the Funds, and
shares of each Fund with federal and state securities authorities; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing, mailing, auditing, and certain accounting and
legal expenses; reports to shareholders; meetings of Directors and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such non-recurring and extraordinary items as may arise. However, the
Adviser may voluntarily reimburse some expenses and, in addition,
has undertaken to reimburse each Fund up to the amount of its advisory fee, the
amount by which operating expenses exceed limitations imposed by certain states.
NET ASSET VALUE
- --------------------------------------------------------------------------------
Each Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Funds are sold on days on which the New York Stock Exchange is
open for business. Shares of the Funds may be purchased through M&I Trust
Company, M&I Marshall & Ilsley Trust Company of Arizona, Marshall & Ilsley Trust
Company of Florida (the above-mentioned companies will be referred to as "M&I
Trust Companies"), MFIS, M&I Brokerage Services, Inc. and authorized
broker/dealers. Purchase orders must be received by the respective Fund by 3:00
p.m. (Central time) in order for shares to be purchased at that day's public
offering price. In connection with the sale of shares of a Fund, the distributor
may from time to time offer certain items of nominal value to any shareholder or
investor.
Each Fund reserves the right to reject any purchase request. Texas residents
must purchase shares through Federated Securities Corp. at 1-800-618-8573.
THROUGH M&I TRUST COMPANIES. Trust customers should contact their account
officer in order to make purchase requests.
THROUGH MFIS. An investor may contact MFIS at 1-800-236-8554 in order to
purchase shares of a Fund.
THROUGH M&I BROKERAGE SERVICES, INC. An investor may purchase shares of a Fund
through any M&I Bank employing a representative of M&I Brokerage Services, Inc.
("M&I Brokerage Services").
THROUGH AUTHORIZED BROKER/DEALERS. An investor may place an order through
authorized brokers and dealers to purchase shares of a Fund.
Payment for orders may be made:
BY MAIL. To purchase shares of a Fund by mail, send a check made payable to the
Fund (identify the appropriate Fund) to Marshall Funds Investor Services, P.O.
Box 1348, Milwaukee, Wisconsin 53201-1348. Orders received by mail should be
accompanied by an account application. If a check for the purchase of shares
does not clear, the purchase will be canceled and the investor will be charged a
$15 fee.
Orders by mail are considered received after payment by check is converted by
MFIS into federal funds. This is generally the next business day after MFIS
receives the check.
BY WIRE. To purchase shares by wire, wire funds as follows:
M&I Marshall & Ilsley Bank
ABA Number 075000051
Credit: Boston Financial Data Services Deposit
Account Number 27480
Further credit to: (Identify the appropriate Fund)
Re: (Shareholder name and account number)
Following the wire transfer, you must complete an account application and mail
it to the respective Fund. Your bank may charge a fee for wiring funds.
Wire orders will only be accepted on days on which the Funds, M&I Bank, and the
Federal Reserve Wire System are open for business.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in each Fund is $1,000. Additional purchases of
$50 or more may be made at any time. The Funds may waive the initial minimum
investment from time to time.
WHAT SHARES COST
Shares of the Funds are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Funds.
The net asset value is determined at or after the close of the New York Stock
Exchange, Monday through Friday, except on: (i) days on which there are not
sufficient changes in the value of a Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no shares are
tendered for redemption and no orders to purchase shares are received; and (iii)
the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $50. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received by MFIS. A shareholder may apply for participation in this program
through MFIS.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the respective Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
In addition, each Fund will provide, upon request, photocopies of confirmations
for transactions affecting your account in prior years. A fee of $5 per year
requested will be charged to cover the cost of obtaining this information.
DIVIDENDS
Dividends are declared daily and paid monthly to all shareholders invested in
the Funds on the record date. Unless shareholders request cash payments by
writing to one of these Funds, dividends are automatically reinvested in
additional shares of the respective Fund on payment dates at the ex-dividend
date net asset value.
CAPITAL GAINS
Capital gains, if realized by a Fund, will be distributed at least once every 12
months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of a Fund are shareholders of Marshall Funds, Inc. Marshall
Funds, Inc. currently consists of: Marshall Short-Term Income Fund, Marshall
Government Income Fund, Marshall Intermediate Bond Fund, Marshall Balanced Fund,
Marshall Equity Income Fund, Marshall Value Equity Fund, Marshall Stock Fund,
Marshall Mid-Cap Stock Fund, Marshall Short-Term Tax-Free Fund, Marshall
Intermediate Tax-Free Fund, Marshall Money Market Fund (Investment Shares and
Trust Shares), and Marshall Tax-Free Money Market Fund. Shareholders have easy
access to each of the Corporation's portfolios, as well as the Institutional
Service Shares of the Max-Cap Fund (a portfolio of Federated Index Trust),
through a telephone exchange program. Marshall Funds, Inc. are advised by M&I
Investment Management Corp. and distributed by Federated Securities Corp.
EXCHANGING SHARES. Shareholders of a Fund may exchange shares of that Fund for
shares of other funds advised by the Adviser at net asset value without a sales
charge. In addition, shareholders of Marshall Funds, Inc. may exchange shares of
a fund for the Institutional Service Shares of Max-Cap Fund at net asset value
without a sales charge.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000, except for exchanges into Marshall
Short-Term Income Fund and Institutional Service Shares of the Max-Cap Fund,
which require a $25,000 minimum investment. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the fund into which
an exchange is to be effected. Subsequent exchanges may be made for $50 or more.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short or long-term capital gain or loss may be realized.
The exchange privilege may be terminated at any time. Shareholders will be
notified of the termination of the exchange privilege. A shareholder may obtain
further information on the exchange privilege by calling MFIS.
EXCHANGE-BY-TELEPHONE. Instructions for exchanges between funds which are part
of Marshall Funds, Inc. may be given by telephone to MFIS. Trust customers
should contact their account officer. Shares may be exchanged by telephone only
between fund accounts having identical shareholder registrations.
Shareholders requesting the telephone exchange service authorize a Fund and its
agents to act upon their telephonic instructions to exchange shares from any
account for which they have authorized such services. Telephone exchange
instructions may be recorded. If reasonable procedures are not followed by the
Funds, they may be liable for losses due to unauthorized or fraudulent telephone
instructions.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent by MFIS and deposited to the shareholder's
mutual fund account before being exchanged.
Telephone exchange instructions must be received before 3:00 p.m. (Central time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through banks, brokers, and other financial institutions
during times of drastic economic or market changes. If a shareholder cannot
contact his or her bank, broker, or financial institution by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Each Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which a
Fund computes its net asset value. Telephone or written requests for redemptions
must be received in proper form as described below and can be made through MFIS
or M&I Brokerage Services. Trust customers should contact their account officer
in order to make redemption requests. Redemption proceeds will also normally be
mailed, or wired if by written request, the following business day, but in no
event more than seven days after the request is received.
BY MAIL. Shareholders may redeem shares of a Fund by sending a written request
to the Marshall Funds Investor Services, P.O. Box 1348, Milwaukee, Wisconsin
53201-1348. The written request should include the shareholder's name, the Fund
name, the account number, and the number of shares or dollar amount requested.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail. Additional documentation may be
required from corporations, executors, administrators, trustees, or guardians.
Shareholders should call 1-800-236-8554 for assistance in redeeming by mail.
BY TELEPHONE. A shareholder may redeem shares of a Fund by calling MFIS
(1-800-236-8554) to request the redemption. Customers of M&I Brokerage Services
may call their account representative or MFIS for information regarding
redemption requests. Telephone redemptions, however, are not available for
retirement accounts. Shares will be redeemed at the net asset value next
determined after a Fund receives the redemption request. It is the
responsibility of MFIS to promptly submit redemption requests to a Fund.
Redemption requests must be received by 3:00 p.m. (Central time) in order for
shares to be redeemed at that day's net asset value.
An authorization form permitting a Fund to accept telephone redemption requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application.
If not completed at the time of the initial application, authorization forms and
information on this service can be obtained through MFIS or M&I Brokerage
Services.
A shareholder may have the redemption proceeds directly deposited by Electronic
Funds Transfer or wired directly to a domestic commercial bank previously
designated by the shareholder. Wire redemption orders will only be accepted on
days on which the Funds, M&I Bank, and the Federal Reserve Wire System are open
for business. Wire-transferred redemptions may be subject to an additional fee.
Shareholders requesting the telephone redemption service authorize a Fund and
its agents to act upon their telephonic instructions to redeem shares from any
account for which they have authorized such services. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Funds, they may be liable for losses due to unauthorized or fraudulent telephone
instructions.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
a Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Corporation and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Corporation may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Corporation and its transfer agent
reserve the right to amend these standards at any time without notice.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, the proceeds from the redemption of those
shares are not available, and the shares may not be exchanged, until M&I Corp.
is reasonably certain that the purchase check has cleared, which could take up
to ten calendar days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares are
redeemed to provide for monthly or quarterly withdrawal payments in an amount
directed by the shareholder. Shareholders may redeem by periodic withdrawal
payments in a minimum amount of $100. Depending upon the amount of the
withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to shares, and the fluctuation of net asset value of
shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in a Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder' s investment in a Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through MFIS or M&I
Brokerage Services.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 for a Fund.
This requirement does not apply, however, if the balance falls below $1,000
because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS AND COMMON STOCK
The Corporation's authorized capital consists of 50,000,000,000 shares of Common
Stock with a par value of $.0001 per share, of which each Fund's authorized
capital consists of 1,000,000,000 shares of Common Stock. Shareholders are
entitled: (i) to one vote per full share of Common Stock; (ii) to such
distributions as may be declared by the Corporation's Board of Directors out of
funds legally available; and (iii) upon liquidation of the Corporation, to
participate ratably in the assets of the Fund available for distribution. Each
share of the Funds gives the shareholder one vote in the election of Directors
and other matters submitted to shareholders for vote. All shares of each
portfolio or class in the Corporation have equal voting rights, except that only
shares of a particular portfolio or class are entitled to vote on matters
affecting that portfolio or class. There are no conversion or sinking fund
provisions applicable to the shares, and the holders have no preemptive rights
and may not cumulate their votes in the election of Directors. Consequently, the
holders of more than 50% of the Corporation's shares of Common Stock voting for
the election of Directors can elect the entire Board of Directors, and, in such
event, the holders of the Corporation's remaining shares voting for the election
of Directors will not be able to elect any person or persons to the Board of
Directors.
The Wisconsin Business Corporation Law (the "WBCL") permits registered
investment companies, such as the Corporation, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting is
not required by the Investment Company Act of 1940 (the "Act"). The Corporation
has adopted the appropriate provisions in its By-laws and does not anticipate
holding an annual meeting of shareholders to elect Directors unless otherwise
required by the Act. Directors may be removed by the shareholders at a special
meeting. A special meeting of the shareholders may be called by the Board of
Directors upon written request of shareholders owning at least 10% of the
Corporation's outstanding voting shares.
The shares are redeemable and are transferable. All shares issued and sold by
the Corporation will be fully paid and nonassessable except as provided in WBCL
Section 180.0622(2)(b). Fractional shares of
Common Stock entitle the holder to the same rights as whole shares of Common
Stock, except the right to receive a certificate evidencing such fractional
shares.
The Corporation will not issue certificates evidencing shares of Common Stock
purchased unless so requested in writing. Where certificates are not issued, the
shareholder's account will be credited with the number of shares purchased,
relieving shareholders of responsibility for safekeeping of certificates and the
need to deliver them upon redemption. Written confirmations are issued for all
purchases of shares of Common Stock. Any shareholder may deliver certificates to
the transfer agent and direct that the shareholder's account be credited with
the shares. A shareholder may direct the transfer agent at any time to issue a
certificate for the shareholder's shares of Common Stock without charge.
The definitions of the terms "series" and "class" in the WBCL differ from the
meanings assigned to those terms in this Prospectus and the Funds' Combined
Statement of Additional Information. The Articles of Incorporation of the
Corporation reconcile this inconsistency in terminology and provide that the
Funds' Prospectus and combined Statement of Additional Information may define
these terms consistently with the use of those terms under the Act and the
Internal Revenue Code.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling or
distributing the shares of a registered, open-end management investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, or distributing securities. However, such banking
laws and regulations do not prohibit such a holding company, affiliate, or banks
generally from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as agent for
and upon the order of such a customer. M&I Corp. is subject to such banking laws
and regulations.
M&I Corp. believes, based on the advice of its counsel, that M&I Investment
Management Corp. may perform the services contemplated by the investment
advisory agreement with the Corporation without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Changes in either federal
or state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such present or future statutes
and regulations, could prevent M&I Investment Management Corp. or M&I Corp. from
continuing to perform all or a part of the above services for its customers
and/or a Fund. If M&I Investment Management Corp. and M&I Corp. were prohibited
from engaging in these activities, the Directors would consider alternative
advisers and means of continuing available investment services. In such event,
changes in the operation of a Fund may occur, including possible termination of
any automatic or other Fund share investment and redemption services then being
provided by M&I Investment Management Corp. and M&I Brokerage Services or MFIS.
It is not expected that existing shareholders would suffer any adverse financial
consequences if another adviser with equivalent abilities to M&I Investment
Management Corp. is found as a result of any of these occurrences.
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.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
Each Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of Marshall Funds, Inc., if any, will not be combined for tax
purposes with those realized by any of the other Funds.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons and other public facilities, private
activity bonds provide benefits to private parties. Each Fund may purchase all
types of municipal bonds, including "private activity" bonds. Thus, while each
Fund has no present intention of purchasing any private activity bonds, should
it purchase any such bonds, a portion of the Fund's dividends may be treated as
a tax preference item.
In addition, in the case of a corporate shareholder, dividends of a Fund which
represent interest on municipal bonds will be subject to the 20% corporate
alternative minimum tax because the dividends are included in corporation's
"adjusted current earnings." The corporate minimum tax treats 75% of the excess
of a taxpayer's pre-tax "adjusted current earnings" over the taxpayer's
alternative minimum taxable income as a tax preference item. "Adjusted current
earnings" is based upon the concept of a corporation's "earnings and profits."
Since "earnings and profits" generally includes the full amount of any Fund
dividend, and alternative minimum taxable income does not include the portion of
a Fund's dividend attributable to municipal bonds which are not private activity
bonds, the 75% difference will be included in the calculation of the
corporation's alternative minimum tax.
Dividends of each Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue, and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, all of the Funds may advertise total return, yield and
tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of each Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The tax-equivalent yield of each Fund is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that the Fund would have
had to earn to equal its actual yield, assuming a specific tax rate. The yield
and the tax-equivalent yield do not necessarily reflect income actually earned
by the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
From time to time, the Funds may advertise their performance using certain
reporting services and/or compare their performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Marshall Short-Term Tax-Free Fund
Marshall Intermediate Tax-Free Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Adviser
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202
- -------------------------------------------------------------------------------------------------
Custodian
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202
- -------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Shareholder Servicing Agent
Marshall Funds Investor Services P.O. Box 1348
Milwaukee, Wisconsin 53201
or
1000 North Water Street
Milwaukee, Wisconsin 53202
- -------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------
</TABLE>
MARSHALL FUNDS, INC.
TAX-FREE FUNDS
- MARSHALL SHORT-TERM TAX-FREE FUND
- MARSHALL INTERMEDIATE TAX-FREE FUND
COMBINED PROSPECTUS
Dated January 1, 1994
MARSHALL FUNDS INVESTOR SERVICES
----------------------------------------------------------------
1000 North Water Street
P.O. Box 1348
Milwaukee
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
MARSHALL SHORT-TERM TAX-FREE FUND
MARSHALL INTERMEDIATE TAX-FREE FUND
(Portfolios of Marshall Funds, Inc.)
- --------------------------------------------------------------------------------
SUPPLEMENT TO COMBINED STATEMENT OF ADDITIONAL INFORMATION DATED JANUARY 1,
1994
A. Please add the following as the last sentence under the section entitled
"Portfolio Turnover" on page 5:
"For the period ended February 28, 1994, the Short-Term Fund's portfolio
turnover rate was 0%. The portfolio turnover rate for the Intermediate
Fund was 7% for the same period."
B. Please insert the following information as the second and third
paragraphs under the sub-section entitled "Fund Ownership" on page 9:
"As of March 30, 1994, the following shareholders of record owned 5% or
more of the outstanding shares of the Short-Term Fund: Maril & Co.,
Marshall & Ilsley Trust Company, Milwaukee, Wisconsin, owned
approximately 252,314 shares (17.66%); Mitra & Co., Marshall & Ilsley
Trust Company, Milwaukee, Wisconsin, owned approximately 1,035,828
shares (72.51%); and Miaz & Co., Marshall & Ilsley Trust Company,
Milwaukee, Wisconsin, owned approximately 77,695 shares (5.43%)."
"As of March 30, 1994, the following shareholders of record owned 5% or
more of the outstanding shares of the Intermediate Fund: Maril & Co.,
Marshall & Ilsley Trust Company, Milwaukee, Wisconsin, owned
approximately 1,971,665 shares (79.60%); and Mitra & Co., Marshall &
Ilsley Trust Company, Milwaukee, Wisconsin, owned approximately 326,797
shares (13.19%)."
C. Please insert the following as the second paragraph under the
sub-section entitled "Advisory Fees" under the main section entitled
"Investment Advisory Services" on page 9:
"For the period ended February 28, 1994, the Adviser earned fees from
the Short-Term Fund and the Intermediate Fund in the amount of $1,978
and $6,546, respectively, of which $1,978 and $5,673, respectively, were
voluntarily waived."
D. Please insert the following information as the second sentence under the
section entitled "Administrative Services" on page 9:
"For the period from February 1, 1994 (date of initial public
investment), to February 28, 1994, the Short-Term Fund and the
Intermediate Fund incurred administrative service fees of $377 and
$1,038, respectively."
E. Please insert the following information as the first paragraph under the
section entitled "Total Return" on page 11:
"From February 1, 1994 (date of initial public investment) to February
28, 1994, the cumulative total return for the Short-Term Fund and the
Intermediate Fund was 0.06% and (1.10%), respectively.
From February 1, 1994 (date of initial public investment) to March 31,
1994, the cumulative total return for the Short-Term Fund and the
Intermediate Fund was (0.71%) and (3.23%), respectively. Cumulative
total return reflects a Fund's total performance over a specific period
of time.
F. Please insert the following information as the first paragraph under the
section entitled "Yield" on page 12:
"The yields for the Short-Term Fund and the Intermediate Fund for the
thirty-day period ended March 31, 1994 were 3.22% and 3.69%,
respectively. Yields were not available for the Funds at February 28,
1994."
G. Please insert the following information as the first paragraph under the
section entitled "Tax-Equivalent Yield" on page 12:
"The tax-equivalent yield for the Short-Term Fund for the thirty-day
period ended March 31, 1994, was 4.47%, assuming a 28% tax rate and
4.67%, assuming a 31% tax rate. The tax-equivalent yield for the
Intermediate Fund for the thirty-day period ended March 31, 1994, was
5.12%, assuming a 28% tax rate and 5.35%, assuming a 31% tax rate.
Tax-equivalent yields were not available for the Funds at February 28,
1994."
April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
4030403B (4/94)
MARSHALL SHORT-TERM TAX-FREE FUND
MARSHALL INTERMEDIATE TAX-FREE FUND
(PORTFOLIOS OF MARSHALL FUNDS, INC.)
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with the
combined Prospectus for Marshall Short-Term Tax-Free Fund ("Short-Term Fund")
and Marshall Intermediate Tax-Free Fund ("Intermediate Fund")
(individually referred to as a "Fund" or collectively as the "Funds") dated
January 1, 1994. This combined Statement is not a prospectus itself. To receive
a copy of a Fund's combined Prospectus, write or call Marshall Funds Investor
Services at (414) 287-8500 or 1-800-236-8560, M&I Brokerage Services, Inc. or
any M&I Bank.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 1, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE FUNDS 1
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INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS 1
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Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 2
Reverse Repurchase Agreements 2
Repurchase Agreements 2
Securities of Foreign Issuers 2
Futures and Options Transactions 3
Average Maturity 5
Portfolio Turnover 5
INVESTMENT LIMITATIONS 6
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MARSHALL FUNDS, INC. MANAGEMENT 8
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Officers and Directors 8
Fund Ownership 9
INVESTMENT ADVISORY SERVICES 9
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Adviser to the Funds 9
Advisory Fees 9
State Expense Limitations 9
ADMINISTRATIVE SERVICES 9
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CUSTODIAN 9
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BROKERAGE TRANSACTIONS 9
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PURCHASING SHARES 10
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Exchanging Securities for Fund Shares 10
DETERMINING NET ASSET VALUE 10
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Determining Market Value of Securities 10
REDEEMING SHARES 11
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Redemption in Kind 11
EXCHANGE PRIVILEGE 11
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Requirements for Exchange 11
Making an Exchange 11
TAX STATUS 11
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The Funds' Tax Status 11
TOTAL RETURN 11
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YIELD 12
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 12
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Tax-Equivalency Table 12
PERFORMANCE COMPARISONS 13
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APPENDIX 14
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GENERAL INFORMATION ABOUT THE FUNDS
---------------------------------------------------------------------------
The Funds are portfolios of Marshall Funds, Inc. (the "Corporation") which was
incorporated under the laws of the State of Wisconsin on July 30, 1992.
The portfolios of Marshall Funds are: Marshall Short-Term Tax-Free Fund,
Marshall Intermediate Tax-Free Fund, Marshall Balanced Fund, Marshall Equity
Income Fund, Marshall Government Income Fund, Marshall Intermediate Bond Fund,
Marshall Mid-Cap Stock Fund, Marshall Money Market Fund (Trust Shares and
Investment Shares), Marshall Short-Term Income Fund, Marshall Stock Fund,
Marshall Tax-Free Money Market Fund, and Marshall Value Equity Fund.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
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The combined Prospectus for the Funds discusses each Fund's investment objective
and the policies that each Fund employs to achieve its objective. The following
discussion supplements the description of each Fund's investment policies in the
combined Prospectus. The investment objective of each Fund cannot be changed
without approval of shareholders. Unless indicated otherwise, the investment
policies described in the combined Prospectus may be changed by the Board of
Directors ("Directors") without the approval of the Fund's shareholders.
Shareholders will be notified before any material changes in these policies
become effective.
ACCEPTABLE INVESTMENTS
The Funds invest primarily in debt obligations issued by or on behalf of states,
territories, and possessions of the United States, including the District of
Columbia, and any political subdivisions or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel or the
Funds' adviser, exempt from federal income tax ("Municipal Securities").
Examples of Municipal Securities include, but are not limited to:
- - tax and revenue anticipation notes ("TRANs") issued to finance working capital
needs in anticipation of receiving taxes or other revenues;
- - tax anticipation notes ("TANs") issued to finance working capital needs in
anticipation of receiving taxes;
- - revenue anticipation notes ("RANs") issued to finance working capital needs in
anticipation of receiving revenues;
- - bond anticipation notes ("BANs") that are intended to be refinanced through a
later issuance of longer-term bonds;
- - municipal commercial paper and other short-term notes;
- - variable rate demand notes;
- - municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases;
- - construction loan notes insured by the Federal Housing Administration and
financed by the Federal or Government National Mortgage Associations; and
- - participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by the
Funds are subject to repayment of principal (usually within seven days)
on the Fund's demand. The terms of these variable rate demand instruments
require payment of principal and accrued interest from the issuer of the
municipal obligations, the issuer of the participation interest, or a
guarantor of either issuer.
MUNICIPAL LEASES
The Funds may purchase Municipal Securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
Under the criteria currently established by the Directors, the Funds'
investment adviser must consider the following factors in determining the
liquidity of municipal lease securities: (1) the frequency of trades and
quotes for the security; (2) the volatility of quotations and trade
prices for the security; (3) the number of dealers
- --------------------------------------------------------------------------------
willing to purchase or sell the security and the number of potential
purchasers; (4) dealer undertakings to make a market in the security; (5)
the nature of the security and the nature of the marketplace trades; (6)
the rating of the security and the financial condition and prospects of
the issuer of the security; (7) such other factors as may be relevant to
the Funds' ability to dispose of the security; (8) whether the lease can
be terminated by the lessee; (9) the potential recovery, if any, from a
sale of the leased property upon termination of the lease; (10) the
lessee's general credit strength; (11) the likelihood that the lessee
will discontinue appropriating funding for the leased property because
the property is no longer deemed essential to its operations; and (12)
any credit enhancement or legal recourse provided upon an event of
nonappropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued and delayed delivery transactions for the
purpose of acquiring portfolio securities consistent with each Fund's investment
objective and policies. These transactions are made to secure what is considered
to be an advantageous price or yield for the Funds. Settlement dates may be a
month or more after entering into these transactions, and the market values of
the securities purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
Liquid assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the trade date. These securities are marked to
market daily and maintained until the transaction is settled. As a matter of
policy, the Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20% of
the total value of their assets.
REVERSE REPURCHASE AGREEMENTS
The Funds may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement a Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable a Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that a Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
REPURCHASE AGREEMENTS
The Funds require their custodian to take possession of the securities subject
to repurchase agreements and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from a Fund,
the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by a Fund might be delayed
pending court action. The Funds believe that under the regular procedures
normally in effect for custody of a Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
a Fund and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Funds' adviser to be
creditworthy pursuant to guidelines established by the Directors.
SECURITIES OF FOREIGN ISSUERS
The Funds may invest in the securities of foreign issuers, which include Euro
Certificates of Deposit, Euro Time Deposits, and Yankee Certificates of Deposit.
There may be certain risks associated with investing in foreign securities.
These include risks of adverse political and economic developments (including
possible governmental seizure or nationalization of assets), the possible
imposition of exchange controls or other governmental restrictions, less
uniformity in accounting and reporting requirements, higher transaction costs,
and the possibility that there will be less information on such securities and
their issuers available to the public. In addition, there are restrictions on
foreign investments in other jurisdictions and there tends to be difficulty in
obtaining judgments from abroad and effecting repatriation of capital invested
abroad. Delays could occur in settlement of foreign transactions, which could
adversely affect shareholder equity. Foreign securities may be subject to
foreign taxes, which reduce yield, and may be less marketable than comparable
United States securities. Different risks may also exist for obligations of
foreign banks, domestic branches of foreign banks or foreign branches of
domestic banks since they may not be subject to the same regulatory
requirements, loan limitations, examinations, accounting, auditing and
recordkeeping. As a matter of practice, the Funds will not
- --------------------------------------------------------------------------------
invest in the securities of a foreign issuer if any risk identified above
appears to the Funds' investment adviser to be substantial.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Funds, the Funds may attempt to hedge all or a portion of their portfolio by
buying and selling financial futures contracts, buying put options on portfolio
securities and put options on financial futures contracts, and writing call
options on futures contracts. The Funds may also write covered call options on
portfolio securities to attempt to increase their current income. The Funds will
maintain their positions in securities, option rights, and segregated cash
subject to puts and calls until the options are exercised, closed, or have
expired. An option position on financial futures contracts may be closed out
over-the-counter or on a nationally recognized exchange which provides a
secondary market for options of the same series.
FUTURE CONTRACTS
The Funds may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. The Funds also may purchase
and sell stock index futures to hedge against changes in prices. The
Funds will not engage in futures transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future. For example,
in the fixed income securities market, prices move inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Funds could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect themselves against the possibility that the prices of
their fixed income securities may decline during the Funds' anticipated
holding period. The Funds would "go long" (agree to purchase securities
in the future at a predetermined price) to hedge against a decline in
market interest rates.
Stock index futures contracts are based on indices that reflect the
market value of common stock of the firms included in the indices. An
index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the
differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Funds do not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Funds are required to deposit an amount of "initial margin" in cash
or U.S. Treasury bills with their custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that initial
margin in futures transactions does not involve the borrowing of funds by
a Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by either Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day a Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by a Fund but is instead settlement between the Fund and the broker
of the amount one would owe the other if the futures contract expired. In
computing its daily net asset value, a Fund will mark to market its open
futures positions.
Each Fund is also required to deposit and maintain margin when it writes
call options on futures contracts. The Funds will comply with the
following restrictions when purchasing and selling futures contracts.
First, each Fund will not participate in futures transactions if the sum
of its initial margin deposits on open contracts will exceed 5% of the
market value of the Fund's total assets, after taking into account the
unrealized profits and losses on those contracts it has entered into.
Second, the Funds will not enter into these contracts for speculative
purposes. Third, since the Funds do not constitute a commodity pool, they
will not market themselves as such, nor serve as a vehicle for trading in
the commodities futures or commodity options markets. Connected with
this, each Fund will disclose to all prospective investors the
limitations on its futures and options transactions, and make clear that
these transactions are entered into only for bona fide hedging purposes,
or other permissible purposes pursuant to regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"). Finally, because each Fund
will submit to the CFTC special calls for information, the Funds will not
register as a commodities pool operator.
- --------------------------------------------------------------------------------
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
Each Fund may purchase listed put options on financial futures contracts
to protect portfolio securities against decreases in value resulting from
market factors, such as an anticipated increase in interest rates. Unlike
entering directly into a futures contract, which requires the purchaser
to buy a financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but does not
obligate) its purchaser to decide on or before a future date whether to
assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, a Fund
will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of
the second option will be large enough to offset both the premium paid by
the Fund for the original option plus the decrease in value of the hedged
securities.
Alternatively, each Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, each Fund may write
listed and over-the-counter call options on financial futures contracts
to hedge its portfolio. When a Fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any
time during the life of the option if the option is exercised. As stock
prices fall or market interest rates rise, causing the prices of futures
to go down, the Fund's obligation under a call option on a future (to
sell a futures contract) costs less to fulfill, causing the value of the
Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's portfolio
securities.
Prior to the expiration of a call written by a Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities.
Neither Fund will maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
Each Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
Each Fund may also write covered call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolios. As writer of a call option, a Fund has the obligation
upon exercise of the option during the option period to deliver the
underlying security upon payment of the exercise price. The Fund may only
sell call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any additional
consideration).
STOCK INDEX OPTIONS
Each Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock
index fluctuates with changes in the market values of the stocks included
in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with
price movements of the stock index selected. Because the value of an
index option depends upon movements in the level of the index rather than
the price of a particular stock, whether
- --------------------------------------------------------------------------------
the Fund will realize a gain or loss from the purchase of options on an
index depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by the Funds of options on stock indices will
be subject to the ability of the Funds' adviser to predict correctly
movements in the directions of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks.
OVER-THE-COUNTER OPTIONS
The Funds may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options when options on the portfolio securities held by the Funds are
not traded on an exchange. The Funds purchase and write options only with
investment dealers and other financial institutions (such as commercial
banks or savings and loan association) deemed creditworthy by the Funds'
adviser.
Over-the-counter options are two party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third party contracts with standardized strike prices and expiration
dates and are purchased from a clearing corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options
may not.
RISKS
When the Funds use futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities
in the Funds' portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities to
market changes. In addition, the Funds' adviser could be incorrect in its
expectations about the direction or extent of market factors such as
stock price movements. In these events, the Funds may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Funds'
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Funds' ability to establish and close out futures
and options positions depends on this secondary market. The inability to
close out these positions could have an adverse effect on the Funds'
ability to effectively hedge their portfolio.
To minimize risks, the Funds may not purchase or sell futures contracts
or related options if immediately thereafter the sum of the amount of
margin deposits on the Funds' existing futures positions and premiums
paid for related options would exceed 5% of the market value of the
Funds' total assets. When the Funds purchase futures contracts, an amount
of cash and cash equivalents, equal to the underlying commodity value of
the futures contracts (less any related margin deposits), will be
deposited in a segregated account with the Funds' custodian (or the
broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged. When a Fund
sells futures contracts, it will either own or have the right to receive
the underlying future or security, or will make deposits to collateralize
the position as discussed above.
AVERAGE MATURITY
For purposes of determining the dollar-weighted average maturity of each Fund's
portfolio, the maturity of a Municipal Security will be its ultimate maturity.
If it is probable that the issuer of the security will take advantage of
maturity-shortening devices such as a call, refunding, or redemption provision,
the maturity date will be the date on which it is probable that the security
will be called, refunded, or redeemed. If the Municipal Security includes the
right to demand payment, the maturity of the security for purposes of
determining each Fund's dollar-weighted average portfolio maturity will be the
period remaining until the principal amount of the security can be recovered by
exercising the right to demand payment.
PORTFOLIO TURNOVER
Although the Funds do not intend to invest for the purpose of seeking short-term
profits, securities in the portfolio will be sold whenever the investment
adviser believes it is appropriate to do so in light of the Funds' investment
objective without regard to the length of time a particular security may have
been held. The investment adviser does not anticipate that either Fund's
portfolio turnover will generally exceed 100%.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that each Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets including the amounts
borrowed. The Funds will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Funds to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Funds will not purchase any securities while any
borrowings in excess of 5% of their total assets are outstanding.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as are necessary for
clearance of transactions.
CONCENTRATION OF INVESTMENTS
Neither Fund will invest 25% or more of the value of its total assets in
any one industry, except for temporary defensive purposes, each Fund may
invest 25% or more of the value of its total assets in cash or cash items
(including instruments issued by a U.S. branch of a domestic bank or
savings and loan association and bankers' acceptances), securities issued
or guaranteed by the U.S. government, its agencies, or instrumentalities,
and repurchase agreements collateralized by such securities. (For
purposes of this limitation, the Funds consider instruments issued by a
U.S. branch of a domestic bank having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash
items.")
In addition, each Fund may invest more than 25% of the value of its total
assets in obligations issued by any state, territory, or possession of
the United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions, including
tax-exempt project notes guaranteed by the U.S. government, regardless of
the location of the issuing municipality. This policy applies to
securities which are related in such a way that an economic, business, or
political development affecting one security would also affect the other
securities (such as securities paid from revenues from selected projects
in transportation, public works, education, or housing).
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In those cases they may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets of the Fund at the time of the pledge.
The following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options; and
segregation of collateral arrangements made in connection with options
activities or the purchase of securities on a when-issued basis.
LENDING CASH OR SECURITIES
The Funds will not lend any of their respective assets except portfolio
securities up to one-third of the value of their respective total assets.
This shall not prevent the Funds from purchasing or holding U.S.
government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or other
debt securities, entering into repurchase agreements or engaging in other
transactions where permitted by their investment objective, policies, and
limitations.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Funds may purchase and sell
financial or stock index futures contracts and related options.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate including limited
partnership interests although they may invest in securities of issuers
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or which represent interests
in real estate.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of their total
assets, the Funds will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of their total assets would be invested in the
securities of that issuer or if they would own more than 10% of the
outstanding voting securities of such issuer. (For purposes of
- --------------------------------------------------------------------------------
this limitation the Funds consider instruments issued by a U.S. branch of
a domestic bank having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items.")
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental user are considered to be issued solely by that user. If
in the case of an industrial development bond or government-issued
security, a governmental or some other entity guarantees the security,
such guarantee would be considered a separate security issued by the
guarantor, subject to a limit on investments in the guarantor of 10% of
total assets.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as they may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with their
investment objective, policies, and limitations.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their respective
net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, and certain securities not determined by the
Directors to be liquid (including certain municipal leases).
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds will limit their investments in other investment companies to
no more than 3% of the total outstanding voting stock of any investment
company, will invest no more than 5% of their respective total assets in
any one investment company, and will invest no more than 10% of their
respective total assets in investment companies in general. In order to
comply with certain state restrictions, the Funds will limit their
investments in securities of other investment companies to those with
sales loads of less than 1.00% of the offering price of such securities.
The Funds will purchase securities of closed-end investment companies
only in open market transactions involving only customary broker's
commissions. While it is a policy for the adviser to waive its investment
advisory fee on Fund assets invested in securities of other open-end
investment companies, it should be noted that investment companies incur
certain expenses such as custodian and transfer agency fees, and
therefore any investment by the Funds in shares of another investment
company would be subject to such duplicate expenses. These limitations
are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets.
INVESTING IN NEW ISSUERS
The Funds will not invest more than 5% of the value of their respective
total assets in securities of issuers which have records of less than
three years of continuous operations, including the operation of any
predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE CORPORATION
The Funds will not purchase or retain the securities of any issuer if the
Officers and Directors of the Corporation or its investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Funds will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases except they may purchase
the securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Funds will not purchase securities of a company for purposes of
exercising control or management.
INVESTING IN PUT OPTIONS
The Funds will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put options.
- --------------------------------------------------------------------------------
WRITING COVERED CALL OPTIONS
The Funds will not write call options on securities unless the securities
are held in a Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the
amount of any further payment. The Funds will not write call options in
excess of 25% of the value of their respective net assets.
INVESTING IN WARRANTS
The Funds will not invest more than 5% of their respective net assets in
warrants, including those acquired in units or attached to other
securities. For purposes of this investment restriction, warrants will be
valued at the lower of cost or market, except that warrants acquired by
the Funds in units with or attached to securities may be deemed to be
without value.
Neither Fund intends to borrow money in excess of 5% of the value of its net
assets during the coming fiscal year. Neither Fund intends to invest more than
5% of its total assets in investment companies during the coming fiscal year.
Neither Fund intends to lend its portfolio securities in excess of 5% of its net
assets during the coming year. In order to permit the sale of a Fund's shares in
certain states, a Fund may make commitments more restrictive than the investment
limitations described above. In this regard, to comply with certain state
restrictions, each Fund will limit its investment in warrants not listed on the
New York or American Stock Exchanges to 2% of its net assets, and the Funds will
not invest more than 10% of their respective total assets in securities subject
to restrictions on resale under the Securities Act of 1933, except for
commercial paper issued under Section 4(2) of the Securities Act of 1933 and
certain other restricted securities which meet the criteria for liquidity as
established by the Directors. (If state restrictions change, these restrictions
may be revised without shareholder approval or notification.)
MARSHALL FUNDS, INC. MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Marshall and Ilsley
Corporation, Federated Investors, Federated Securities Corp., Federated Services
Company, and Federated Administrative Services.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales* Chairman, Director Director, Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Tower Federated Research; Executive Vice President, Treasurer, and Director,
Pittsburgh, PA Federated Securities Corp.; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee, Director, Vice President and/or Treasurer
of certain investment companies advised or distributed by affiliates of
Federated Investors.
- --------------------------------------------------------------------------------------------------------------------------------
John DeVincentis Director Independent Financial Consultant; retired, Senior Vice President of Finance,
4700 21st Street In-Sink-Erator Division of Emerson Electric.
Racine, WI
- --------------------------------------------------------------------------------------------------------------------------------
Ody J. Fish Director Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
247 Progress Drive Private Investor; formerly President,
Hartland, WI Pal-O-Pak Insulation Company.
- --------------------------------------------------------------------------------------------------------------------------------
Paul E. Hassett Director Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
1630 Capital Avenue Retired; formerly President, Wisconsin Manufacturers and Commerce.
Madison, WI
- --------------------------------------------------------------------------------------------------------------------------------
James F. Duca, II President Vice President, Marshall & Ilsley Trust Company; Vice President, Marshall &
1000 N. Water Street Ilsley Trust Company of Florida; formerly Secretary, Marshall & Ilsley Trust
Milwaukee, WI Company and Marshall & Ilsley Trust Company of Florida.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Joseph S. Machi Vice President and Vice President, Federated Administrative Services; Director, Private Label
Federated Investors Assistant Treasurer Management, Federated Investors; Vice President and Assistant Treasurer of
Tower certain funds for which Federated Securities Corp. is the principal
Pittsburgh, PA distributor.
- --------------------------------------------------------------------------------------------------------------------------------
Peter J. Germain Secretary Corporate Counsel, Federated Investors.
Federated Investors
Tower
Pittsburgh, PA
</TABLE>
- --------------------------------------------------------------------------------
* This Director is deemed to be an "interested person" of the Fund or the
Corporation as defined in the Investment Company Act of 1940.
FUND OWNERSHIP
Officers and Directors of the Corporation own less than 1% of the outstanding
shares of each Fund.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUNDS
The Funds' investment adviser is M&I Investment Management Corp. ("Adviser").
The Adviser shall not be liable to the Corporation, the Funds or any shareholder
of the Funds 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
Corporation.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Funds' normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Funds for their expenses over the limitation. If the Funds' monthly
projected operating expenses exceed this limitation, the investment
advisory fee paid will be reduced by the amount of the excess, subject to
an annual adjustment. If the expense limitation is exceeded, the amount
to be reimbursed by the Adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Funds for the fee set forth in the
combined prospectus.
CUSTODIAN
- --------------------------------------------------------------------------------
For its services as custodian, Marshall & Ilsley Trust Company ("M&I Trust
Company") receives an annual fee, payable monthly, of 0.02% of the first $250
million of each Fund's average aggregate daily net assets and 0.01% on such
assets over $250 million.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be
- --------------------------------------------------------------------------------
obtained elsewhere. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the Board of
Directors.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
Adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser in advising the
Funds and other accounts. To the extent that receipt of these services may
supplant services for which the Adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The procedure for purchasing shares is explained in Funds' prospectus under
"Investing in the Funds."
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, and must be liquid. The
market value of any securities exchanged in an initial investment, plus any
cash, must be at least equal to the minimum investment in the Fund. The Fund
acquires the exchanged securities for investment and not for resale.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend on the net asset value
of Fund shares on the day the securities are valued. One share of the Fund will
be issued for the equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
If an exchange is permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Fund
shares, a gain or loss may be realized by the investor.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value generally changes every day. The days on which the net asset
value is calculated by the Fund are described in the combined prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Funds' portfolio securities are determined as follows:
- - for bonds and other fixed income securities, at the last sale price on a
national securities exchange if available, otherwise as determined by an
independent pricing service;
- - for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, or for short-term obligations
with maturities of less than 60 days, at amortized cost; or
- - for all other securities, at fair value as determined in good faith by the
Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
- --------------------------------------------------------------------------------
The Funds will value futures contracts, options on stock and stock indices and
put options on stock index futures and financial futures at their market values
established by the exchanges at the close of option trading on such exchanges
unless the Directors determine in good faith that another method of valuing
these positions is necessary.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Funds redeem shares at the next computed net asset value after the
redemption requests are received. Redemption procedures are explained in the
Funds' combined prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Funds intend to redeem shares in cash, they reserve the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from a Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Directors determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transactions costs.
The Corporation has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940 which obligates the Corporation to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000, except for exchanges into Marshall Short-Term
Income Fund and Institutional Service Shares of Max-Cap Fund, which require a
$25,000 minimum investment. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
Further information on the exchange privilege and prospectuses may be obtained
by calling Marshall Funds Investor Services, M&I Brokerage Services or any M&I
Bank.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because the Funds expect to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Funds must, among other
requirements:
- - derive at least 90% of their gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of their gross income from the sale of securities held
less than three months;
- - invest in securities within certain statutory limits; and
- - distribute to their shareholders at least 90% of their net income earned
during the year.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any additional
shares, assuming the quarterly reinvestment of all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The yield for the Funds is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by each Fund
over a thirty-day period by the offering price per share of the Funds on the
last day of the period. This value is annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a twelve-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Funds because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Funds, the performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield of the Funds is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Funds would have had to earn
to equal its actual yield, assuming a 39.6% tax rate (the maximum marginal
federal rate for individuals) and assuming that income is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Funds may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Funds' portfolio
generally remains free from federal income tax* and is often free from state and
local taxes as well. As the table below indicates, a "tax-free" investment is an
attractive choice for investors, particularly in times of narrow spreads between
tax-free and taxable yields.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAX-FREE YIELD VS. TAXABLE YIELD
- -------------------------------------------------------------------------------------------------------------
1994 FEDERAL INCOME TAX BRACKET:
- -------------------------------------------------------------------------------------------------------------
15.00% 28.00% 31.00% 36.00% 39.60%
- -------------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-36,900 $36,901-89,150 $89,151-140,000 $140,001-250,000 OVER $250,000
SINGLE RETURN: $1-22,000 $22,101-53,500 $53,501-115,000 $115,001-250,000 OVER $250,000
- -------------------------------------------------------------------------------------------------------------
TAX-FREE
YIELD TAXABLE YIELD EQUIVALENT
- -------------------------------------------------------------------------------------------------------------
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00 3.53 4.17 4.35 4.69% 4.97%
3.50 4.12 4.86 5.07 5.47% 5.79%
4.00 4.71 5.56 5.80 6.25% 6.62%
4.50 5.29 6.25 6.52 7.03% 7.45%
5.00 5.88 6.94 7.25 7.81% 8.28%
5.50 6.47 7.64 7.97 8.59% 9.11%
6.00 7.06 8.33 8.70 9.38% 9.93%
6.50 7.65 9.03 9.42 10.16% 10.76%
</TABLE>
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Funds.
* Some portion of the Funds' income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Funds' performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in Fund expenses; and
- - the relative amount of Fund cash flow.
From time to time the Funds may advertise their performance compared to similar
funds or portfolios using certain indices, reporting services, and financial
publications. These may include the following:
- - DONOGHUE'S MONEY FUND REPORT publishes annualized yields of hundreds of
taxable and tax-exempt money market funds on a weekly basis and through its
Money Market Insight publication reports monthly and year-to-date investment
results for the same money funds.
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends, if any.
From time to time, the Funds will quote their Lipper ranking in advertising
and sales literature.
- - MORNINGSTAR INC., an independent rating service is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and rating are effective for two
weeks.
- - SHEARSON LEHMAN FIVE-YEAR STATE GENERAL OBLIGATIONS BONDS is an index
comprised of all state general obligation debt issues with maturities between
four and six years. These bonds are rated A or better and represent a variety
of coupon ranges. Index figures are total returns calculated for one, three,
and twelve month periods as well as year-to-date. Total returns are also
calculated as of the index inception, December 31, 1979.
- - SHEARSON LEHMAN THREE-YEAR STATE GENERAL OBLIGATIONS BONDS is an index
comprised of the same issues noted above except that the maturities range
between two and four years. Index figures are total returns calculated for the
same periods as listed above.
Investors may use such indices or reporting service in addition to the Funds'
combined prospectus to obtain a more complete view of a Fund's performance
before investing. Of course, when comparing the performance of a Fund's shares
to any index, conditions such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons. When comparing funds using reporting services, or total return and
yield, investors should take into consideration any relevant differences in
funds such as permitted portfolio compositions and methods used to value
portfolio securities and compute offering price.
Advertisements and other sales literature for a Fund's shares may quote total
returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in a
Fund's shares based on monthly reinvestment of dividends over a specified period
of time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S ("S&P") CORPORATION MUNICIPAL BOND RATINGS
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
NR -- NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings "AA" and "A" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") MUNICIPAL BOND RATINGS
Aaa -- Bonds which are rated Aaa are judged to be of 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 fluctuation 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 some time in the future.
NR -- Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in the generic rating
classification of "Aa" and "A" in its corporate or municipal 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.
FITCH INVESTORS SERVICE, INC. ("FITCH") LONG-TERM DEBT RATINGS
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA -- Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A -- Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR -- NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
STANDARD AND POOR'S CORPORATION MUNICIPAL NOTE RATINGS
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
MIG1/VMIG1 -- This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
- --------------------------------------------------------------------------------
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2 -- Good Credit Quality. Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1" and "F-1+ " categories.
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1 -- This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1."
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
P-1 -- Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2 -- Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
3110112B (12/93)
