1933 Act File No. 33-48907
1940 Act File No. 811-7047
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X___
Pre-Effective Amendment No.
Post-Effective Amendment No. 11 X _
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 X
MARSHALL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on _________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on October 18, 1994; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin, L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Marshall Funds, Inc.,
which consists of eleven portfolios including: (1)Marshall Equity Income
Fund; (2) Marshall Government Income Fund; (3) Marshall Intermediate Bond
Fund; (4) Marshall Intermediate Tax-Free Fund; (5) Marshall Mid-Cap Stock
Fund; (6) Marshall Money Market Fund; (a) Class A Shares; (b) Class B
Shares; (7) Marshall Short-Term Income Fund; (8) Marshall Short-Term Tax-
Free Fund; (9) Marshall Stock Fund; (10) Marshall Value Equity Fund; and
(11) Marshall International Stock Fund; and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-11)Cover Page.
Item 2. Synopsis (1-11)Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1-11) Financial Highlights; (1-11)
Performance Information.
Item 4. General Description of
Registrant (1-11) Summary of Investment
Information; (1-11) Investment
Objectives of each Fund; (1-11)
Portfolio Investments and Strategies.
Item 5. Management of the Fund (1-11) Marshall Funds, Inc.
Information; (1-11) Management of
Marshall Funds, Inc. (1-11)
Distribution of Fund Shares; (1-11)
Administrative Arrangements; (6,11)
Distribution Plan; (1-11)
Administration of the Funds; (1-11)
Expenses of the Funds.
Item 6. Capital Stock and Other
Securities (1-11) Dividends; (1-11) Capital
Gains; (1-11) Shareholder Information;
(1-11) Voting Rights and Common Stock;
(1-11) Effect of Banking Laws; (1-11)
Tax Information; (1-11) Federal Income
Tax.
Item 7. Purchase of Securities Being
Offered (1-11) Net Asset Value; (1-11)
Investing in the Fund; (1-11) Share
Purchases; (1-11) Minimum Investments;
(1-11) What Shares Cost; (1-11)
Certificates and Confirmations; (1-11)
Exchange Privilege.
Item 8. Redemption or Repurchase (1-11) Redeeming Shares; (1-11)
Accounts with Low Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page (1-11) Cover Page.
Item 11. Table of Contents (1-11) Table of Contents.
Item 12. General Information and
History Not applicable.
Item 13. Investment Objectives and
Policies (1-11) Policies and Acceptable
Investments; (1-11) Investment
Limitations.
Item 14. Management of the Fund (1-11) Marshall Funds, Inc.
Management.
Item 15. Control Persons and
Principal Holders of
Securities Not applicable.
Item 16. Investment Advisory and
Other Services (1-11) Investment Advisory Services;
Administrative Services.
Item 17. Brokerage Allocation (1-11) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-11) Purchasing Shares with
Securities; (6, 11) Distribution Plan;
(1-11) Determining Net Asset Value;
(1-11).
Item 20. Tax Status (1-11) Tax Status.
Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data (1-11) Yield; Performance Comparisons;
(1-5, 7-11) Total Return; (6)
Effective Yield; (4, 8) Tax-Equivalent
Yield.
Item 23. Financial Statements (1-11) To be filed by Amendment.
Marshall Funds
Prospectus
January 1, 1995
Marshall Funds, Inc. (the "Corporation") is an open-end, management investment
company (a mutual fund). The Corporation has the following eleven separate
investment portfolios. Each portfolio ("Fund") offers its own shares and has a
distinct investment goal to meet specific investor needs.
Equity Funds Tax-Free Income Funds
o Marshall Stock Fund o Marshall Short-Term Tax-Free Fund
o Marshall Value Equity Fund o Marshall Intermediate Tax-Free Fund
o Marshall Equity Income Fund
o Marshall Mid-Cap Stock Fund
o Marshall International Stock Fund
Income Funds Money Market Fund
o Marshall Short-Term Income Fund o Marshall Money Market Fund
o Marshall Intermediate Bond Fund
o Marshall Government Income Fund
This prospectus 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 Money Market Fund attempts to
maintain a stable $1.00 net asset value per share, but it cannot guarantee that
it will always be able to do so. The International Stock Fund may borrow money
to invest, which may be considered a speculative activity and may involve
greater risk and expense to this Fund.
The Funds have also filed a Statement of Additional Information dated January 1,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Funds by
writing to 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.
Page
Table of Contents
Summary of Investment Information
Who May Want To Invest In The Corporation?
Who Manages The Fund?
How to Buy And Sell Shares
What About Investment Risks?
Summary of Fund Expenses
Financial Highlights
Fund Objective and Policies
The Equity Funds
The Income Funds
The Tax-Free Income Funds
The Money Market Fund
How to Buy Fund Shares
Minimum Investments
Net Asset Value
How to Redeem Shares
Additional Conditions
Exchange Privilege
Telephone Transactions
Marshall Funds, Inc. Information
Organization and History
Management
Distribution of Fund Shares
Administration of the Funds
Brokerage Transactions
Expenses of the Funds
Net Asset Value
Shareholder Information
Certificates and Confirmations
Dividends and Capital Gains
Voting Rights and Common Stock
Performance Information
Portfolio Investments and Strategies
Additional Investment Risks
Tax Information
Federal Income Tax
State and Local Taxes
Effect of Banking Laws
Standard & Poor's Corporation
Addresses
Summary Of Investment Information
Who May Want To Invest In The Corporation?
The Corporation offers investment opportunities to a wide range of investors,
from those who may be investing for the short term and wish to take little
investment risk to those with long-term goals willing to bear the risks of the
stock market for potentially greater rewards. The Corporation currently offers
the following eleven professionally-managed, diversified portfolios:
o Marshall Stock Fund ("Stock Fund")--seeks growth of capital and income by
investing primarily in common stocks of companies with an established
market;
o Marshall Value Equity Fund ("Value Equity Fund")--seeks long-term capital
growth and income by investing primarily in common and preferred stocks
selected on the basis of traditional research including assessment of
earnings, dividend growth and risk volatility of the company's industry;
o Marshall Equity Income Fund ("Equity Income Fund")--seeks above-average
dividend income with appreciation of capital by investing primarily in
common and preferred stock of companies with large capitalization;
o Marshall Mid-Cap Stock Fund ("Mid-Cap Stock Fund")--seeks appreciation of
capital by investing primarily in common and preferred stocks issued by
medium-sized companies whose market capitalizations generally range from
$200 million to $7.5 billion;
o Marshall International Stock Fund ("International Stock Fund")-- seeks
long-term capital growth by investing primarily in equity securities of
companies and governments outside the United States;
o Marshall Short-Term Income Fund ("Short-Term Income Fund")--seeks to
maximize total return consistent with current income by investing
primarily in short- to intermediate-term high-grade bonds and notes;
o Marshall Intermediate Bond Fund ("Intermediate Bond Fund")--seeks to
maximize total return consistent with current income by investing
primarily in intermediate-term high-grade bonds and notes;
o Marshall Government Income Fund ("Government Income Fund")--seeks to
provide current income by investing primarily in securities which are
issued or guaranteed as to payment of principal and interest by the U.S.
government or U.S. government agencies or instrumentalities;
o Marshall Short-Term Tax-Free Fund ("Short-Term Tax-Free Fund") -- seeks to
provide current income which is exempt from federal income tax by
investing in short-term high-grade municipal securities that generate such
income.;
o Marshall Intermediate Tax-Free Fund ("Intermediate Tax-Free 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
high-grade municipal securities that generate such income; and
o Marshall Money Market Fund ("Money Market Fund")--seeks to provide current
income consistent with stability of principal by investing in money market
instruments maturing in 397 days or less. Shares of the Money Market Fund
are offered in two separate classes: Class A Shares and Class B Shares.
Who Manages The Funds?
M&I Investment Management Corp. serves as investment adviser (the "Adviser") to
the Funds. The Adviser is owned by Marshall & Ilsley Corp. ("M&I Corp.") of
Milwaukee, Wisconsin. Templeton Investment Counsel, Inc. of Ft. Lauderdale,
Florida serves as subadviser (the "Subadviser") to the International Stock Fund.
How To Buy And Sell Shares?
You may buy and sell shares of any of the Funds through several related Marshall
& Ilsley companies by telephone, by mail or in person. All shares are both sold
and redeemed at net asset value without any sales charges. Your first purchase
in any Fund must be at least $1,000 and your later purchases must be at least
$50 each. These minimums may be waived or lowered from time to time in certain
instances, such as for M&I Corp. employees. The Corporation also offers you the
privilege of exchanging shares of one Fund for another at net asset value
without any sales charge. For more information, please see "How to Buy Fund
Shares," "How to Redeem Fund Shares," "Exchange Privilege" and "Telephone
Transactions."
What About Investment Risks?
All mutual funds, including these Funds, take investment risks. The Stock Funds
must contend with the volatility and unpredictability of the U.S. stock market.
The International Stock Fund may experience additional uncertainty in foreign
markets and with foreign currency transactions. The Income Funds invest heavily
in debt securities, whose values move in the opposite direction of prevailing
interest rates and whose exposure to market price fluctuation increase with the
lengthening of their maturities. Some of the Funds may use options and futures
contracts to hedge their investments or increase their income, although the
successful use of such investment techniques cannot be guaranteed and may result
in a loss instead. Each Fund may invest at least some of its assets in
mortgage-backed securities and may lend its
portfolio securities to other institutions.
The risks associated with these and other investments are fully explained under
"Portfolio Investments and Strategies."
In all types of investments, reward and risk go hand in hand. If you seek high
investment returns, you must be willing to assume a comparably higher level of
risk. On the other hand, if you are comfortnably with only a small amount of
risk, you should not expect a large return. Set forth below is a risk/reward
chart that explains the investment potential and corresponding risks associated
with different types of mutual funds and investments. The Marshall Funds are
listed under the relevant categories.
At the top of the chart are equity funds and stocks, which have historically
produced over the long-term a higher level of return than other types of
investments, but also have the highest potential risk. In the middle of the
chart are income funds and bonds, which offer a middle range of potential risk
and return. At the bottom of the chart are money market funds and money market
instruments, which have a lower amount of risk and return. As with any
investment, however, past performance does not predict future performance. Your
investment return will vary, and the redemption value of your mutual fund shares
may be lower than their original purchase price..
Higher Potential Return and Risk
Equity Funds and Stocks
Marshall International Stock Fund
Marshall Mid-Cap Stock Fund
Marshall Value Equity Fund
Marshall Equity Income Fund
Marshall Stock Fund
Income Funds and Bonds
Marshall Intermediate Tax-Free Fund
Marshall Intermediate Bond Fund
Marshall Government Income Fund
Marshall Short-Term Tax-Free Fund
Marshall Short-Term Income Fund
Money Market Funds and Money Market Instruments
Marshall Money Market Fund
Lower Potential Return and Risk
Summary Of Fund Expenses
[To be added by Rule 485(b) post-effective amendment]
Financial Highlights
[To be added by Rule 485(b) post-effective amendment]
Fund Objective and Policies
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without shareholder approval. While a
Fund cannot assure that it will achieve its investment objective, it attempts to
do so by following the investment policies described below.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Directors ("Directors") without shareholder approval. However,
shareholders will be notified before any material change in these policies
becomes effective.
For additional information about investment limitations, strategies that one or
more Funds may employ, and certain investment policies, please refer to the
"Portfolio Investments and Strategies" section of this prospectus.
THE EQUITY FUNDS
Marshall Stock Fund
The investment objective of the Stock Fund is to provide growth of capital and
income. The Fund pursues this objective by investing primarily in a
professionally-managed and diversified portfolio of common stocks of companies
with an established market and a history of stable earnings and/or growing
dividends. Under normal market conditions, the Fund intends to invest at least
65% of its total assets in equity securities. As a general matter, the Fund
expects these investments to generate income. The Fund's investment approach is
based on the conviction that over the long-term the economy will continue to
expand and that this economic growth will be reflected in the growth of revenues
and earnings of major corporations.
Marshall Value Equity Fund
The investment objective of the Value Equity Fund is to provide long-term
capital growth and income. The Fund pursues this objective through the
application of a value-oriented approach by investing in a broadly diversified
portfolio of common stocks, securities convertible into common stocks and
preferred stocks of medium to large capitalization companies selected on the
basis of traditional research including assessment of earnings, dividend growth
and risk/volatility of the company's industry. Under normal market conditions,
the Fund intends to invest at least 65% of its total assets in these equity
securities. In most market conditions, the stocks comprising the Fund's assets
will exhibit traditional value characteristics such as having a price/earnings
ratio less than the Standard & Poor's 500 Stock Price Index ("S&P 500"), higher
than average dividend yields, lower than average price to book value, and stocks
of companies with unrecognized or undervalued assets.
Marshall Equity Income Fund
The investment objective of the Equity Income Fund is to provide above-average
dividend income with appreciation of capital. The Fund pursues this objective by
investing in a broadly diversified portfolio of common and preferred stocks.
Under normal market conditions, the Fund intends to invest at least 65% of its
total assets in equity securities that generate dividend income. The Fund will
seek to achieve dividend income at a level of 100 basis points (or 1%) above
that earned on the stocks that comprise the S&P 500. The Fund's adviser believes
it possible to achieve a dividend level above stocks comprising the S&P 500 by
concentrating or overweighing the Fund's investments in stocks or sectors of the
stock market that have higher yields than the stocks in the S&P 500 as a whole,
such as utilities, financial institutions, and energy. However, the Fund and its
adviser cannot assure that the Fund can meet this level of income.
Marshall Mid-Cap Stock Fund
The investment objective of the Mid-Cap Stock Fund is to seek appreciation of
capital. The Fund will pursue this objective by investing, under normal market
conditions, at least 65% of its total assets in common and preferred stocks
issued by medium-sized companies whose market capitalizations generally range
from $200 million to $7.5 billion. The Fund's investment adviser will invest
primarily in equity securities of companies with above-average earnings growth
prospects or in companies where significant fundamental changes are taking
place. These changes could include significant new products, services, or
methods of distribution; restructuring or reallocating business; or significant
share price appreciation.
Marshall International Stock Fund
The investment objective of the International Stock Fund is long-term capital
growth. The Fund pursues this objective through a flexible policy of investing
in stocks and debt obligations of companies and governments outside the United
States. Under normal market conditions, at least 65% of the Fund's total assets
will be invested in securities of issuers domiciled in at least three different
nations outside the United States, and at least 65% of the Fund's total assets
will be invested in equity securities, i.e., common stocks and preferred stocks.
The Fund may also invest up to 35% of its total assets in debt securities,
warrants or rights to subscribe to or purchase equity securities, or securities
convertible into common or preferred stocks when, in the judgment of the Fund's
subadviser, the capital appreciation available through such investments outweigh
the potential for capital growth through investment in equity securities.
Certain debt securities can provide the potential for capital appreciation based
on various factors such as changes in interest rates, economic and market
conditions, improvement in an issuer's ability to repay principal and pay
interest, and ratings upgrades. The Fund may invest in debt or preferred
securities which have equity features, such as conversion or exchange rights, or
which carry warrants to purchase common stock or other equity interests. Such
equity features enable the holder of the bond or preferred security to benefit
from increases in the market price of the underlying equity security. Any
income realized by the Fund will be incidental to its investment objective of
long-term capital growth. In selecting securities, the Fund's subadviser
attempts to identify those companies in various countries and industries where
economic and political factors, including currency movements, are likely to
produce above-average opportunities for capital appreciation.
The Equity Funds' Acceptable Investments. Acceptable investments include the
following:
o common stocks of U.S. companies that are either listed on the New York or
American Stock Exchange or traded in over-the-counter markets; the
International Stock Fund may also invest in common stocks of foreign
companies;
o preferred stocks;
o convertible securities rated investment grade by a nationally recognized
rating organization ("NRSRO") (such as BBB or better by Standard & Poor's
Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"), or Baa
or better by Moody's Investors Services, Inc. ("Moody's")), or if unrated
of comparable quality as determined by the Fund's adviser or subadviser
(see "Convertible Securities" in the "Portfolios and Investment
Strategies" section);
o U.S. Government Securities, including certain Mortgage-Backed Securities
(as defined under "Portfolio Investments and Strategies");
o debt obligations (including bonds, notes and debentures); except for
International Stock Fund, these must be issued by U.S. corporations and
rated in the top three categories by an NRSRO (such as A or better by S&P,
Fitch or Moody's), or, if unrated, the Fund's adviser must determine them
to be of comparable quality; the International Stock Fund may purchase
debt obligations issued by foreign corporations and governments that are
rated investment grade by an NRSRO (such as BBB or better by S&P or Fitch,
or Baa or better by Moody's), or if unrated, are determined by the Fund's
subadviser to be of comparable quality;
o American Depositary Receipts ("ADRs"); except for International Stock
Fund, each Fund is limited to 20% of its net assets;
o Global Depositary Receipts ("GDRs") and European Depositary Receipts
("EDRs") (only the International Stock Fund);
o Asset-Backed Securities(as defined under "Portfolio Investments and
Strategies");
o put and call options on securities and indices and futures contracts
(currently the Stock Fund does not intend to engage in these transactions
and the other Equity Funds may engage in these transactions subject to the
limits discussed in the "Portfolio Investments and Strategies" section);
o Prime Commercial Paper (as defined under "Portfolio Investments and
Strategies");
o foreign and domestic Bank Instruments (as defined under "Portfolio
Investments and Strategies");
o warrants (no more than 5% of an Equity Fund's net assets);
o repurchase agreements; and
o shares of other investment companies.
Notwithstanding the limits set forth above, each Equity Fund (except the
International Stock Fund, which has no limit) may invest up to 5% of its net
assets in foreign securities other than ADRs. Additional information about
investments, investment limitations and strategies, and certain investment
policies appears in the "Portfolio Investments and Strategies" section of this
prospectus.
THE INCOME FUNDS
Marshall Short-Term Income Fund
The investment objective of the Short-Term Income Fund is to maximize total
return consistent with current income. The Fund pursues this objective by
investing in a diversified portfolio of short- to intermediate-term high-grade
bonds and notes. The Fund will maintain an average dollar-weighted maturity of
six months to three years. The targeted duration of the Fund will be 1.5 years
or less.
Marshall Intermediate Bond Fund
The investment objective of the Intermediate Bond Fund is to maximize total
return consistent with current income. The Fund pursues this objective by
investing in a diversified portfolio of intermediate-term high-grade bonds and
notes. The Fund will maintain an average dollar-weighted maturity of three to
ten years. The Fund will invest, under normal circumstances, at least 65% of the
value of its total assets in bonds.
Marshall Government Income Fund
The investment objective of the Government Income Fund is to provide current
income. The Fund pursues this objective by investing primarily in U.S.
government securities, including those issued by U.S. government agencies and
instrumentalities. Under normal circumstances, the Fund will invest at least 65%
of the value of its total assets in U.S. government securities (not including
privately issued mortgage-related securities).
The Income Funds' Acceptable Investments. Acceptable investments including the
following:
o domestic issues of corporate debt obligations (including bonds, notes and
debentures) rated in the top three categories by an NRSRO (such as A or
better by Moody's, S&P, or Fitch) or, if unrated, determined by the Fund's
adviser to be of comparable quality;
o U.S. Government Securities (as defined under "Portfolio Investments and
Strategies");
o Prime Commercial Paper (as defined under "Portfolio Investments and
Strategies");
o domestic Bank Instruments (as defined under "Portfolio Investments and
Strategies");
o repurchase agreements;
o master demand notes;
o Mortgage-Backed Securities (as defined under "Portfolio Investments and
Strategies");
o Asset-Backed Securities (as defined under "Portfolio Investments and
Strategies");
o Municipal Securities (except the Government Income Fund) (as defined under
"Portfolio Investments and Strategies"); and
o securities of other investment companies.
The Government Income Fund reserves the right to engage in options, futures and
options on futures, although it does not intend to invest in them in excess of
5% of its net assets. Additional information about investments, investment
limitations and strategies, and certain investment policies appears in the
"Portfolio Investments and Strategies" section of this prospectus.
THE TAX-FREE INCOME FUNDS
Marshall Short-Term Tax-Free Fund
The investment objective of the Short-Term Tax-Free Fund is to provide current
income which is exempt from federal income tax. Under normal circumstances, the
Short-Term Tax-Free Fund will maintain an average dollar-weighted portfolio
maturity of up to three years.
Marshall Intermediate Tax-Free Fund
The investment objective of the Intermediate Tax-Free Fund is to provide as high
a level of income which is exempt from federal income tax, as is consistent with
preservation of capital. Under normal circumstances, the Intermediate Tax-Free
Fund will maintain an average dollar-weighted portfolio maturity of three to ten
years.
The Tax-Free Income Funds' Acceptable Investments. The Tax-Free Income Funds
pursues their objectives by investing in a diversified portfolio of high-grade
Municipal Securities (as defined under "Portfolio Investments and Strategies").
As a matter of investment policy which cannot be changed without shareholder
approval, under normal market conditions, at least 80% of each Tax-Free Income
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 Tax-Free Income Funds that is exempt from
federal income tax retains its tax-free status when distributed to shareholders.
Municipal Securities are 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. These securities will be:
o rated in the top three categories by an NRSRO (such as A or better by
Moody's, S&P or Fitch), except that up to 5% of the Fund's net assets may
be invested in the fourth highest rating category of an NRSRO (such as BBB
by S&P or Fitch, or Baa by Moody's);
o guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
o fully collateralized by an escrow of U.S. government securities or other
securities acceptable to the Funds' adviser, including certain Mortgage-
Backed Securities (as defined under "Portfolio Investments and
Strategies");
o 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;
o unrated if, at the time of purchase, other Municipal Securities of that
issuer are rated the same quality as described above by an NRSRO; or
o unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Funds' adviser.
The Tax-Free Income Funds also reserve the right to engage in options, futures
and options on futures transactions, although they do not intend to invest in
them in excess of 5% of their respective net assets. Additional information
about investments, investment limitations and strategies, and certain investment
policies appears in the "Portfolio Investments and Strategies" section of this
prospectus.
THE MONEY MARKET FUND
The investment objective of the Money Market Fund is to provide current income
consistent with stability of principal. The Fund pursues this objective by
investing exclusively in a portfolio of money market instruments maturing in 397
days or less. The average maturity of securities in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less.
Shares of the Money Market Fund are offered in two classes of shares: Class A
Shares (formerly designated as Trust Shares) and Class B Shares (formerly
designated as Investment Shares). Class A Shares are sold to customers of M&I
Corp. and its affiliates or retail customers of institutions that have not
entered into a marketing arrangement or do not provide sales and/or
administrative services for the sale of Money Market Fund shares. Class B Shares
are sold through institutions and other entities that have entered into
marketing arrangements to make Money Market Fund shares available to their
clients, customers or other specified groups of investors, or that have agreed
to provide sales and/or administrative services as agents for holders of Class B
Shares.
The Money Market Fund's Acceptable Investments. The Money Market Fund invests in
high-quality money market instruments that are denominated and payable in U.S.
dollars and are either rated in the highest short-term rating category by NRSROs
or are of comparable quality to securities having such ratings. Examples of
these instruments include, but are not limited to:
o issues of domestic and foreign corporate debt obligations, including
bonds, notes, and debentures;
o commercial paper, including Eurodollar commercial paper ("Europaper");
o domestic and foreign Bank Instruments (as defined under "Portfolio
Investments and Strategies");
o demand master notes;
o U.S. Government Securities, including certain Mortgage-Backed Securities
(as defined under "Portfolio Investments and Strategies");
o repurchase agreements;
o guaranteed investment contracts;
o funding agreements; and
o short-term tranches of Asset-Backed Securities (as defined under
"Portfolio Investments and Strategies").
Regulatory Compliance. The Money Market Fund may follow non-fundamental
operational policies that are more restrictive than its fundamental investment
limitations, as set forth in this prospectus and the Statement of Additional
Information, in order to comply with applicable laws and regulations. In
particular, the Money Market Fund will comply with the various requirements of
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "Act"),
which regulates money market mutual funds. For example, Rule 2a-7 generally
prohibits the investment of more than 5% of the Money Market Fund 's total
assets in the securities of any one issuer, although the Money Market Fund's
fundamental investment limitation only requires such 5% diversification with
respect to 75% of its assets. The Money Market Fund will also determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Money Market Fund may change these operational
policies to reflect changes in the laws and regulations without shareholder
approval.
How to Buy Fund Shares
You can buy shares of a Fund at net asset value, without a sales charge, on any
day the New York Stock Exchange is open for business. You order must be received
by the Fund by 3:00 p.m. (Central Time) to get that day's net asset value. See
"Net Asset Value" below. Each Fund reserves the right to reject any purchase
request.
Trust customers of Marshall & Ilsley Trust Company ("M&I Trust Company"), M&I
Marshall & Ilsley Trust Company of Arizona and Marshall & Ilsley Trust Company
of Florida (these companies will be referred to as "M&I Trust Companies") should
contact their account officer in order to make purchase requests. Texas
residents must purchase shares through M&I Brokerage Services, Inc. ("M&I
Brokerage Services") at 1-800-236-8560. All other investors may purchase Fund
shares by contacting Marshall Funds Investor Services ("MFIS") at the phone
number below, by placing a purchase order through any authorized broker or
dealer, including through any M&I Bank employing a representative of M&I
Brokerage Services, or by any of the following methods.
Minimum Investments
$1,000 To open an Account
$50 To add to an Account (including through a Systematic
Investment Program)
The Funds may waive or lower these minimums from time to time, such as for M&I
Corp. employees.
Phone Contact MFIS. Complete an application for a new
1-800-236-8554 account. If you authorized telephone exchange
privileges in your account application or by subsequent
authorization form, you may exchange shares from another
Fund having an identical shareholder registration. See
"Telephone Transactions" below for more information.
Mail To open a new Fund account, send in your completed
account application and a check payable to "[Name of
Fund]" to:
Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348
To add to your existing Fund Account, send in your
check, payable to the Fund, to the same address.
Indicate your Fund account number on the check.
Person Bring in your completed account application (for new
accounts) and a check to any M&I Bank employing a
representative of M&I Brokerage Services, or to any
authorized broker or dealer.
Wire o First notify MFIS at 1-800-236-8554 by 3:00 p.m.
(Central Time).
o Then wire the money to:
M&I Marshall & Ilsley Bank
ABA Number 0750051
Credit to: Boston Financial Data Services Deposit
Account Number 27480
Further credit to: [Identify name of Fund; for the
Money Market Fund, also identify class of
shares]
Re: [Shareholder name and account number]
o If a new Account, mail a completed account
application to the Fund at the address above under
"Mail."
Systematic You can have money automatically withdrawn from your
checking account on
Investment Program predetermined dates and invest it in a Fund at the next
Fund share price determined
(Existing Accounts after MFIS receives the order. Call MFIS at 1-800-236-
8554 to apply for this
only) program.
Cash Sweep Programs You can have cash accumulations in demand deposit
accounts with subsidiaries
(Money Market or affiliates of M&I Corp. automatically invested in the
Money Market Fund on
Fund only) a day selected by the institution and its customer or
when the demand deposit account reaches a predetermined
dollar amount. For more information, contact _______ at
______.
Additional Information About Orders By:
Check If your check does not clear, you purchase will be canceled and you
will be charged a $15 fee. Purchases orders by check are considered
received after your check is converted by MFIS into federal funds,
which is generally the next business day after MFIS receives your
check.
Wire Your bank may charge a fee for wiring funds. Wire orders are
accepted only on days when the Funds, M&I Bank and the Federal
Reserve wire system are open for business. If your purchase order
for the Money Market Fund is received by 11:00 a.m. (Central Time)
and your wire is received by M&I Bank by 3:00 p.m. (Central Time),
you will begin receiving dividends on that day.
Net Asset Value
Shares of a Fund are sold at their share price, which is the net asset value
without any sales charge, next determined after your order is received. The net
asset value is determined for the Money Market Fund at 11:00 a.m. (Central Time)
and 3:00 p.m. (Central Time), and for all other Funds 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, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Each Fund's share price fluctuates, except that the Money Market Fund attempts
to maintain a stable $1 share price, although this cannot be guaranteed. The
net asset value of many of the Funds are listed daily in your newspaper's mutual
fund quotations section under the bold heading "Marshall Funds." A Fund's net
asset value is determined by adding the market value of all portfolio securities
and other assets, subtracting liabilities, and dividing by the number of
outstanding shares. Like most other money market funds, the Money Market Fund
uses the amortized cost method to value its portfolio securities in order to
help maintain a stable $1 share price.
How to Redeem Shares
You may redeem your Fund shares at their net asset value next determined after
the Fund receives the redemption request. Redemptions will be made on days when
the Fund computes its net asset value. See "Net Asset Value" above. 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. It is the
responsibility of MFIS and M&I Brokerage Services to promptly submit redemption
requests to a Fund. Trust customers of M&I Trust Companies should contact their
account officer in order to make redemption requests. Redemption requests for
the Funds must be received by 3:00 p.m. (Central time) in order for shares to be
redeemed at that day's net asset value. Redemption proceeds will 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 made. See "Wire/Electronic
Transfer" below.
Phone If you have authorized the telephone redemption
privilege in your account application
1-800-236-8554 or by a subsequent authorization form, you may redeem
shares by telephone. If you
(except retirement are a Trust customer, or a customer of M&I Brokerage
Services, you must contact
accounts) your account officer or account representative. See
"Telephone Transactions" below for more information.
Mail Send in your written request to the following address,
indicating your name, the Fund name (and class name for
the Money Market Fund), your account number, and the
number of shares or the dollar amount you want to
redeem:
Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348
If you want to redeem shares held in certificate form,
you must properly endorse the certificated shares and
send them by registered or certified mail.
Additional documentation may be required from
corporations, executors, administrators, trustees, or
guardians.
For additional assistance, call 1-800-236-8554.
Person Bring in written redemption request with the information
described in "Mail" above to any M&I Bank employing a
representative of M&I Brokerage Services, or to any
authorized broker or dealer.
Wire/Electronic Transfer
Upon written request, redemption proceeds can be
directly deposited by Electronic Funds Transfer or wired
directly to a domestic commercial bank previously
designated by you in your account application or by
subsequent form. Wire payments of 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. Redemption requests for the Money
Market Fund must be received by 11:00 a.m. (Central
time) if you want the proceeds to be wired the same day.
Systematic If you have a Fund account balance of at least $10,000,
then you can have
Withdrawal Program predetermined amounts of at least $100 automatically
redeemed from your Fund
(Existing Accounts account on predetermined dates on a monthly or quarterly
basis. Contact MFIS or
only) M&I Brokerages Services to apply for this program.
Checkwriting You can redeem shares of the Money Market Fund by
writing a check in amounts
(Money Market of at least $250. You must have completed the
checkwriting section of your
Fund only) account application and the attached signature card, or
have completed a subsequent application form, which you
can obtain from MFIS. Then the Fund provides you with
the checks. Your check is treated as a redemption order
for Fund shares equal to the amount of the check. A
check for an amount in excess of your Fund account
balance will be returned marked "insufficient funds."
Checks cannot be used to close your Fund account
balance.
Additional Conditions
Signature Guarantees. In the following instances, you must have a signature
guarantee on written redemption requests:
o when you are requesting a redemption of $50,000 or more,
o when you want a redemption to be sent to an address other than the one
you have on record with the Fund,
o or when you want the redemption payable to someone other than the
shareholder of record.
The Funds do not accept signatures guaranteed by a notary public. Instead, the
signatures must be guaranteed by:
o a trust company or commercial bank whose deposits are insured by the
Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
o a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
o a savings bank or savings and loan association whose deposits are
insured by the Savings Association Insurance Fund, which is
administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
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 you purchase Fund shares by
check or through the Automated Clearing House system, the proceeds from the
redemption of those shares (whether redeemed by mail, by telephone or by
checkwriting) 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.
Accounts With Low Balances. Due to the high cost of maintaining accounts with
low balances, a Fund may redeem shares in your account and pay you the proceeds
if your account balance falls below the required minimum value of $1,000. This
requirement does not apply, however, if the balance falls below the required
minimum because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, you will be notified in writing
and allowed 30 days to purchase additional shares to meet the minimum account
balance requirement.
Exchange Privilege
You may exchange shares of a Fund for shares of any of the other Funds at net
asset value without a sales charge, provided you have received a copy of the
current prospectus of the other Fund, and you meet the investment minimum of the
Fund. The exchange privilege is available to shareholders residing in any state
in which the Fund shares you are acquiring may legally be sold.
Upon receipt of proper instructions and all necessary supporting documents, the
Fund shares you submit for exchange will be redeemed at the next-determined net
asset value. Written exchange instructions may require a signature guarantee.
See "Signature Guarantees" above. An exchange is treated as a sale for federal
income tax purposes and, depending on the circumstances, you may realize a short
or long-term capital gain or loss. The exchange privilege may be terminated at
any time, and you will be notified of such termination. You may obtain further
information on the exchange privilege by calling MFIS.
Telephone Transactions
If you have completed a telephone authorization section in your account
application or have completed an authorization form obtained through MFIS or M&I
Brokerage Services, you may telephone instructions to MFIS to redeem Fund shares
or to request a purchase of Fund shares by exchanging between Fund accounts that
have identical shareholder registrations. Trust customers should contact their
account officer. Telephone exchange instructions must be received before 3:00
p.m. (Central Time) for shares to be exchanged the same day. However, you will
not receive a dividend of the Fund into which you exchange on the date of the
exchange. Telephone redemption requests are subject to the time requirements
explained above in "How to Redeem Fund Shares."
Shares held in certificate form cannot be exchanged or redeemed by telephone.
Instead, you must forward the certificates to the transfer agent through MFIS
for credit to your mutual fund account before they can be exchanged or redeemed.
Shareholders requesting a telephone exchange or redemption service authorize a
Fund and its agents to act upon their telephonic instructions to exchange or
redeem shares from any account for which they have authorized such services.
Telephone 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.
The telephone privileges may be modified or terminated at any time. You will be
notified of such modification or termination. During times of drastic economic
or market changes, you may experience difficulty in making exchanges or
redemptions by telephone through banks, brokers, and other financial
institutions. In such cases, you should make the exchange or redemption request
in writing and sent it by overnight mail.
Marshall Funds, Inc. Information
Organization and History
The Corporation was incorporated under the laws of Wisconsin on July 31, 1992.
The Corporation may offer separate series of shares representing interests in
separate portfolios of securities, and the shares in any one portfolio may be
offered in separate classes.
Management
Board of Directors. The Directors are responsible for managing the business
affairs of the Corporation and for exercising all of the powers of the
Corporation except those reserved for the shareholders.
Investment Adviser and Subadviser. Pursuant to an investment advisory contract
with the Corporation, M&I Investment Management Corp. serves as the investment
adviser (the "Adviser") to each Fund, subject to direction by the Directors.
With respect to the International Stock Fund, the Adviser has entered into a
Subadvisory Contract with Templeton Investment Counsel, Inc. ("TICI"), which
gives TICI complete discretion to purchase, manage and sell portfolio securities
for the International Stock Fund, subject to the Fund's investment objective,
policies and limitations. Although neither the Directors, the officers, nor the
Adviser evaluates the investment merits of TICI's individual security
selections, TICI's activities are subject to oversight by the Directors and
officers of the Corporation.
Advisory Fees. The Adviser is entitled to receive an annual investment advisory
fee equal to a percentage of each Fund's average daily net assets as follows:
0.50% of Money Market Fund and Short-Term Tax-Free Fund; 0.60% of Short-Term
Income Fund, Intermediate Bond Fund and Intermediate Tax-Free Fund; 0.75% of
Government Income Fund, Stock Fund, Value Equity Fund, Equity Income Fund and
Mid-Cap Stock Fund; and 1.00% of International Stock Fund. Out of the fee paid
by the International Stock Fund to the Adviser, TICI is entitled to receive an
annual fee equal to 0.50% of the International Stock Fund's daily net assets up
to $70 million and 0.40% of such assets in excess thereof. The fees of 0.75 of
1% or more may be higher than the advisory fees paid by mutual funds in general
but is comparable to the fee paid by many mutual funds with objectives and
policies similar to the Funds. 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, Subadviser or
their affiliates. If, however, such accounts, a Fund, or the Adviser or
Subadviser for its own account, are simultaneously engaged in transactions
involving the same securities, the transactions may be combined and allocated to
each account. Although this system may adversely affect the price the Funds pay
or receive, or the size of the position they obtain, it may also enable the
Funds to benefit from lower transaction costs.
Adviser's Background. M&I Investment Management Corp. is a registered investment
adviser and a wholly-owned subsidiary of Marshall & Ilsley Corp., a registered
bank holding company headquartered in Milwaukee, Wisconsin. As of December 31,
1993, M&I Investment Management Corp. had approximately $5.7 billion in assets
under management and has managed investments for individuals and institutions
since its inception in 1973. The Adviser has managed the Corporation's
portfolios since 1992, and managed the Newton Funds (predecessors to certain of
these portfolios) since 1985. As part of its regular banking operations,
affiliates of the Adviser may make loans to public companies. Thus, it may be
possible, from time to time, for the Funds to hold or acquire securities of
issuers which are also lending clients of the Adviser's affiliates. The lending
relationship will not be a factor in the selection of securities.
Subadviser's Background. TICI is a registered investment adviser and a
professional investment counseling firm which has been handling investment
services since 1979. As of October 31, 1993, TICI had discretionary investment
of $9.3 billion in assets. TICI is indirectly owned by Franklin Resources, Inc.
which engages in various aspects of the financial services industry through its
subsidiaries.
TICI and its affiliates serve as advisers for a wide variety of mutual funds and
private clients in many nations. TICI, its affiliates and their predecessors
have been investing globally over the past 51 years and provide investment
management and advisory services to a worldwide client base, including over 2.9
million mutual fund shareholders, foundations and endowments, employee benefit
plans and individuals. TICI and its affiliates have approximately 3,200
employees in ten different countries and a global network of over 50 investment
research sources. TICI is supported by the Templeton organization's large staff
of research analysts, traders and other investment specialists based in Fort
Lauderdale, Nassau, New York, Edinburgh, Toronto, Hong Kong, Melbourne, and
Singapore. Templeton's research analysts use a disciplined, long-term approach
to value-oriented global and international investing. Securities are selected
for the International Stock Fund's portfolio from a list of eligible securities
maintained and constantly updated by Templeton's analysts on the basis of
fundamental analysis, which utilizes a global database of information on
issuers. TICI believes that the Templeton organization's team approach benefits
International Stock Fund investors by bringing together many disciplines and
leveraging the organization's extensive resources.
Portfolio Management Team. The Stock Fund is managed by Charles L. Melhouse.
Mr. Melhouse has been a Vice President with M&I Investment Management Corp.
since May 1993. Mr. Melhouse also served as Managing Director of Texas Commerce
Investment Management Company in Houston from 1987 to 1993. Mr. Melhouse is a
Chartered Financial Analyst and holds an M.A. degree from Michigan State
University as well as a B.A. degree from Macalaster College.
The Value Equity Fund is managed by Gerry M. Sandel who has been a Vice
President with M & I Investment Management Corp. since October 1993. Mr. Sandel
previously served as Vice President, Chairman of the Stock Selection Committee
and Director of Equity Research at Acorn Asset Management Corporation,
Bloomfield Hills, Michigan from June 1991 to September 1993. From 1987 to 1991,
Mr. Sandel served as a Vice President, Equity Research Analyst and Portfolio
Manager at Abraham & Sons Asset Management, Inc., Chicago, Illinois. Mr. Sandel
holds a Master of International Management degree from the American Graduate
School in Phoenix, Arizona and a B.S. degree from the University of Southern
Mississippi in Hattiesburg.
The Equity Income Fund is managed by Bruce P. Hutson, who has been a Vice
President with M&I Investment Management Corp. since 1973 and has been a member
of the Equity Policy Group, which manages mutual funds, since January 1990. Mr.
Hutson holds a B.B.A. degree from the University of Wisconsin-Whitewater.
Effective December 1993, the Mid-Cap Stock Fund is managed by Steven D. Hayward.
Prior to joining M&I Investment Management Corp. as a Vice President in December
1993, Mr. Hayward served as Senior Portfolio Manager of Amoco Corporation. Mr.
Hayward, who is a Chartered Financial Analyst, received a B.A. in Economics from
North Park College, and an MBA in Finance from Loyola University.
The International Stock Fund is managed by James E. Chaney, Vice President of
TICI. Prior to joining the Templeton organization in 1991, Mr. Chaney spent six
years with GE Investments, where he was vice president of international
equities. He also has another seven years experience as an international
consulting engineer and project manager for Camp, Dresser & McKee, Inc. and
American British Consultants. Mr. Chaney holds an M.B.A. with Honors from
Columbia University, an M.S. in Engineering from Northeastern University, with a
B.S. in Engineering from the University of Massachusetts-Amherst.
The Short-Term Income Fund, Intermediate Bond Fund, and Government Income Fund
are managed by Lawrence J. Pavelec, and effective July 1994, the Short-Term
Income Fund is co-managed by Mark D. Pittman. Mr. Pavelec is a Vice President
and the Director of Fixed Income for M&I Investment Management Corp. Mr. Pavelec
joined Marshall & Ilsley Bank in 1982 and M&I Investment Management Corp. in
September 1985. Since 1988, he has been managing total return fixed income
portfolios. He has been a member of M&I Investment Management Corp.'s Fixed
Income Policy Group since 1985 and became Chairman in August 1993. He has
managed the Short-Term Income Fund since its inception in December 1992, and
assumed the management of the Intermediate Bond Fund and Government Income Fund
in August 1993. Mr. Pavelec is a Chartered Financial Analyst and holds a B.S.
degree from the University of Wisconsin-LaCrosse. Mr. Pittman is an Assistant
Vice President of M&I Investment Management Corp., which he joined in June 1994.
Prior to that time, he spent five years with Valley Trust Company managing fixed
income portfolios and common trust funds. In addition, he was a member of the
Valley Trust Company Investment Committee and Asset Allocation Committee. Mr.
Pittman is a Chartered Financial Analyst and holds M.B.A. and B.B.A. degrees in
Finance from the University of Wisconsin-Madison.
The Tax-Free Income Funds are managed by 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., a subsidiary of Federated Investors, is the
principal distributor for shares of the Funds and a number of other investment
companies. The distributor may offer certain items of nominal value from time to
time to any shareholder or investor in connection with the sale of Fund shares.
Administrative Arrangements. The distributor may select brokers, dealers and
administrators (including depository or other institutions such as commercial
banks and savings and loan associations) to provide distribution and/or
administrative services for which they will receive fees from the distributor
based upon shares owned by their clients or customers. These administrative
services include distributing prospectuses and other information, providing
account assistance, and communicating or facilitating purchases and redemptions
of the Funds' shares. 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.
Distribution Plan. Under a Rule 12b-1 Plan (the "Plan"), the Money Market Fund
will pay to the distributor on behalf of Class B Shares an amount computed at an
annual rate of 0.30 of 1% of the average daily net asset value of Class B
Shares, and International Stock Fund may pay the distributor an amount computed
at an annual rate of 0.25% of the International Stock Fund's average daily net
assets, in each case to finance any activity which is principally intended to
result in the sale of the shares subject to the Plan ("Plan Shares"). The
International Stock Fund has no present intention of paying or accruing 12b-1
fees during the fiscal year ending August 31, 1995. The distributor may, from
time to time and for such periods as it deems appropriate, voluntarily reduce
its compensation under the Plan.
The distributor may select certain entities to provide sales and/or
administrative services as agents for holders of Plan Shares. Administrative
services may include, but are not limited to, the following functions: providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Plan Shares; assisting
clients in changing dividend options, account designations, and addresses; and
providing such other services as these Funds reasonably request. Such entities
will receive fees from the distributor based upon Plan Shares owned by their
clients or customers. The schedules of such fees and the basis upon which such
fees will be paid will be determined from time to time by the distributor.
The Funds' Plan is a compensation type plan. As such, the Funds make no payments
to the distributor except as described above. Therefore, the Funds do not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Funds
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Directors will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law. In addition, some
state securities laws may require administrators to register as brokers and
dealers.
Other Payments to Financial Institutions. The distributor, the Adviser or
their affiliates, at their own expense and out of their own assets, may also
provide other compensation to institutions in connection with sales of Fund
shares or as financial assistance for providing substantial marketing, sales and
operational support. The support may include initiating customer accounts,
providing sales literature, or participating in sales, educational and training
seminars (including those held at recreational facilities). Such assistance
will be predicated upon the amount of shares of the Fund or the Corporation the
institution sells or may sell and/or upon the type and nature of sales,
operational or marketing support furnished by the institution. Any payments
made by the distributor may be reimbursed by the Adviser or its affiliates.
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:
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Corporation
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to reimburse
a portion of its fee at any time.
Shareholder Servicing Arrangements. Marshall Funds Investor Services ("MFIS"),
Milwaukee, Wisconsin, a subsidiary of M&I Corp., 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 voluntarily choose to waive all or a portion of
its fee at any time.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser and TICI look for prompt execution of the order at a
favorable price. In working with dealers, the Adviser and TICI will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained elsewhere.
In selecting among firms believed to meet these criteria, the Adviser and TICI
may give consideration to those firms which have sold or are selling shares of
the Funds and other funds distributed by Federated Securities Corp. or
Franklin/Templeton Distributors, Inc. The Adviser and TICI make decisions on
portfolio transactions and select brokers and dealers subject to review by the
Directors.
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; Director's
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.
Shareholder Information
Certificates and Confirmations
As transfer agent for the Funds, Federated Services Company maintains a share
account for each shareholder of record. Upon written request, you can receive
share certificates without charge, but only for whole shares of a Fund. You may
contact MFIS to direct the transfer agent to issue you certificates or deliver
certificates for redemption or credit to your account.
The Money Market Fund send you monthly confirmations to report all transactions
such as purchases, redemptions, and dividends paid during the month. The other
Funds send you a detailed confirmation of each purchase or redemption or
dividend payment. At a minimum, you will receive a monthly statement. You may
request photocopies of confirmations for transactions affecting your account in
prior years at a fee of $5 per year per Fund to cover the cost of obtaining this
information.
Dividends and Capital Gains
Dividends of the Money Market Fund and Tax-Free Income Funds are declared daily
and paid monthly. Dividends of the Income Funds are declared and paid monthly.
Dividends of the Equity Funds are declared and paid quarterly, except for the
International Stock Fund, which declares and pays dividends annually. Only
shareholders invested in the particular Fund on the record date of the dividend
declaration are paid that dividend. Capital gains, when realized by a Fund, will
be distributed at least once every 12 months. Unless you request cash payments
by writing to your Fund, your dividends and capital gains are automatically
reinvested in additional shares of the respective Fund on payment dates at the
ex-dividend date net asset value.
Common Stock and Voting Rights
The Directors have authorized the issuance of shares of Common Stock repesenting
ownership interests in each of the Funds. You are entitled to one vote for each
full share of Common Stock and proportionate fractional votes for fractional
shares. All shares of each Fund or class in the Corporation have equal voting
rights and will generally vote in the aggregate and not by Fund or class, unless
required by law. For example, only shares of a particular Fund or class are
entitled to vote on matters affecting that Fund or class. Voting rights are not
cumulative; consequently, the holders of more than 50% of the Corporation's
shares of Common Stock can elect the entire Board of Directors.
The Corporation does not intend to hold annual meetings of shareholders, unless
required by the Act or applicable law. Directors may be removed by the
shareholders at a special meeting, which may be called by the Directors upon
written request of shareholders owning at least 10% of the Corporation's
outstanding voting shares.
As of November 30, 1994, Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, acting in various capacities for numerous accounts, was
the owner of record of more than 25% of the outstanding shares of the designated
Fund: [___]; and therefore, may for certain purposes, be deemed to control
these Funds and be able to affect the outcome of certain matters presented for a
vote of shareholders. As of November 30, 1994, Maril & Co., Marshall & Ilsley
Trust Co., Milwaukee, Wisconsin, acting in various capacities for numerous
accounts, was the owner of record of more than 25% of the outstanding shares of
the designated Fund: [___]; and therefore, may for certain purposes, be deemed
to control these Funds and be able to affect the outcome of certain matters
presented for a vote of shareholders. As of November 30, 1994, Maril & Co.,
Milwaukee, Wisconsin, acting in various capacities for numerous accounts, was
the owner of record of [___], and therefore, may for certain purposes, be deemed
to control this Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders. As of November 30, 1994, Vallee, Marshall
& Ilsley Trust Operations, Milwaukee, Wisconsin, acting in various capacities
for numerous accounts, was the owner of record of [___], and therefore, may for
certain purposes, be deemed to control this Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
Performance Information
From time to time, all of the Funds may advertise total return and yield, the
Money Market Fund may advertise its effective yield, and the Tax-Free Funds may
advertise their tax-equivalent yields.
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 for the Money Market Fund represents the annualized rate of income
earned on an investment in its shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The Class A
Shares and Class B Shares of the Money Market Fund will each have their own
yields. Because Class A Shares are not subject to 12b-1 fees, their yields will
be higher than yields of Class B Shares.
The yield for the other Funds is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by a Fund over a thirty-day period by the 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 is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that a Tax-Free Income 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 a 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.
Portfolio Investments and Strategies
Asset-Backed Securities. The Equity Funds and the Income Funds may invest in
Asset-Backed Securities rated, at the time of purchase, in the top three rating
categories, by an NRSRO (A or better by S&P, Fitch or Moody's), or, if unrated,
of comparable quality as determined by the Fund's investment adviser or
subadviser. The Money Market Fund may invest in short-term tranches of Asset
Backed-Securities that meet the rating and maturity requirements of Rule 2a-7.
However, only the Income Funds expect that they might exceed 5% of their
respective net assets in these securities. Asset-Backed Securities have
structural characteristics similar to Mortgage-Backed Securities but have
underlying assets that generally are not mortgage loans or interests in mortgage
loans. The Funds may invest in Asset-Backed Securities including, but not
limited to, interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables, equipment leases, manufactured
housing (mobile home) leases, or home equity loans. These securities may be in
the form of pass-through instruments or asset-backed bonds. The securities are
issued by non-governmental entities and carry no direct or indirect government
guarantee.
Bank Instruments. The Funds may invest in domestic Bank Instruments, which are
instruments (including time and savings deposits, bankers' acceptances and
certificates of deposit) of banks and savings and loans that have capital,
surplus and undivided profits of over $100 million or for which the principal
amount of the instrument is insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, which are administered by the Federal Deposit
Insurance Corporation. The International Stock Fund, the Money Market Fund, and
to a limited extent the other Equity Funds may purchase foreign Bank
Instruments, which include Eurodollar Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs").
ECDs are U.S. dollar-denominated certificates of deposits issued by foreign
branches of U.S. banks or foreign banks. Yankee CDs are U.S. dollar-denominated
certificates of deposits issued in the U.S. by branches and agencies of foreign
banks. ETDs are U.S. dollar-denominated deposits in foreign branches of U.S.
banks or foreign banks. The Income Funds and the Tax-Free Income Funds reserve
the right to invest in foreign Bank Instruments, although they do not presently
intend to so invest. The Funds will treat securities credit enhanced with a
bank's irrevocable letter of credit or unconditional guaranty as Bank
Instruments.
Borrowing. While each of the Funds is permitted as a fundamental investment
policy to borrow money from banks or through reverse repurchase agreements
(arrangements in which a Fund sells a portfolio instrument for a percentage of
its cash value with an agreement to buy it back on a set date) in amounts of up
to one-third of its total assets ("net" assets for the Money Market Fund, Short-
Term Income Fund and Intermediate Bond Fund), and pledge some assets as
collateral, only the International Stock Fund expects that it might exceed 5%.
This is because the International Stock Fund, unlike the other Funds, may borrow
money to purchase some of its portfolio securities, i.e., it may use "leverage."
Leveraging tends to exaggerate the effect on the Fund's net asset value of
changes in the value of its portfolio securities. Also, the Fund must pay
interest on borrowed money and may incur other costs, and these expenses could
exceed the income received or capital appreciation realized by the Fund from the
securities it purchases with borrowed money.
Convertible Securities. The Equity Funds may invest in convertible securities
which are rated, at the time of purchase, investment grade by an NRSRO (such as
BBB or better by S&P or Fitch, or Baa or better by Moody's), or, if unrated, are
of comparable quality as determined by the Fund's investment adviser or
subadviser. Convertible securities are fixed income securities which may be
exchanged or converted into a predetermined number of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and warrants
or a combination of the features of several of these securities. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives. In
selecting a convertible security, the Fund's adviser or subadviser evaluates the
investment characteristics of the convertible security as a fixed income
instrument, and the investment potential of the underlying security for capital
appreciation.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. Convertible securities are senior to equity securities,
and therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. A Fund
will exchange or convert the convertible securities held in its portfolio into
shares of the underlying common stocks when, in the opinion of the Fund's
investment adviser or subadviser, the investment characteristics of the
underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, the Fund will hold or trade the convertible securities.
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.
Demand Features. Each of 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 the Funds). 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. A Fund uses these arrangements to provide it 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.
Demand Master Notes. The Short-Term Income Fund, Intermediate Bond Fund and
Money Market Fund may invest in variable amount demand master notes. Demand
notes are short-term borrowing arrangements between a corporation or government
agency and an institutional lender (such as the Funds) payable upon demand by
either party. The notice period for demand typically ranges from one to seven
days, and the party may demand full or partial payment. Many master notes give
the Funds the option of increasing or decreasing the principal amount of the
master note on a daily or weekly basis within certain limits. Demand master
notes usually provide for floating or variable rates of interest.
Depositary Receipts. The International Stock Fund may invest in foreign issuers
by purchasing sponsored or unsponsored ADRs, GDRs and EDRs (collective,
"Depositary Receipts"). The other Equity Funds may invest only in ADRs. ADRs
are Depositary Receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Ownership of
unsponsored Depositary Receipts may not entitle a Fund to financial or other
reports from the issuer of the underlying security, to which it would be
entitled as the owner of sponsored Depositary Receipts. Depositary Receipts
also involve the risks of other investments in foreign securities.
Fixed Rate Debt Obligations. The Funds may invest in fixed rate securities,
including fixed rate securities with short-term characteristics. Fixed rate
securities with short-term characteristics are long-term debt obligations but
are treated in the market as having short maturities because call features of
the securities may make them callable within a short period of time. A fixed
rate security with short-term characteristics would include a fixed income
security priced close to call or redemption price or fixed income security
approaching maturity, where the expectation of call or redemption is high.
Fixed rate securities exhibit more price volatility during times of rising or
falling interest rates than securities with floating rates of interest. This is
because floating rate securities, as described below, behave like short-term
instruments in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate securities pay
a fixed rate of interest and are more sensitive to fluctuating interest rates.
In periods of rising interest rates the value of a fixed rate security is likely
to fall. Fixed rate securities with short-term characteristics are not subject
to the same price volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate securities with
respect to price volatility.
Floating Rate Debt Obligations. The Funds may invest in floating rate debt
obligations, including increasing rate securities. Floating rate securities are
generally offered at an initial interest rate which is at or above prevailing
market rates. The interest rate paid on these securities is then reset
periodically (commonly every 90 days to an increment over some predetermined
interest rate index). Commonly utilized indices include the three-month Treasury
bill rate, the 180-day Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial paper
rates, or the longer-term rates on U.S. Treasury securities.
Increasing rate securities' rates are reset periodically at different levels on
a predetermined scale. These levels of interest are ordinarily set at
progressively higher increments over time. Some increasing rate securities may,
by agreement, revert to a fixed rate status. These securities may also contain
features which allow the issuer the option to convert the increasing rate of
interest to a fixed rate under such terms, conditions, and limitations as are
described in each issuer's prospectus.
Foreign Currency Transactions. The International Stock Fund may enter into
foreign currency transactions to obtain the necessary currencies to settle
securities transactions. Currency transactions may be conducted either on a spot
or cash basis at prevailing rates or through forward foreign currency exchange
contracts.
The International Stock Fund may also enter into foreign currency transactions
to protect its assets against adverse changes in foreign currency exchange rates
or exchange control regulations. Such changes could unfavorably affect the value
of Fund assets which are denominated in foreign currencies, such as foreign
securities or funds deposited in foreign banks, as measured in U.S. dollars.
Although foreign currency exchanges may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations. Cross-
hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.
Forward Foreign Currency Exchange Contracts and Options on Foreign
Currencies. The International Stock Fund may enter into a forward foreign
currency exchange contract ("forward contract"), which is an obligation to
purchase or sell an amount of a particular currency at a specific price
and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
International Stock Fund enters into a forward contract, Fund assets with
a value equal to the Fund's obligation under the forward contract are
segregated on the Fund's records and are maintained until the contract has
been settled. The Fund generally will not enter into a forward contract
with a term of more than one year. The Fund will generally enter into a
forward contract to provide the proper currency to settle a securities
transaction at the time the transaction occurs ("trade date"). The period
between trade date and settlement date will vary between twenty-four hours
and thirty days, depending upon local custom.
The International Stock Fund may also protect against the decline of a
particular foreign currency by entering into a forward contract to sell an
amount of that currency approximating the value of all or a portion of the
Fund's assets denominated in that currency ("hedging"). The success of
this type of short-term hedging strategy is highly uncertain due to the
difficulties of predicting short-term currency market movements and of
precisely matching forward contract amounts and the constantly changing
value of the securities involved. Although the Fund's subadviser will
consider the likelihood of changes in currency values when making
investment decisions, the subadviser believes that it is important to be
able to enter into forward contracts when it believes the interests of the
Fund will be served. The Fund will not enter into forward contracts for
hedging purposes in a particular currency in an amount in excess of the
Fund's assets denominated in that currency.
The International Stock Fund may purchase and write put and call options
on foreign currencies for the purpose of protecting against declines in
the U.S. dollar value of foreign currency-denominated portfolio securities
and against increases in the U.S. dollar cost of such securities to be
acquired. As in the case of other kinds of options, however, the writing
of an option on a foreign currency constitutes only a partial hedge, up to
the amount of the premium received, and the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on a foreign currency
may constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements adverse to the Fund's position,
it may forfeit the entire amount of the premium plus related transaction
costs. Options on foreign currencies to be written or purchased by the
Fund are traded on U.S. and foreign exchanges or over-the-counter.
Forward Commitments. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The International
Stock Fund may enter into these contracts if liquid securities in amounts
sufficient to meet the purchase price are segregated on the Fund's records at
the trade date and maintained until the transaction has been settled. Risk is
involved if the value of the security declines before settlement. Although the
Fund enters into forward commitments with the intention of acquiring the
security, it may dispose of the commitment prior to settlement and realize a
short-term profit or loss.
Illiquid Securities. These are any securities a Fund owns which it may not be
able to sell quickly (within seven days) at a fair price. The Money Market Fund
must limit such investments to 10% of its net assets while the other Funds may
not exceed 15% of their respective net assets.
Lending Portfolio Securities. In order to generate additional income, each of
the Funds is permitted as a fundamental investment policy to lend portfolio
securities on a short-term or long-term basis, or both, up to one-third of the
value of its respective total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Funds will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser or subadviser has determined are creditworthy under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to at least 100% of the value of the
securities loaned.
Mortgage-Backed Securities. The Funds may invest in Mortgage-Backed Securities
rated, at the time of purchase, in the top three rating categories by an NRSRO
(A or better by S&P, Fitch or Moody's), or, if unrated, of comparable quality as
determined by the Fund's investment adviser or subadviser, or in the case of the
Money Market Fund meet the ratings requirements of Rule 2a-7. Mortgage-Backed
Securities are securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans on real property. All of
the Funds may invest in Mortgage-Backed Securities that are issued or guaranteed
by the U.S. government or one of its agencies or instrumentalities, such as
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan National Mortgage
Corporation ("Freddie Mac"). Additionally, the Income Funds may invest in
Mortgage-Backed Securities (i) issued by private issuers that represent an
interest in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities
and (ii) issued by private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities without a government
guarantee but usually having some form of private credit enhancement.
Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities
("ARMS") are pass-through mortgage securities with adjustable rather than
fixed interest rates. The ARMS in which the Funds invest are issued by
Ginnie Mae, Fannie Mae, and Freddie Mac and are actively traded. The
underlying mortgages which collateralize ARMS issued by Ginnie Mae are
fully guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing ARMS issued by Fannie
Mae or Freddie Mac are typically conventional residential mortgages
conforming to strict underwriting size and maturity constraints.
Collateralized Mortgage Obligations. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie
Mae, Fannie Mae or Freddie Mac certificates, but may be collateralized by
whole loans or private pass-through securities. CMOs may have fixed or
floating rates of interest.
The Short-Term Income Fund and Intermediate Bond Fund will only invest in
CMOs which are rated in the top three rating categories by an NRSRO (A or
better by S&P, Fitch or Moody's), and which may be (a) collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S.
government; (b) collateralized by pools of mortgages in which payment of
principal and interest is guaranteed by the issuer and such guarantee is
collateralized by U.S. government securities; or (c) collateralized by
pools of mortgages without a government guarantee as to payment of
principal and interest, but which have some form of credit enhancement.
The Government Income Fund may invest in CMOs which may be: (i)
collateralized by pools of mortgages in which each mortgage is guaranteed
as to payment of principal and interest by an agency or instrumentality of
the U.S. government; (ii) collateralized by pools and mortgages in which
payment of principal and interest are guaranteed by the issuer and such
guarantee is collateralized by U.S. government securities; or (iii)
privately issued securities in which the proceeds of the issuance are
invested in Mortgage-Backed Securities and payment of the principal and
interest is supported by the credit of any agency or instrumentality of
the U.S. government.
Real Estate Mortgage Investment Conduits. Real estate mortgage investment
conduits ("REMICs") are offerings of multiple class real estate Morgage-
Backed Securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs may take
several forms, such as trusts, partnerships, corporations, associations or
a segregated pool of mortgages. Once REMIC status is elected and obtained,
the entity is not subject to federal income taxation. Instead, income is
passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable rates,
and a single class of "residual interests." To qualify as a REMIC,
substantially all of the assets of the entity must be in assets directly
or indirectly secured principally by real property.
Municipal Securities. The Tax-Free Income Funds, the Short-Term Income Fund and
the Intermediate Bond Fund may invest in Municipal Securities, which 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.
Municipal Leases. The Tax-Free Income Funds may purchase municipal leases,
which 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 these.
Participation Interests. The Tax-Free Income 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.
Options On Securities or Indices and Futures Contracts. (These are not
applicable to the Money Market Fund, Short-Term Income Fund, or Intermediate
Bond Fund. The International Stock Fund may invest more than 5% of its net
assets in these investments. The Mid-Cap Stock Fund may invest more than 5% of
its net assets in futures. None of the other Funds intends to invest more than
5% of its net assets in these investments. The ability to engage in futures
transactions is a fundamental investment policy.) In order to hedge against
market shifts, a Fund may purchase put and call options on securities or
securities indices. In addition, a Fund may seek to generate income to offset
operating expenses and/or may hedge a portion of its portfolio investments
through writing (i.e., selling) covered put and call options. An option on a
security is a contract that permits the purchaser of the option, in return for
the premium paid, the right to buy a specified security (in the case of a call
option) or to sell a specified security (in the case of a put option) from or to
the writer of the option at a designated price during the term of the option. An
option on a securities index permits the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option. A Fund may write a call or put option only if the option is "covered."
This means that so long as the Fund is obligated as the writer of a call option,
it will own the underlying securities subject to the call, or hold a call at the
same exercise price, for the same exercise period, and on the same securities as
the written call. A put is covered if the Fund maintains liquid assets with a
value equal to the exercise price in a segregated account, or holds a put on the
underlying securities at an equal or greater exercise price. The value of the
underlying securities on which options may be written at any one time will not
exceed 25% of the total assets of a Fund. A Fund will not purchase put or call
options if the aggregate premium paid for such options would exceed 5% of its
total assets at the time of the purchase.
Options purchased or written by a Fund may be traded on United States and
foreign exchanges or in the over-the-counter markets. 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 expirations dates and are purchased from a
clearing corporation. Exchange-traded options generally have a continuous liquid
market while over-the-counter options may not. A Fund purchases and writes
options only with investment dealers and other financial institutions (such as
commercial banks or savings and loan associations) deemed creditworthy by the
Fund's investment adviser or subadviser.
For hedging purposes only, a Fund may buy and sell covered financial futures
contracts, stock index futures contracts, foreign currency futures contracts and
options on any of the foregoing. A financial futures contract is an agreement
between two parties to buy or sell a specified debt security at a set price on a
future date. An index futures contract is an agreement to take or make delivery
of an amount of cash based on the difference between the value of the index at
the beginning and at the end of the contract period. A futures contract on a
foreign currency is an agreement to buy or sell a specified amount of a currency
for a set price on a future date. When a Fund enters into a futures contract, it
must make an initial deposit, known as "initial margin," as a partial guarantee
of its performance under the contract. As the value of the security, index, or
currency fluctuates, either party to the contract is required to make additional
margin payments, known as "variation margin," to cover any additional obligation
it may have under the contract. In addition, when a Fund enters into a futures
contract, it will segregate assets to "cover" its position in accordance with
the Act. See "Investment Objectives and Policies - Futures and Options
Transactions" in the Statement of Additional Information.
Prime Commercial Paper. The Funds may purchase Prime Commercial Paper, which is
a short-term debt obligation that matures in 270 days or less, is issued by
banks, corporations or other institutions, and is rated A-1 or A-2 by S&P,
Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch.
Portfolio Turnover. Although none of the Funds intends to invest for the purpose
of seeking short-term profits, securities will be sold whenever the Fund's
investment adviser or subadviser believes it is appropriate to do so in light of
the Fund's investment objective, without regard to the length of time a
particular security may have been held. The annual rate of portfolio turnover
for the Government Income Fund and Intermediate Bond Fund may exceed that of
certain other mutual funds with the same investment objective. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. Nevertheless, transactions for a Fund's
portfolio will be based upon investment considerations and will not be limited
by any other considerations when the Fund's investment adviser or subadviser
deems it appropriate to make changes in the Fund's portfolio.
Ratings. Securities rated in the fourth highest investment grade category (Baa
by Moody's, or BBB by S&P or Fitch), have speculative characteristics and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than higher rated
securities. The Funds' Statement of Additional Information contains complete
descriptions of ratings.
A Fund's adviser or subadviser will evaluate downgraded securities on a case-by-
case basis and will sell any security determined not to be an acceptable
investment.
An NRSRO's highest rating category is determined without regard for sub-
categories and gradations. For example, securities rated A-1 or A-1+ by S&P or
Prime-1 by Moody's are all considered rated in the highest short-term rating
category. The Money Market Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated as
being in the highest short-term rating category; currently, such securities must
be rated by two NRSROs in their highest rating category. Single rated securities
which are rated in a highest rating category by an NRSRO and unrated securities
may be treated as "First Tier" securities and are eligible for purchase by the
Money Market Fund, subject to a determination of comparability by the adviser.
Acquisition of such securities must be ratified by the Directors quarterly.
Restricted Securities. Each of the Funds may invest in restricted securities.
These are securities in which each Fund normally invests but which are subject
to legal restrictions when a Fund sells them. Restricted securities which are
not determined by the Directors to be liquid will be limited to 5% of total
assets for the Equity Funds and 10% of total assets for all other Funds.
Repurchase Agreements. The securities in which the Funds invest may be purchased
pursuant to repurchase agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to a Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price. 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.
Securities of Other Investment Companies. Each of the Funds may invest in the
securities of other investment companies, but will not own more than 3% of the
total outstanding voting stock of any investment company, invest more than 5% of
its respective total assets in any one investment company, or invest more than
10% of its respective total assets in investment companies in general. Except
for the International Stock Fund, the Funds will invest in other investment
companies primarily for the purpose of investing short-term cash which has not
yet been invested in other portfolio instruments. Although the adviser will
waive its investment advisory fee on that portion of a Fund's assets invested in
securities of open-end investment companies, there will still be some
duplication of expenses caused by one investment company investing in another.
The International Stock Fund may invest indirectly in foreign capital markets by
purchasing shares of closed-end investment companies, but generally only in
open-market transactions involving only
customary brokerage commissions. Sometimes
the Fund may pay a premium over net asset value for such shares.
The Funds will only purchase shares of other open-end investment companies whose
sales loads, if any, are less than 1.00% of their offering prices.
Temporary Investments. When the adviser or subadviser judges that market
conditions warrant a defensive investment position (this rarely applies to the
Money Market Fund), each of the Funds may temporarily invest without limit in
short-term debt obligations (money market instruments). These investments
include commercial paper, bank instruments, U.S. government obligations,
repurchase agreements, securities of other investment companies, taxable or tax-
free Municipal Securities (for the Tax-Free Income Funds) and foreign securities
(for the International Stock Fund). The Tax-Free Income Funds do not currently
intend to make any taxable investments although they are permitted to do so.
Each Fund's temporary investments must be of comparable quality to its primary
investments.
U.S. Government Securities All of the Funds may invest in U.S. Government
Securities, which generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations (including
Morgage-Backed Securities, bonds, notes and discount notes) issued or guaranteed
by the following U.S. government agencies or instrumentalities: Federal Home
Loan Banks, Federal National Mortgage Association, Government National Mortgage
Association, Bank for Cooperatives (including Central Bank for Cooperatives),
Federal Land Banks, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Export-Import Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, The Student Loan Marketing Association,
Federal Home Loan Mortgage Corporation, or National Credit Union Administration.
These securities are backed by: the full faith and credit of the U.S. Treasury;
the issuer's right to borrow an amount limited to a specific line of credit from
the U.S. Treasury; the discretionary authority of the U.S. government to
purchase certain obligations of agencies or instrumentalities; or the credit of
the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which are permissible investments
which may not always receive financial support from the U.S. government are:
Federal Farm Credit Banks; Federal Home Loan Banks; Federal National Mortgage
Association; The Student Loan Marketing Association; and Federal Home Loan
Mortgage Corporation.
Variable Rate Demand Notes. Each of the Funds may purchase variable rate demand
notes, which are long-term debt instruments that have variable or floating
interest rates and provide the 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 published interest
rate or interest rate index. Many 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.
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. The seller's failure to complete these
transactions may cause a Fund to miss a price or yield considered to be
advantageous. 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. Accordingly, a Fund may pay more or less than the market
value of the securities on the settlement date.
The Funds may dispose of a commitment prior to settlement if the adviser or
subadviser deems it appropriate to do so. In addition, a Fund may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
Additional Investment Risks
Debt Market. 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 or subadviser. The Funds' investment adviser or subadviser 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.
Mortgage-Backed and Asset-Backed Securities. Mortgage-Backed and Asset-
Backed Securities generally pay back principal and interest over the life
of the security. At the time a Fund reinvests the payments and any
unscheduled prepayments of principal received, such Fund may receive a
rate of interest which is actually lower than the rate of interest paid on
these securities ("prepayment risks"). Mortgage-backed and Asset-Backed
Securities are subject to higher prepayment risks than most other types of
debt instruments with prepayment risks because the underlying mortgage
loans or the collateral supporting Asset-Backed Securities may be prepaid
without penalty or premium. Prepayment risks on Morgage-Backed Securities
tend to increase during periods of declining mortgage interest rates
because many borrowers refinance their mortgages to take advantage of the
more favorable rates. Prepayments on Morgage-Backed Securities are also
affected by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their mortgages.
Although Asset-Backed Securities generally are less likely to experience
substantial prepayments than are Morgage-Backed Securities, certain
factors that affect the rate of prepayments on Morgage-Backed Securities
also affect the rate of prepayments on Asset-Backed Securities.
While Morgage-Backed Securities generally entail less risk of a decline
during periods of rapidly rising interest rates, Morgage-Backed Securities
may also have less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities) because as
interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if Morgage-Backed Securities are purchased at a
premium, mortgage foreclosures and unscheduled principal payments may
result in some loss of a holder's principal investment to the extent of
the premium paid. Conversely, if Morgage-Backed Securities are purchased
at a discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
Asset-Backed Securities present certain risks that are not presented by
Morgage-Backed Securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on
the credit cards, thereby reducing the balance due. Most issuers of Asset-
Backed Securities backed by motor vehicle installment purchase obligations
permit the service of such receivables to retain possession of the
underlying obligations. If the service sells these obligations to another
party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related Asset-Backed Securities.
Further, if a vehicle is registered in one state and is then re registered
because the owner and obligor moves to another state, such reregistration
could defeat the original security interest in the vehicle in certain
cases. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee
for the holders of Asset-Backed Securities backed by automobile
receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases, be
available to support payments on these securities.
Municipal Securities. 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 a Fund to achieve its investment objective 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.
Stock Market. As with other mutual funds that invest primarily in equity
securities, the Equity Funds are subject to market risks. That is, the
possibility exists that common stocks will decline over short or even extended
periods of time, and the United States equity market tends to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease.
Medium Capitalization Stocks. Stocks in the medium capitalization sector
of the United States equity market tend to be slightly more volatile in
price than larger capitalization stocks, such as those included in the S&P
500. This is because, among other things, medium-sized companies have
less certain growth prospects in larger companies, have a lower degree of
liquidity in the equity market; and tend to have a greater sensitivity to
changing economic conditions. Further, in addition to exhibiting slightly
higher volatility, the stocks of medium-sized companies may, to some
degree, fluctuate independently of the stocks of large companies. That
is, the stocks of medium-sized companies may decline in price as the price
of large company stocks rises or vice versa. Therefore, investors should
expect that the Mid-Cap Stock Fund, which invests primarily in medium
capitalization stocks, will be slightly more volatile than, and may
fluctuate independently of, broad stock market indices such as the S&P
500.
Foreign Securities. Investing in non-U.S. securities carries substantial risks
in addition to those associated with domestic investments. (Excluding Foreign
Money Market Instruments and Depositary Receipts, only the International Stock
Fund intends to invest more than 5% of its net assets in Foreign Securities.)
The risks associated with investing in foreign securities 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; default in foreign government
securities; foreign companies are not generally subject to uniform financial
reporting, auditing and accounting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies; less
readily available market quotations on foreign companies; the possibility of
less publicly available information on foreign securities and their issuers;
differences in government regulation and supervision of foreign stock exchanges,
brokers, listed companies, and banks; generally lower foreign stock market
volume; the likelihood that foreign securities may be less liquid or more
volatile; foreign brokerage commissions and other transaction costs (such as
custodial services) may be higher; unreliable mail service between countries;
restrictions on foreign investments in other jurisdictions; difficulties which
may be encountered in obtaining or enforcing a court judgment abroad and
affecting repatriation of capital invested abroad; and delays or problems in
settlement of foreign transactions, which could adversely affect shareholder
equity or cause the Fund to miss attractive investment opportunities. In
addition, foreign securities may be subject to foreign taxes, which reduce yield
and total return.
In an attempt to reduce some of these risks, the International Stock Fund
diversifies its investments broadly among foreign countries, including both
developed and developing countries. At least three different countries will
always be represented in the International Stock Fund's portfolio.
The International Stock Fund occasionally takes advantage of the unusual
opportunities for higher returns available from investing in developing
countries. Investments in companies domiciled in developing countries may be
subject to potentially higher risks and volatility than investments in developed
countries with more mature economies. These risks include: (i) less social,
political and economic stability; (ii) the small current size of the markets for
such securities and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and greater price volatility; (iii) certain
national policies which may restrict the International Stock Fund's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (v) the absence, until recently in
certain Eastern European countries, of a capital market structure or market-
oriented economy; and (vi) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries.
Exchange Rates. Foreign securities may be denominated in foreign
currencies although only the International Stock Fund intends to invest in
such foreign currency-denominated securities to a significant extent.
Therefore, the value in U.S. dollars of the International Stock Fund's
assets and income may be affected by changes in exchange rates and
regulations. Although the International Stock Fund values its assets daily
in U.S. dollars, it will not convert its holding of foreign currencies to
U.S. dollars daily. When the International Stock Fund converts its
holdings to another currency, it may incur conversion costs. Foreign
exchange dealers realize a profit on the difference between the prices at
which they buy and sell currencies.
Foreign Money Market Instruments. ECDs, ETDs, Yankee CDs, and Europaper
are subject to somewhat different risks than domestic obligations of
domestic issuers. Examples of these risks include international, economic,
and political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign withholding
or other taxes on interest income, difficulties in obtaining or enforcing
a judgment against the issuing bank, and the possible impact of
interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the
banks issuing these instruments, or their domestic or foreign branches,
are not necessarily subject to the same regulatory requirements that apply
to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by
a Fund's adviser or subadviser in selecting these investments.
U.S. Government Policies. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
the International Stock Fund. When such policies are instituted, the Fund
will abide by them.
Futures And Options. When a Fund uses 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 with the prices of the securities in the
Fund's portfolio. This may cause the futures contract and any related options to
react differently than the portfolio securities to market changes. In addition,
the Fund's investment adviser or subadviser could be incorrect in its
expectations about the direction or extent of market factors such as interest or
currency exchange rate movements. In these events, the Fund may lose money on
the futures contract or option. Also, it is not certain that a secondary market
for positions in futures contracts or for options will exist at all times.
Although the Fund's investment adviser or subadviser will consider liquidity
before entering into such 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 Fund's ability to
establish and close out futures and options positions depends on this secondary
market.
Tax Information
Federal Income Tax
None of the Funds will pay federal income tax because each 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 Funds of the Corporation, if any, will not be combined for tax purposes
with those realized by any of the other Funds.
Unless otherwise exempt, you are required to pay federal income tax on any
dividends and other distributions received. However, shareholders of Short-Term
Tax-Free Fund and Intermediate Tax-Free Fund 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; but, under the Tax Reform Act of 1986,
dividends representing net interest earned on certain "private-activity"
municipal bonds may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
Dividends of the Tax-Free Income Funds representing net interest income earned
on some temporary investments and any realized net short-term gains are taxed as
ordinary income.
Investment income received by the International Stock Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the International Stock Fund to reduced tax rates or exemptions on this
income. The effective rate of foreign tax cannot be predicted since the amount
of International Stock Fund's assets to be invested within various countries is
unknown. However, the International Stock Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
If more than 50% of the value of the International Stock Fund's assets at the
end of the tax year is represented by stock or securities of foreign
corporations, the International Stock Fund intends to qualify for certain
Internal Revenue Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Internal
Revenue Code may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, shareholders who elect to deduct their portion of the International
Stock Fund's foreign taxes rather than take the foreign tax credit must itemize
deductions on their income tax returns.
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 you should consult your
tax adviser for specific details.
Effect of Banking Laws
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. In such event, the Directors would consider alternative advisers
and means of continuing available investment services.
Standard & Poor's Corporation
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500" and "500" are
trademarks of Standard & Poor's Corporation.
The Funds are not sponsored, endorsed, sold or promoted by or affiliated with
Standard & Poor's Corporation.
Addresses
Marshall Stock Fund
Federated Investors Tower
Marshall Value Equity Fund Pittsburgh, Pennsylvania 15222-3779
Marshall Equity Income Fund
Marshall Mid-Cap Stock Fund
Marshall International Stock Fund
Marshall Short-Term Income Fund
Marshall Intermediate Bond Fund
Marshall Government Income Fund
Marshall Short-Term Tax-Free Fund
Marshall Intermediate Tax-Free Fund
Marshall Money Market Fund
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-
3779
Adviser to all Funds
M&I Investment Management Corp.
1000 North Water Street
Milwaukee, Wisconsin 53202
Subadviser to Marshall International Stock Fund
Templeton Investment Counsel, Inc.
500 East Broward Blvd.
Suite 2100
Ft. Lauderdale, Florida 33394-
3091
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 53201-1348
OR
1000 North Water Street
Milwaukee, Wisconsin 53202-1348
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
Marshall Funds, Inc.
Statement of Additional Information
January 1, 1995
Equity Funds Tax-Free Income Funds
o Marshall Stock Fund o Marshall Short-Term Tax-Free Fund
o Marshall Value Equity Fund o Marshall Intermediate Tax-Free Fund
o Marshall Equity Income Fund
o Marshall Mid-Cap Stock Fund
o Marshall International Stock Fund
Income Funds Money Market Fund
o Marshall Short-Term Income Fund o Marshall Money Market Fund
o Marshall Intermediate Bond Fund
o Marshall Government Income Fund
This Statement of Additional Information should be read with the
prospectus, dated January 1, 1995, for the funds listed above. This
Statement is not a prospectus itself. To receive a copy of the prospectus,
write or call Marshall Funds Investor Services at 414-287-8500 or 1-800-
326-8560, M&I Brokerage Services, Inc., or any M&I Bank.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Policies and Acceptable Investments
Investment Limitations
Selling Short and Buying on Margin
Issuing Senior Securities and
Borrowing Money
Pledging Assets
Lending Cash or Securities
Investing in Commodities
Investing in Real Estate
Diversification of Investments
Concentration of Investments
Underwriting
Investing in Illiquid Securities
Investing in New Issuers
Investing in Issuers Whose
Securities are Owned by Officers
and Directors of the Corporation
Investing in Minerals
Purchasing Securities to Exercise
Control
Investing in Warrants
Investing in Securities of Other
Investment Companies
Investing in Options
Marshall Funds, Inc. Management
Officers and Directors
Fund Ownership
Investment Advisory Services
Adviser to the Fund
Advisory Fees
Subadviser to International Stock
Fund
State Expense Limitations
Shareholder Servicing Arrangements
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
ServicesCustodian
Brokerage Transactions
Purchasing Shares with Securities
Distribution Plan
Determining Market Value
Use of the Amortized Cost Method
Monitoring Procedures
Investment Restrictions
Market Values
Trading in Foreign Securities
Redemption in Kind
Tax Status
The Funds' Tax Status
Foreign Taxes
Total Return
Yield
Effective Yield
Tax-Equivalent Yield
Tax-Equivalency Table
Performance Comparisons
Financial Statements
Appendix
This Statement contains additional information about the Marshall Funds, Inc.
(the "Corporation") and its eleven investment portfolios (the "Funds"). This
Statement uses the same terms as defined in the prospectus.
Policies and Acceptable Investments
Borrowing. The International Stock Fund may borrow up to one-third of the value
of its total assets from banks to increase its holdings of portfolio securities.
The International Stock Fund is required to maintain continuous asset coverage
to 300% with respect to such borrowings and to sell (within three days)
sufficient portfolio holdings to restore such coverage if it should decline to
less than 300% due to market fluctuations or otherwise, even if such
liquidations of the Fund's holdings may be disadvantageous from an investment
standpoint.
Convertible Securities. When owned as part of a unit along with warrants, which
entitle the holder to buy the common stock, convertible securities function as
convertible bonds, except that the warrants generally will expire before the
bonds' maturity. A Fund will exchange or convert the convertible securities
held in its portfolio into shares of the underlying common stocks when, in the
adviser's or subadviser's opinion, the investment characteristics of the
underlying common shares will assist the Fund in achieving its investment
objective. Otherwise, the Fund will hold or trade the convertible securities.
In evaluating these matters with respect to a particular convertible security,
the Fund's adviser or subadviser considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits, and
the issuer's management capability and practices.
Duration. Duration is a commonly used measure of potential volatility in the
price of a bond, or other fixed income security, or in a portfolio of fixed
income securities, prior to maturity. Volatility is the magnitude of the change
in the price of a bond relative to a given change in the market rate of
interest. A bond's price volatility depends on three primary variables: the
bond's coupon rate; maturity date; and the level of market yields of similar
fixed income securities. Generally, bonds with lower coupons or longer
maturities will be more volatile than bonds with higher coupons or shorter
maturities. Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of time-weighted values of the cash
flows of a bond or bonds, including interest and principal payments, by the sum
of the present values of the cash flows. When a Fund invests in mortgage pass-
through securities, its duration will be calculated in a manner which requires
assumptions to be made regarding future principal prepayments. A more complete
description of this calculation is available upon request from the Funds.
Repurchase Agreements. Each Fund requires its 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 files
for bankruptcy or becomes insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Funds believe that, under the regular
procedures normally in effect for custody of the portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Funds 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 a Fund's adviser or
subadviser to be creditworthy pursuant to guidelines established by the
Directors.
When-Issued and Delayed Delivery Transactions. 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. However, liquid assets of a Fund sufficient to make payment for the
securities to be purchased are segregated on a Fund's records at the trade date.
These assets are marked to market daily and are maintained until the transaction
has been settled.
Restricted Securities. The Funds may invest in commercial paper issued in
reliance on the exemption from restriction afforded by Section 4(2) of the
Securities Act of 1933. Section 4(2) commercial paper is restricted as to
disposition under federal securities law and is generally sold to institutional
investors, such as the Funds, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper
is normally resold to other institutional investors like the Funds through or
with the assistance of the issuer or investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Funds believe that
Section 4(2) commercial paper and possibly certain other restricted securities
which meet the criteria for liquidity established by the Directors are quite
liquid. The Funds intend, therefore, to treat the restricted securities which
meet the criteria for liquidity established by the Directors, including Section
4(2) commercial paper (as determined by a Fund's adviser or subadviser), as
liquid and not subject to the investment limitation applicable to illiquid
securities. In addition, because Section 4(2) commercial paper is liquid, the
Funds intend to not subject such paper to the limitation applicable to
restricted securities.
Mortgage-Backed Securities. The following is additional information about
Mortgage-Backed Securities.
Adjustable Rate Mortgage Securities. Unlike conventional bonds, ARMS pay
back principal over the life of the ARMS rather than at maturity. Thus, a
holder of the ARMS, such as a Fund, would receive monthly scheduled
payments of principal and interest, and may receive unscheduled principal
payments representing payments on the underlying mortgages. At the time
that a holder of the ARMS reinvest the payments and any unscheduled
prepayments of principal that it receives, the holder may receive a rate of
interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of
"locking in" long-term interest rates than other types of U.S. government
securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because, as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to the
extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs"). The following example
illustrates how mortgage cash flows are prioritized in the case of CMOs -
most of the CMOs in which the Income Funds invest use the same basic
structure: (1) several classes of securities are issued against a pool of
mortgage collateral. The most common structure contains four classes of
securities. The first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date, and the final class (Z bond)
typically receives any excess income from the underlying investments after
payments are made to the other classes and receives no principal or
interest payments until the shorter maturity classes have been retired, but
then receives all remaining principal and interest payments. (2) The cash
flows from the underlying mortgages are applied first to pay interest and
then to retire securities. (3) The classes of securities are retired
sequentially. All principal payments are directed first to the shortest-
maturity class (or A bond). When those securities are completely retired,
all principal payments are then directed to the next shortest-maturity
security (or B bond). This process continues until all of the classes have
been paid off.
Because the cash flow is distributed sequentially instead of pro rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. The interest
portion of these payments is distributed by the Fund as income, and the
capital portion is reinvested.
Interest Only and Principal Only Investments. Some of the securities
purchased by a Fund may represent an interest solely in the principal
repayments or solely in the interest payments on Mortgage-Backed Securities
(stripped mortgage-backed securities or "SMBSs"). SMBSs are usually
structured with two classes and receive different proportions of the
interest and principal distributions on the pool of underlying mortgage-
backed securities. Due to the possibility of prepayments on the underlying
mortgages, SMBSs may be more interest-rate sensitive than other securities
purchased by the Funds. If prevailing interest rates fall below the level
at which SMBSs were issued, there may be substantial prepayments on the
underlying mortgages, leading to the relatively early prepayments of
principal-only SMBSs (the principal-only or "PO" class) and a reduction in
the amount of payments made to holders of interest-only SMBSs (the interest-
only or "IO" class). Because the yield to maturity of an IO class is
extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage-backed securities, it is
possible that the Fund might not recover its original investment on
interest-only SMBSs if there are substantial prepayments on the underlying
mortgages. The Funds' inability to fully recoup their investments in these
securities as a result of a rapid rate of principal prepayments may occur
even if the securities are rated by an NRSRO. Therefore, interest-only
SMBSs generally increase in value as interest rates rise and decrease in
value as interest rates fall, counter to changes in value experienced by
most fixed income securities.
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
issuances 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. Diversification of
the Tax-Free Income Funds' investments is obtained geographically by purchasing
issues of Municipal Securities 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.
Municipal Leases. The Tax-Free Income 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.
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 a Fund
are subject to repayment of principal (usually within seven days) on the
Fund's demand. For purposes of determining the Funds' average maturity,
the maturities of these variable rate demand Municipal Securities
(including participation interests) are the longer of the periods remaining
until the next readjustment of their interest rates or the periods
remaining until their principal amounts can be recovered by exercising the
right to demand payment. 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
interests, or a guarantor of either issuer.
Guaranteed Investment Contracts. The Money Market Fund may purchase guaranteed
investment contracts ("GICs"), which are investment instruments issued by highly
rated U.S. insurance companies or banks. Pursuant to such contracts, the Money
Market Fund may make cash contributions to a deposit fund of the issuer. The
issuer then credits to the Money Market Fund guaranteed interest. The issuer may
assess periodic charges against a GIC for expense and service costs allocable to
it, and the charges will be deducted from the value of the deposit fund. The
purchase price paid for a GIC becomes part of the general assets of the issuer,
and the contract is paid from the general assets of the issuer.
The Money Market Fund will only purchase GICs from issuers which, at the time of
purchase, meet quality and credit standards established by the Money Market
Fund's adviser. Generally, GICs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary market in
GICs does not currently exist. Also, the Money Market Fund may not receive the
principal amount of a GIC from the insurance company on seven days' notice or
less. Therefore, GICs are typically considered to be illiquid investments.
Funding Agreements. The Money Market Fund may purchase funding agreements
("Agreements"), which are investment instruments issued by highly rated U.S.
insurance companies. Pursuant to such Agreements, the Money Market Fund may make
cash contributions to a deposit fund of the insurance company's general or
separate accounts. The insurance company then credits to the Money Market Fund
guaranteed interest. The insurance company may assess periodic charges against
an Agreement for expense and service costs allocable to it, and the charges will
be deducted from the value of the deposit fund. The purchase price paid for an
Agreement becomes part of the general assets of the issuer, and the Agreement is
paid from the general assets of the issuer.
The Money Market Fund will only purchase Agreements from issuers which, at the
time of purchase, meet quality and credit standards established by the Money
Market Fund's adviser. Generally, Agreements are not assignable or transferable
without the permission of the issuing insurance companies, and an active
secondary market in Agreements does not currently exist. Also, the Money Market
Fund may not receive the principal amount of an Agreement from the insurance
company on seven days' notice or less. Therefore, Agreements are typically
considered to be illiquid investments.
Asset-Backed Securities. Asset-Backed Securities are bonds or notes backed by
loans or accounts receivable originated by banks, or other credit providers or
financial institutions. Asset-Backed Securities may be pooled and then divided
into classes of securities, known as tranches, and resold. Each tranche has a
specified interest rate and maturity. The cash flows from the underlying pool of
Asset-Backed Securities are applied first to pay interest and then to retire
securities. All principal payments are directed first to the shortest-maturity
tranche. When those securities are completely retired, all principal payments
are then directed to the next-shortest-maturity tranche. This process continues
until all of the tranches have been completely retired. The Money Market Fund
will invest in only the short-term tranches, which will generally have a
maturity not exceeding 397 days.
Futures and Options Transactions. (This is not applicable to the Money Market
Fund, Short-Term Income Fund, or Intermediate Bond Fund.) As a means of
reducing fluctuations in the net asset value of shares of a Fund, the Fund may
attempt to hedge all or a portion of its portfolio by buying and selling futures
contracts and options on futures contracts, and buying put and call options on
portfolio securities and securities indices. A Fund may also write covered put
and call options on portfolio securities to attempt to increase its current
income or to hedge a portion of its portfolio investments. The Fund will
maintain its 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 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. A Fund will not engage in futures transactions for speculative
purposes.
Futures Contracts. A Fund 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. Although
some financial futures contracts call for making or taking delivery of the
underlying securities, in most cases these obligations are closed out
before the settlement date. The closing of a contractual obligation is
accomplished by purchasing or selling an identical offsetting futures
contract. Other financial futures contract by their terms call for cash
settlements.
A Fund also may purchase and sell stock index futures contracts with
respect to any stock index traded on a recognized stock exchange or board
of trade to hedge against changes in prices. 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. No physical delivery of the
underlying securities in the index is made. Instead, settlement in cash
must occur upon the termination of the contract, with the settlement being
the difference between the contract price and the actual level of the stock
index at the expiration of the contract.
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 Fund could enter
into contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in the
future at a predetermined price) to hedge against a decline in market
interest rates.
"Margin" In Futures Transactions. Unlike the purchase or sale of a
security, a Fund does not pay or receive money upon the purchase or sale of
a futures contract. Rather, the Fund is required to deposit an amount of
"initial margin" in cash, U.S. government securities or highly-liquid debt
securities with its 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 the 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 the Fund upon
termination of the futures contract, assuming all contractual obligations
have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the 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 the
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, the Fund will mark to market its open
futures positions. The Fund is also required to deposit and maintain margin
when it writes call options on futures contracts. When the Fund purchases
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 Fund's
custodian (or the broker, if legally permitted) to collateralize the
position and thereby insure that the use of such futures contracts is
unleveraged.
To the extent required to comply with Commodity Futures Trading Commission
("CFTC") Regulation 4.5 and thereby avoid status as a "commodity pool
operator," the Fund will not enter into a futures contract, or purchase an
option thereon, if immediately thereafter the initial margin deposits for
futures contracts held by it, plus premiums paid by it for open options on
futures contracts, would 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; and, provided further, that in the
case of an option that is in-the-money at the time of purchase, the in-the-
money amount may be excluded in computing such 5%. Second, the Fund will
not enter into these contracts for speculative purposes; rather, these
transactions are entered into only for bona fide hedging purposes, or other
permissible purposes pursuant to regulations promulgated by the CFTC.
Third, since the Fund does not constitute a commodity pool, it will not
market itself as such, nor serve as a vehicle for trading in the
commodities futures or commodity options markets. Finally, because the Fund
will submit to the CFTC special calls for information, the Fund will not
register as a commodities pool operator.
Put Options on Financial and Stock Index Futures Contracts. A Fund may
purchase listed put options on financial and stock index futures contracts
to protect portfolio securities against decreases in value resulting from
market factors, such as an anticipated increase in interest rates or
decrease in stock prices. 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, the 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, a 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.
A Fund may write listed put options on financial or stock index futures
contracts to hedge its portfolio against a decrease in market interest
rates or increase in stock prices. A Fund will use these transactions to
attempt to protect its ability to purchase portfolio securities in the
future at price levels existing at the time it enters into the transaction.
When a Fund writes (sells) a put on a futures contract, it receives a cash
premium in exchange for granting to the purchaser of the put the right to
receive from the Fund, at the strike price, a short position in such
futures contract (the Fund undertakes the obligation to assume a long
futures position), even though the strike price upon exercise of the option
is greater than the value of the futures position received by such holder.
As market interest rates decrease or stock prices increase, the market
price of the underlying futures contract normally increases. As the market
value of the underlying futures contract increases, the buyer of the put
option has less reason to exercise the put because the buyer can sell the
same futures contract at a higher price in the market. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The premium received by the Fund can then be used
to offset the higher prices of portfolio securities to be purchased in the
future.
It will generally be the policy of a Fund, in order to avoid the exercise
of an option sold by it, to cancel its obligation under the option by
entering into a closing purchase transaction, if available, unless it is
determined to be in the Fund's interest to deliver the underlying futures
position. A closing purchase transaction consists of the purchase by the
Fund of an option having the same term as the option sold by the Fund, and
has the effect of canceling the Fund's position as a seller. The premium
which the Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the option was sold, depending in
large part upon the relative price of the underlying futures position at
the time of each transaction. If the hedge is successful, the cost of
buying the second option will be less than the premium received by the Fund
for the initial option.
Call Options on Financial And Stock Index Futures Contracts. In addition
to purchasing put options on futures, a Fund may write (sell) listed and
over-the-counter call options on financial and stock index futures
contracts to hedge its portfolio. When the 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.
An additional way in which a Fund may hedge against decreases in market
interest rates or increases in stock prices is to buy a listed call option
on a financial or stock index futures contract. A Fund will use these
transactions to attempt to protect its ability to purchase portfolio
securities in the future at price levels existing at the time it enters
into the transaction. When a Fund purchases a call on a financial futures
contract, it receives in exchange for the payment of a cash premium the
right, but not the obligation, to enter into the underlying futures
contract at a strike price determined at the time the call was purchased,
regardless of the comparative market value of such futures position at the
time the option is exercised. The holder of a call option has the right to
receive a long (or buyer's) position in the underlying futures contract.
As market interest rates fall or stock prices increase, the value of the
underlying futures contract will normally increase, resulting in an
increase in value of the Fund's option position. When the market price of
the underlying futures contract increases above the strike price plus
premium paid, the Fund could exercise its option and buy the futures
contract below market price. Prior to the exercise or expiration of the
call option, the Fund could sell an identical call option and close out its
position. If the premium received upon selling the offsetting call is
greater than the premium originally paid, the Fund has completed a
successful hedge.
Limitation on Open Futures Positions. A Fund will not 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 and Call Options on Securities . A Fund may purchase put
options on portfolio securities to protect against price movements in the
Fund's portfolio securities. 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. A Fund may purchase
call options on securities acceptable for purchase to protect against price
movements by "locking in" on a purchase price for the underlying security.
A call option gives the Fund, in return for a premium, the right to buy the
underlying security from the seller at a specified price during the term of
the option.
Writing Covered Call and Put Options on Portfolio Securities. A Fund may
also write covered call and put options to generate income and thereby
protect against price movements in the Fund's portfolio securities. As
writer of a call option, the 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
or U.S. government securities in the amount of any additional
consideration). As a writer of a put option, the Fund has the obligation
to purchase a security from the purchaser of the option upon the exercise
of the option. In the case of put options, the Fund will segregate cash or
U.S. Treasury obligations with a value equal to or greater than the
exercise price of the underlying securities.
Stock Index Options. A Fund may purchase or sell put or call 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. Upon the exercise of the
option, the holder of a call option has the right to receive, and the
writer of a put option has the obligation to deliver, a cash payment equal
to the difference between the closing price of the index and the exercise
price of the option. 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 a Fund of options on stock indices will be
subject to the ability of the Fund's adviser or subadviser 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. A Fund may generally purchase and write over-the-
counter options on portfolio securities or in securities indices in
negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund or when the securities
indices are not traded on an exchange. The Fund purchases and writes
options only with investment dealers and other financial institutions (such
as commercial banks or savings and loan associations) deemed creditworthy
by the Fund's adviser or sub-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 a Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities or foreign currency
subject to the futures contracts may not correlate perfectly with the
prices of the securities or currency in the Fund's portfolio. This may
cause the futures contract and any related options to react differently to
market changes than the portfolio securities or foreign currency. In
addition, a Fund's adviser or sub-adviser could be incorrect in its
expectations about the direction or extent of market factors such as stock
price movements or foreign currency exchange rate fluctuations. In these
events, the Fund 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 a Fund's
adviser or sub-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. A Fund's ability to establish and close out
futures and options positions depends on this secondary market. The
inability to close these positions could have an adverse effect on the
Fund's ability to hedge its portfolio.
To minimize risks, a Fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for
related options would 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; and, provided further, that in the case of
an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in computing such 5%. When a Fund purchases 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 Fund's
custodian (or the broker, if legally permitted) to collateralize the
position and thereby insure that the use of such futures contract is
unleveraged. When the 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.
Foreign Currency Hedging Transactions. In order to hedge against foreign
currency exchange rate risks, the International Stock Fund may enter into
forward foreign currency exchange contracts and foreign currency futures
contracts, as well as purchase put or call options on foreign currencies, as
described below. The Fund may also conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market.
The International Stock Fund may enter into forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and foreign
currencies. A forward contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers. The Fund may enter
into a forward contract, for example, when it enters into a contract for the
purchase or sale of a security denominated in a foreign currency in order to
"lock in" the U.S. dollar price of the security. In addition, for example, when
the Fund believes that a foreign currency may suffer a substantial decline
against the U.S. dollar, it may enter into a forward contract to sell an amount
of that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when the Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward contract to buy that foreign currency for
a fixed dollar amount. This second investment practice is generally referred to
as "cross-hedging." Because in connection with the Fund's forward foreign
currency transactions an amount of the Fund's assets equal to the amount of the
purchase will be held aside or segregated to be used to pay for the commitment,
the Fund will always have cash, cash equivalents or high quality debt securities
available sufficient to cover any commitments under these contracts or to limit
any potential risk. The segregated account will be marked to market on a daily
basis. While these contracts are not presently regulated by the CFTC, the CFTC
may in the future assert authority to regulate forward contracts. In such event,
the Fund's ability to utilize forward contracts in the manner set forth above
may be restricted. Forward contracts may limit potential gain from a positive
change in the relationship between the U.S. dollar and foreign currencies.
Unanticipated changes in currency prices may result in poorer overall
performance for the Fund than if it had not engaged in such contracts.
The International Stock Fund may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the dollar
value of foreign portfolio securities and against increases in the dollar cost
of foreign securities to be acquired. As is the case with other kinds of
options, however, the writing of an option on foreign currency will constitute
only a partial hedge, up to the amount of the premium received, and the Fund
could be required to purchase or sell foreign currencies at disadvantageous
exchange rates, thereby incurring losses. The purchase of an option on foreign
currency may constitute an effective hedge against fluctuation in exchange
rates, although, in the event of rate movements adverse to the Fund's position,
the Fund may forfeit the entire amount of the premium plus related transaction
costs. Options on foreign currencies to be written or purchased by the Fund will
be traded on U.S. and foreign exchanges or over-the-counter.
The International Stock Fund may enter into exchange-traded contracts for the
purchase or sale for future delivery of foreign currencies ("foreign currency
futures"). This investment technique will be used only to hedge against
anticipated future changes in exchange rates which otherwise might adversely
affect the value of the Fund's portfolio securities or adversely affect the
prices of securities that the Fund intends to purchase at a later date. The
successful use of foreign currency futures will usually depend on the ability of
the Fund's subadviser to forecast currency exchange rate movements correctly.
Should exchange rates move in an unexpected manner, the Fund may not achieve the
anticipated benefits of foreign currency futures or may realize losses.
Warrants. The Equity Funds may purchase warrants. Warrants are basically
options to purchase common stock at a specific price (usually at a premium above
the market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to twenty
years or may be perpetual. However, most warrants have expiration dates after
which they are worthless. In addition, if the market price of the common stock
does not exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the corporation
issuing them. The percentage increase or decrease in the market price of the
warrant may tend to be greater than the percentage increase or decrease in the
market price of the underlying common stock.
Reverse Repurchase Agreements. Each Fund may enter into reverse repurchase
agreements. This transaction is similar to borrowing cash. In a reverse
repurchase agreement, the 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 the 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
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the 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 maintained until the transaction is settled. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Money Market Fund
will restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date on the reverse repurchase agreement.
Lending of Portfolio Securities. The collateral received when a Fund lends
portfolio securities must be valued daily and, should the market value of the
loaned securities increase, the borrower must furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. If the Fund does not have the
right to vote securities on loan, it would terminate the loan and regain the
right to vote if that were considered important with respect to the investment.
Portfolio Turnover The estimated annual rate of portfolio turnover generally
will not exceed 50% for the International Stock Fund, 100% for the Stock Fund,
Value Equity Fund, Equity Income Fund, Mid-Cap Stock Fund, Short-Term Income
Fund and Tax-Free Income Funds, and 150% for the Intermediate Bond Fund and
Government Income Fund. A portfolio turnover rate of 100% occurs when all the
securities in the Fund's portfolio were replaced once in a period of one year.
For the fiscal year ended August 31, 1994 and for the period from November 2,
1992 (date of initial public investment), to August 31, 1993, the portfolio
turnover rates for Short-Term Income Fund were 185% and 79%, respectively. For
the fiscal year ended August 31, 1994 and for the period from November 23, 1992
(date of initial public investment), to August 31, 1993, the portfolio turnover
rates for Stock Fund were 86% and 98%, respectively. For the fiscal year ended
August 31, 1994 and for the period from November 23, 1992 (date of initial
public investment), to August 31, 1993, the portfolio turnover rates for
Intermediate Bond Fund were 228% and 220%, respectively. For the fiscal year
ended August 31, 1994 and for the period from December 14, 1992 (date of initial
public investment), to August 31, 1993, the portfolio turnover rates for
Government Income Fund were 175% and 218%, respectively. For the period from
September 30, 1993 (date of initial public investment), to August 31, 1994, the
portfolio turnover rate for the Value Equity Fund was 39%. For the period from
September 30, 1993 (date of initial public investment) to August 31, 1994, the
portfolio turnover rate for Mid-Cap Stock Fund was 113%. For the period from
October 1, 1993 (date of initial public investment) to August 31, 1994, the
portfolio turnover rate for Equity Income Fund was 44%. For the period from
February 1, 1994 (date of initial public investment) to August 31, 1994, the
portfolio turnover rates for Short-Term Tax-Free Fund and Intermediate Tax-Free
Fund were 37% and 46%, respectively.
The higher portfolio turnover rate for the Intermediate Bond Fund and Government
Income Fund for the period ended August 31, 1993, was a result of the fact that
the first fiscal year was the initial start-up period for the Funds and,
therefore, the portfolio turnover would be expected to be substantially greater
than on a fund with a longer operation history. The higher portfolio turnover
rate is also due to the dollar roll transactions strategy which was employed to
enhance return. Although there were increased taxes because these transactions
generated additional income, there was no additional brokerage commissions
because these transactions were done on a net basis. However, the Funds paid
mark-ups on the securities which represented the spread between bid and asked
prices.
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.
Investment Limitations
Fundamental Limitations
The following investment limitations are fundamental and cannot be changed
without shareholder approval.
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 may be necessary for clearance
of purchases and sales of portfolio securities. A deposit or payment by a Fund
of initial or variation margin in connection with futures contracts, forward
contracts or related options transactions is not considered the purchase of a
security on margin.
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 ("net" assets in the case of the Money
Market Fund, Short-Term Income Fund, and Intermediate Bond Fund) including the
amounts borrowed; and except to the extent that a Fund is permitted to enter
into futures contracts, options or forward contracts. Except for the
International Stock Fund, a Fund 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 its portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. Except
for the International Stock Fund, a Fund will not purchase any securities while
any borrowings in excess of 5% of its total assets are outstanding.
Pledging Assets
The Funds will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, each Fund may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of its total assets at the time of the pledge. For purposes of this
limitation, 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, forward
contracts or the purchase of securities on a when-issued basis.
Lending Cash or Securities
The Funds will not lend any of their assets except portfolio securities. Except
for the International Stock Fund, loans may not exceed one-third of the value of
a Fund's total assets. This shall not prevent a Fund 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 the Fund's investment objective, policies, and
limitations.
Investing in Commodities
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, except for the Short-Term Income Fund,
the Intermediate Bond Fund, and the Money Market Fund, a Fund may purchase and
sell futures contracts and related options, and the International Stock Fund may
also enter into forward contracts and related options.
Investing in Real Estate
The Funds will not purchase or sell real estate, including limited partnership
interests, although a Fund may invest in the securities of companies 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 its total assets, a
Fund 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
its total assets would be invested in the securities of that issuer or if it
would own more than 10% of the outstanding voting securities of such issuer.
Under this limitation, the Tax Free Income Funds will consider 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, 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
developments 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.
Concentration of Investments
(Tax-Free Income Funds only)
Neither Tax-Free Income 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,
securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, and repurchase agreements collateralized by such securities.
In addition, each Tax-Free Income 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).
(All Other Funds)
A Fund will not invest 25% or more of its total assets in any one industry.
However, investing in U.S. government securities (and domestic bank instruments
for the Money Market Fund) shall not be considered investments in any one
industry.
Underwriting
A Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted securities which the Fund may purchase pursuant to its
investment objective, policies and limitations.
Non-Fundamental Limitations
The following investment limitations are non-fundamental and, therefore, 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% (10% for the Money Market Fund) of the
value of their 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, guaranteed investment contracts, and certain securities not determined
by the Directors to be liquid (including certain municipal leases).
Investing in New Issuers
The Funds will not invest more than 5% of the value of their 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
A Fund will not purchase or retain the securities of any issuer if the Officers
and Directors of the Corporation or of the Fund's advisers, 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 Equity Funds and the Tax-Free Income Funds will not purchase securities of a
company for the purpose of exercising control or management.
Investing in Warrants
The Equity Funds may invest in warrants, but each Equity Fund will not invest
more than 5% of its net assets in warrants, including those acquired in units or
attached to other securities. To comply with certain state restrictions, each
Equity Fund will limit its investment in such warrants not listed on the New
York or American Stock Exchanges to 2% of its net assets. (If state restrictions
change, this latter restriction may be revised without notice to shareholders.)
For purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by a Fund in units with
or attached to securities may be deemed to be without value. Although the Tax-
Free Income Funds do not intend to invest in warranties, they are subject to
this investment limitation to comply with certain state restrictions.
Investing in Securities of Other Investment Companies
Each Fund will limit its investment 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 total assets in any one investment company, and will
invest no more than 10% of its total assets in investment companies in general.
The Funds will purchase securities of closed-end investment companies only in
open market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are acquired in
a merger, consolidation, reorganization, or acquisition of assets. The Money
Market Fund will limit its investments in other investment companies to those of
money market funds having investment objectives and policies similar to its own.
The adviser will waive its investment advisory fee on assets invested in
securities of open-end investment companies. In accordance with certain state
restrictions, each Fund will limits its investments in securities of other
investment companies to those with sales loads of less than 1.00% of the
offering price of such securities.
Investing in Options
A Fund may not invest more than 5% of the value of its total assets in the sum
of (a) premiums on open option positions, plus (b) initial margin deposits on
futures contracts.
A Fund will not purchase put options or write call options on securities unless
the securities are held in the Fund's portfolio or unless the Fund is entitled
to them in deliverable form without further payment or has segregated cash in
the amount of any further payment.
A Fund will not write call options in excess of 25% of the value of its total
assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
instruments (such as certificates of deposit and demand and time deposits)
issued by a U.S. branch of a domestic bank or savings and loan having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
In order to permit the sale of the Fund's shares in certain states, the Fund may
make commitments more restrictive than the investment limitations described
above. If state requirements change, these restrictions may be changed without
notice to shareholders. In this regard, to comply with certain state
restrictions, the Equity Funds will not invest more than 5%, and all the other
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 requirements change, these
restrictions may be changed without notice to shareholders.
Marshall Funds, Inc. Management
The Corporation was established as a Wisconsin corporation under the laws of the
State of Wisconsin on July 31, 1992. The Corporation's authorized capital
consists of 50,000,000,000 shares of common stock with a par value of $.0001 per
share. Shareholders of each Fund are entitled: (i) to one vote per full share
of Common Stock; (ii) to such distributions as may be declared by the
Corporation's 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 Fund 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 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 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 definitions of the terms "series" and "class" in the WBCL differ from the
meanings assigned to those terms in this prospectus and the Fund's Statement of
Additional Information. The Articles of Incorporation of the Corporation
reconcile this inconsistency in terminology, and provide that the Fund's
prospectus and Statement of Additional Information may define these terms
consistently with the use of those terms under the Act and the Internal Revenue
Code.
Officers and Directors
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Marshall & Ilsley Corp.,
Federated Investors, Federated Securities Corp., Federated Services Company, and
Federated Administrative Services.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
Chairman, Director and Treasurer
Director, Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management, and Federated
Research; Executive Vice President, Treasurer, and Director, 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
4700 21st Street
Racine, WI 53406
Director
Independent Financial Consultant; retired, Senior Vice President of Finance, In-
Sink-Erator Division of Emerson Motors.
Ody J. Fish
247 Progress Drive
Hartland, WI
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Private Investor; formerly President pal-O-Pak Insulation Company.
Paul E. Hassett
1630 Capital Avenue
Madison, WI
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Retired, formerly President, Wisconsin Manufacturers and Commerce.
James F. Duca, II
1000 N. Water Street
Milwaukee, WI
President
Vice President, Marshall & Ilsley Trust Company; Vice President, Marshall &
Ilsley Trust Company of Florida, formerly Secretary, Marshall & Ilsley Trust
Company and Marshall & Ilsley Trust Company of Florida.
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Director, Private Label
Management, Federated Investors; Vice President and Assistant Treasurer of
certain funds for which Federated Securities Corp. is the principal distributor.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
Secretary
Corporate Counsel, Federated Investors.
* This Director is deemed to be an "interested person" of a 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 each Fund's
outstanding shares.
As of September 28, 1994, the following shareholders of record owned 5% or more
of a Fund's outstanding shares:
Stock Fund
Vallee, Marshall & Ilsley Trust Operations, Appleton, Wisconsin, owned
approximately 2,404,546 shares (8.51%); Maril & Co., Marshall & Ilsley Trust
Co., Milwaukee, Wisconsin, owned approximately 2,252,686 shares (7.97%); and
Mitra & Co., Milwaukee, Wisconsin, owned approximately 14,445,896 shares
(51.10%).
Value Equity Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 11,881,315 shares (57.63%); Maril & Co., Marshall & Ilsley Trust
Co., Milwaukee, Wisconsin, owned approximately 4,494,741 shares (21.80%); and
Mitra & Co., Marshall & Ilsley Trust Operations, owned approximately 3,534,891
shares (17.15%).
Equity Income Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 382,645 shares (7.22%); Maril & Co., Marshall & Ilsley Trust Co.,
Milwaukee, Wisconsin, owned approximately 1,632,105 shares (30.80%); Mitra &
Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 2,714,485 shares (51.22%); and Miaz & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 303,614 shares (5.73%).
Mid-Cap Stock Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 1,388,555 shares (24.95%); Maril & Co., Marshall & Ilsley Trust
Co., Milwaukee, Wisconsin, owned approximately 1,643,099 shares (29.00%); and
Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 2,108,541 shares (37.22%).
International Stock Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 853,992 shares (23.20%); Maril & Co., Marshall & Ilsley Trust Co.,
Milwaukee, Wisconsin, owned approximately 916,621 shares (24.90%); and Mitra &
Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 1,781,339 shares (48.39%).
Short-Term Income Fund
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin , owned
approximately 3,131,619 shares (30.62%); Mitra & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 4,609,724 shares (45.06%);
and Miaz & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 667, 075 shares (6.52%).
Intermediate Bond Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 5,656,283 shares (15.64%); Maril & Co., Marshall & Ilsely Trust
Operations, Milwaukee, Wisconsin, owned approximately 6,107,840 shares (16.89%);
and Mitra & Co., Marshall & Ilsely Trust Operations, Milwaukee, Wisconsin, owned
approximately 21,131,205 shares (58.44%).
Government Income Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 471,720 shares (6.39%); Maril & Co., Marshall & Ilsely Trust
Operations, Milwaukee, Wisconsin, owned approximately 811,701 shares (10.99%);
and Mitra & Co., Marshall & Ilsely Trust Operations, Milwaukee, Wisconsin, owned
approximately 2,925,815 shares (39.62%).
Short-Term Tax-Free Fund
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 169,387 shares (6.48%); Maril & Co., Marshall & Ilsley Trust Co.,
Milwaukee, Wisconsin, owned approximately 1,318,760 shares (50.42%); and Miaz &
Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned approximately
165,891 shares (6.34%).
Intermediate Tax-Free Fund
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned
approximately 3,221,967 shares (85.37%) and Mitra & Co., Marshall & Ilsely Trust
Operations, Milwaukee, Wisconsin, owned approximately 258,562 shares (6.85%).
Money Market Fund
Motomco Ltd., Madison Wisconsin, owned approximately 724,635 of the Investment
Shares of the Fund (5.69%) and Kronseder Farms Inc., Franklin, Wisconsin, owned
approximately 802,879 of the Investment Shares of the Fund (6.30%).
Maril & Co., Milwaukee, Wisconsin, owned approximately 821,740,795 of the Trust
Shares of the Fund (77.72%) and Miaz & Co., Milwaukee, Wisconsin, owned
approximately 62,466,832 of the Trust Shares of the Fund (5.91%).
Investment Advisory Services
Adviser to the Fund
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. Because of the internal controls maintained by the Adviser's
affiliates to restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Adviser or its affiliates' lending
relationships with an issuer.
Advisory Fees
For the fiscal year ended August 31, 1994 and for the period from November 2,
1992 (date of initial public investment), to August 31, 1993, the Adviser earned
fees from Short-Term Income Fund of $575,101 and 200,259, of which $361,083 and
$152,661, respectively, were voluntarily waived.
For the fiscal year ended August 31, 1994 and for the period from November 23,
1992 (date of initial public investment), to August 31, 1993, the Adviser earned
fees from Stock Fund of $1,877,194 and $1,572,056, respectively.
For the fiscal year ended August 31, 1994 and for the period from November 23,
1992 (date of initial public investment), to August 31, 1993, the Adviser earned
fees from Intermediate Bond Fund of $1,873,380 and $1,288,544, of which $296,925
and $135,214, respectively, were voluntarily waived.
For the fiscal year ended August 31, 1994 and for the period from December 14,
1992 (date of initial public investment), to August 31, 1993, the Adviser earned
fees from Government Income Fund of $435,508 and $267,763, respectively, of
which $224,038 and $106,039, respectively, were voluntarily waived.
For the fiscal year ended August 31, 1994 and for the period from December 17,
1992 (date of initial public investment), to August 31, 1993, the Adviser earned
fees from Money Market Fund of $4,623,880 and $2,775,543, respectively, of which
$2,639,185 and $1,368,267, respectively were voluntarily waived.
For the period from September 30, 1993 (date of initial public investment), to
August 31, 1994, the Adviser earned fees from Value Equity Fund of $310,939, of
which $45,477 was voluntarily waived.
For the period from September 30, 1993 (date of initial public investment) to
August 31, 1994, the Adviser earned fees from Mid-Cap Stock Fund of $189,976.
For the period from October 1, 1993 (date of initial public investment), to
August 31, 1994, the Adviser earned fees from Equity Income Fund of $245,116, of
which $39,343 was voluntarily waived.
For the period from February 1, 1994 (date of initial public investment), to
August 31, 1994, the Adviser earned fees from Short-Term Tax-Free Fund and
Intermediate Tax-Free Fund of $49,536 and $95,876, respectively, of which
$49,536 and $77,214, respectively, were voluntarily waived.
Subadviser for International Stock Fund
Templeton Investment Counsel, Inc. ("TICI") is the subadviser to the
International Stock Fund under the terms of a Subadvisory Contract between the
Adviser and TICI. It is the Adviser's responsibility to select, subject to
review and approval by the Corporation's Directors, a subadviser for the
International Stock Fund that has distinguished itself in its area of expertise
in asset management and to review the subadviser's continued performance.
Subject to the supervision and direction of the Corporation's Directors, the
Adviser provides investment management evaluation services principally by
performing initial due diligence on TICI and thereafter monitoring TICI's
performance through quantitative and qualitative analysis, as well as periodic
in-person, telephonic and written consultations with TICI. In evaluating TICI,
the Adviser considers, among other factors, TICI's level of expertise; relative
performance and consistency of performance over a minimum period of time; level
of adherence to investment discipline or philosophy; personnel, facilities and
financial strength; and quality of service and client communications. The
Adviser has responsibility for communicating performance expectations and
evaluations to TICI and ultimately recommending to the Corporation's Directors
whether TICI's contract should be renewed, modified or terminated. The Adviser
provides written reports to the Directors regarding the results of its
evaluation and monitoring functions. The Adviser is also responsible for
conducting all operations of the International Stock Fund, except those
operations contracted to TICI, the custodian, the transfer agent, and the
administrator. Although TICI's activities are subject to oversight by the
Directors and officers of the Corporation, neither the Directors, the officers,
nor the Adviser evaluates the investment merits of TICI's individual security
selections. TICI has complete discretion to purchase, manage and sell portfolio
securities for the International Stock Fund, subject to the International Stock
Fund's investment objective, policies and limitations. However, TICI will
furnish to the Adviser such investment advice, statistical and other factual
information as may from time to time be reasonably requested by the Adviser.
TICI is a Florida corporation and an indirect wholly-owned subsidiary of
Franklin Resources, Inc. ("Franklin"), a publicly traded company whose shares
are listed on the New York Stock Exchange. Charles B. Johnson, Rupert H.
Johnson, Jr. and R. Martin Wiskemann are principal shareholders of Franklin and
own, respectively, approximately 20%, 16% and 9.2% of its outstanding shares.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
Research services may be provided to TICI by various affiliates, including
Templeton, Galbraith & Hansberger Ltd. and Templeton Quantitative Advisors,
Inc., corporations registered under the Investment Advisers Act of 1940, and
Templeton Management Limited, a Canadian company. The research services include
information, analytical reports, computer screening studies, statistical data,
and factual resumes pertaining to securities in the United States and in various
foreign nations. Such supplemental research, when utilized, is subject to
analysis by TICI before being incorporated into the investment advisory process.
TICI pays these affiliates compensation and reimbursement of expenses as
mutually agreed upon, without cost to the Fund. These affiliates and TICI are
independent contractors and in no sense is any of them an agent for the other.
Any of them is free to discontinue such research services at any time on 30
days' notice without cost or penalty.
It is understood that TICI may have advisory, management, service or other
contracts with other individuals or entities, and may have other interests and
businesses. When a security proposed to be purchased or sold for the
International Stock Fund is also to be purchased or sold for other accounts
managed by TICI at the same time, TICI shall make such purchases or sales on a
pro-rata, rotating or other equitable basis so as to avoid any one account being
preferred over any other account. Although this may adversely affect the price
the International Stock Fund pays or receives, or the size of the position it
obtains, it may also enable TICI to negotiate lower transaction costs.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations established by
certain states for investment companies whose shares are registered for sale in
those states. If a Fund's 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 Fund for its expenses over the limitation. If a Fund's monthly
projected operating expenses exceed this limitation, the advisory fees 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 its advisory fees.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
Administrative Services
For the fiscal year ended August 31, 1994, and for the period from November 2,
1992 (date of initial public investment), to August 31, 1993, Federated
Administrative Services ("FAS") received fees from Short-Term Income Fund of
$91,808 and $41,371, respectively, of which $0 and $7,440, respectively, were
voluntarily waived.
For the fiscal year ended August 31, 1994, and for the period from November 23,
1992 (date of initial public investment), to August 31, 1993, FAS received fees
from Stock Fund $241,079 and of $215,215, respectively, of which $0 and $910,
respectively, were voluntarily waived.
For the fiscal year ended August 31, 1994, and for the period from November 14,
1992 (date of initial public investment), to August 31, 1993, FAS received fees
from Intermediate Bond Fund of $300,278 and $219,987, respectively, of which $0
and $870, respectively, were voluntarily waived.
For the fiscal year ended August 31, 1994, and for the period from December 14,
1992 (date of initial public investment), to August 31, 1994, FAS received fees
from Government Income Fund of $55,895 and $36,945, respectively, of which $0
and $601, respectively, were voluntarily waived.
For the fiscal year ended August 31, 1994, and for the period from December 17,
1992 (date of initial public investment), to August 31, 1994, FAS received fees
from Money Market Fund of $887,132 and $571,068, respectively, of which $0 and
$2,010, respectively, were voluntarily waived.
For the period from September 30, 1993 (date of initial public investment), to
August 31, 1994, FAS received fees from Value Equity Fund of $54,953, of which
$9,451 was voluntarily waived.
For the period from September 30, 1993 (date of initial public investment), to
August 31, 1994, FAS received fees from Mid-Cap Stock Fund of $45,481.
For the period from October 1, 1993 (date of initial public investment), to
August 31, 1994, FAS received fees from Equity Income Fund of $45,481, of which
$10,965 was voluntarily waived.
For the period from February 1, 1994 (date of initial public investment), to
August 31, 1994, FAS received fees from Short-Term Tax-Free Fund and
Intermediate Tax-Free Fund of $49,536 and $95,876, respectively, of which
$49,536 and $77,214, respectively, were voluntarily waived.
Shareholder Servicing Arrangements
For the fiscal years ended August 31, 1994 and 1993, Marshall Funds Investors
Services ("MFIS") earned $14,377 and $5,006, respectively from Short-Term Income
Fund, of which, $0 and $5,006, respectively, were voluntarily waived; $37,544
and $31,441, respectively from Stock Fund, of which $0 and $31,441,
respectively, were voluntarily waived; $46,835 and $32,214, respectively from
Intermediate Bond Fund, of which $0 and $32,214 respectively, were voluntarily
waived; and $138,716 and $83,266, respectively from Money Market Fund, of which
$0 and $83,266, respectively, were voluntarily waived. For the period from
September 30, 1993 (date of initial public investment), to August 31, 1994, MFIS
earned a shareholder servicing fee of $6,219 from Value Equity Fund. For the
period from October 1, 1993 (date of initial public investment), to August 31,
1994, MFIS earned a shareholder servicing fee of $4,902 for Equity Income Fund.
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent for the shares of the Fund and dividend disbursing
agent for the Fund. It also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio of investments.
Federated Services Company receives a fee based on the size, type and number of
accounts and transactions made by shareholders. Federated Services Company also
maintains the Fund's accounting records. The fee is based on the level of the
Fund's average net assets for the period plus out-of-pocket expenses.
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 Fund. For its services as custodian, M&I Trust Company receives an
annual fee, payable monthly, based on a percentage of a Fund's average aggregate
daily net assets. In addition, M&I Trust Company is reimbursed for its out-of-
pocket expenses, which include postage, telephone supplies, and wire charges.
M&I Trust Company has entered into agreements with foreign subcustodians
approved by the Directors pursuant to Rule 17f-5 under the Act. The foreign
subcustodians may not hold certificates for the securities in their custody, but
instead have book records with domestic and foreign securities depositories,
which in turn have book records with the transfer agents of the issuers of the
securities. Compensation for the services of the foreign subcustodians is based
on a schedule of charges agreed on from time to time.
Brokerage Transactions
The Adviser and/or TICI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to a Fund, the
Adviser, or TICI 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, TICI, and their 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 and dealers may be used by the Adviser and
TICI in advising the Funds and other accounts. To the extent that receipt of
these services may supplant services for which the Adviser, TICI, or their
affiliates might otherwise have paid, it would tend to reduce their expenses.
For the period from October 1, 1993, (date of the initial public investment) to
August 31, 1994, the Value Equity Fund paid $___ in brokerage commissions on
brokerage transactions. For the period ended August 31, 1994, the ___ Fund paid
$__ in brokerage commissions on brokerage transactions.
Purchasing Shares with Securities
A Fund may accept securities in exchange for its shares. A Fund will allow such
exchanges only upon the prior approval of the Fund and a determination by the
Fund and its adviser(s) 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. A Fund
acquires the exchanged securities for investment and not for resale.
Securities accepted by a 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.
Distribution Plan
The Corporation has adopted a plan for the International Stock Fund and for
Class B Shares (formerly designated Investment Shares) of the Money Market Fund
("Plan Shares") pursuant to Rule 12b-1 (the "Plan") which was promulgated by the
Securities and Exchange Commission pursuant to the Act. The Plan provides that
the Fund's distributor, Federated Securities Corp., shall act as the distributor
of Plan Shares, and it permits the payment of fees to brokers, dealers and
administrators for distribution and/or administrative services. The Plan is
designed to (i) stimulate brokers, dealers and administrators to provide
distribution and/or administrative support services to the Funds and holders of
Plan Shares. These services are to be provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to: providing office space, equipment, telephone facilities,
and various personnel, including clerical, supervisory, and computer, as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investment of client account cash balances; answering routine client inquiries
regarding the Funds; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Funds
reasonably request.
Other benefits which the Funds hope to achieve through the Plan include, but are
not limited to, the following: (1) an efficient and effective administrative
system; (2) a more efficient use of assets of holders of Plan Shares by having
them rapidly invested in the Funds with a minimum of delay and administrative
detail; and (3) an efficient and reliable records system for holders of Plan
Shares and prompt responses to shareholder requests and inquiries concerning
their accounts.
By adopting the Plan, the Directors expect that the Funds will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Funds in seeking to achieve their investment objectives. By identifying
potential investors in Plan Shares whose needs are served by the Funds'
objectives and properly servicing these accounts, the Funds may be able to curb
sharp fluctuations in rates of redemptions and sales. Currently, no fee is
being accrued for the International Stock Fund. For the fiscal year ended
August 31, 1994, the Money Market Fund paid $___ to the distributor on behalf of
the Class B Shares (formerly designated Investment Shares).
Determining Market Value
Use of the Amortized Cost Method (Money Market Fund only)
The Directors have decided that the best method for determining the value of
portfolio instruments for the Money Market Fund is amortized cost. Under this
method, portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value.
The Money Market Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with the provisions of Rule 2a-7 (the
"Rule") promulgated by the Securities and Exchange Commission under the Act.
Under the Rule, the Directors must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under the Rule, the Money Market Fund is permitted to purchase instruments which
are subject to demand features or standby commitments. As defined by the Rule, a
demand feature entitles the Fund to receive the principal amount of the
instrument from the issuer or a third party on (1) no more than 30 days' notice
or (2) at specified intervals not exceeding 397 days on no more than 30 days'
notice. A standby commitment entitles the Fund to achieve same-day settlement
and to receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
The Money Market Fund acquires instruments subject to demand features and
standby commitments to enhance the instrument's liquidity. The Fund treats
demand features and standby commitments as part of the underlying instruments,
because the Fund does not acquire them for speculative purposes and cannot
transfer them separately from the underlying instruments. Therefore, although
the Fund defines demand features and standby commitments as "puts," the Fund
does not consider them to be corporate investments for purposes of its
investment policies.
Monitoring Procedures. The Directors' procedures include monitoring the
relationship between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The Directors will
decide what, if any, steps should be taken if there is a difference of more than
0.5 of 1% between the two values. The Directors will take any steps they
consider appropriate (such as redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or other unfair results
arising from differences between the two methods of determining net asset value.
Investment Restrictions. The Rule requires that the Money Market Fund limit its
investments to instruments that, in the opinion of the Directors, present
minimal credit risks and have received the requisite rating from one or more
NRSROs. If the instruments are not rated, the Directors must determine that
they are of comparable quality. The Rule also requires the Fund to maintain a
dollar-weighted average portfolio maturity (not more than 90 days) appropriate
to the objective of maintaining a stable net asset value of $1.00 per share. In
addition, no instrument with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Money Market Fund will
invest its available cash to reduce the average maturity to 90 days or less as
soon as possible. Shares of investment companies purchased by the Fund will meet
these same criteria and will have investment policies consistent with Rule 2a-7.
Under the amortized cost method of valuation, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio. In periods of declining interest rates, the
indicated daily yield on shares of the Fund, computed based upon amortized cost
valuation, may tend to be higher than a similar computation made by using a
method of valuation based upon market prices and estimates. In periods of
rising interest rates, the indicated daily yield on shares of the Fund computed
the same way may tend to be lower than a similar computation made by using a
method of calculation based upon market prices and estimates.
Market Values (All Other Funds)
Market values of portfolio securities of Funds other than the Money Market Fund
are determined as follows:
o for equity securities, according to the last reported sales price on a
recognized securities exchange, if available. (If a security is traded on
more than one exchange, the price on the primary market for that security,
as determined by the Fund's adviser or subadviser, is used.);
o for equity securities, according to the last reported bid price, if no
sale on the recognized exchange is reported or if the security is traded
over-the-counter;
o for bonds and other fixed income securities, according to the mean between
bid and asked price as furnished by an independent pricing service;
o for short-term obligations, according to the mean between bid and asked
price as furnished by an independent pricing service;
o for short-term obligations with remaining maturities of less than 60 days
at the time of purchase, at amortized cost, which approximates fair value;
or
o 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, and options on stocks, stock indices and
futures contracts 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.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing its net asset value, the
International Stock Fund values foreign securities at the latest closing price
on the exchange on which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into
U.S. dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the New York Stock Exchange. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Directors, although the actual
calculation may be done by others.
Redemption in Kind
Although the Corporation intends to redeem shares in cash, it reserves 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.
The Corporation has elected to be governed by Rule 18f-1 under the Act, which
obligates the Corporation to redeem shares for any one shareholder in cash only
up to the lesser of $250,000 or 1% of a Fund's net asset value during any 90-day
period.
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 transaction costs.
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 the 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 the 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 Status
The Funds' Tax Status
The Funds will pay no federal income tax because each Fund expects 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, each Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
There are tax uncertainties with respect to whether increasing rate securities
will be treated as having an original issue discount. If it is determined that
the increasing rate securities have original issue discount, a holder will be
required to include as income in each taxable year, in addition to interest paid
on the security for that year, an amount equal to the sum of the daily portions
of original issue discount for each day during the taxable year that such holder
holds the security. There may also be tax uncertainties with respect to whether
an extension of maturity on an increasing rate note will be treated as a taxable
exchange. In the event it is determined that an extension of maturity is a
taxable exchange, a holder will recognize a taxable gain or loss, which will be
a short-term capital gain or loss if the holder holds the security as a capital
asset, to the extent that the value of the security with an extended maturity
differs from the adjusted basis of the security deemed exchanged therefor.
Foreign Taxes
Investment income on certain foreign securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which a Fund would be subject.
However, if a Fund may invests in the stock of certain foreign corporations that
constitute a Passive Foreign Investment Company (PFIC), then federal income
taxes may be imposed on a Fund upon disposition of PFIC investments.
Shareholders' Tax Status
The dividends received deduction for corporations will apply to ordinary income
distributions to the extent the distribution represents amounts that would
qualify for the dividends received deduction to the Equity Fund if the Equity
Fund were a regular corporation, and to the extent designated by the Equity Fund
as so qualifying. Otherwise, these dividends and any short-term capital gains
are taxable as ordinary income. No portion of any income dividends paid by the
other Funds is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
Capital Gains
Capital gains, when experienced by the Fund, could result in an increase in
dividends. Capital losses could result in a decrease in dividends. When a Fund
realizes net long-term capital gains, it will distribute them at least once
every 12 months.
Total Return
The average annual total return for a 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 net asset value 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 any dividends and distributions.
Short-Term Income Fund's average annual total return for the one-year period
ended August 31, 1994, and for the period from November 2, 1993 (date of initial
public investment), to August 31, 1994 were 2.05% and 3.06%, respectively.
Stock Fund's average annual total return for the one-year period ended August
31, 1994, was 0.44%.
Intermediate Bond Fund's average annual total return for the one-year period
ended August 31, 1994, and for the period from November 23, 1993 (date of
initial public investment), to August 31, 1994 were (2.02%) and 3.23%,
respectively.
Government Income Fund's average annual total return for the fiscal year ended
August 31, 1994 was (1.34%).
Value Equity Fund's cumulative total return for the period from September 30,
1993 (date of initial public investment), to August 31, 1994, was 10.59%.
Mid-Cap Stock Fund's cumulative total return for the period from September 30,
1993 (date of initial public investment) to August 31, 1994, was (2.74%).
Equity Income Fund's cumulative total return for the period from October 1, 1993
(date of initial public investment) to August 31, 1994, was 2.02%.
Short-Term Tax Free Fund's average annual total return for the period from
February 1, 1994 (date of initial public investment) to August 31, 1994, was
0.98%.
Intermediate-Tax-Free Fund's average annual total return for the period from
February 1, 1994 (date of initial public investment) to August 31, 1994, was
(0.94%).
Yield
The Money Market Fund calculates the yield for both classes of shares daily,
based upon the seven days ending on the day of the calculation, called the "base
period." This yield is computed by:
o determining the net change in the value of a hypothetical account with a
balance of one Share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
Shares purchased with dividends earned from the original one Share and all
dividends declared on the original and any purchased shares;
o dividing the net change in the account's value by the value of the account
at the beginning of the base period to determine the base period return;
and
o multiplying the base period return by 365/7.
The Money Market Fund's yield for Class A Shares (formerly Trust Shares) for the
seven-day period ended August 31, 1994, was 4.31%. The Fund's yield for Class B
Shares (formerly Investment Shares) was 4.01% for the same period.
The yield for the other Funds is determined 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 offering price per share of the Fund
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 Fund 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.
Short-Term Income Fund's yield for the 30-day period ended August 31, 1994 was
5.42%.
Stock Fund's yield for the 30-day period ended August 31, 1994, was 0.81%.
Intermediate Bond Fund's yield for the 30-day period ended August 31, 1994, was
5.79%.
Government Income Fund's yield for the 30-day period ended August 31, 1994, was
6.34%.
Value Equity Income Fund's yield for the 30-day period ended August 31, 1994,
was 1.74%.
Mid-Cap Stock Fund's yield for the 30-day period ended August 31, 1994, was
0.29%.
Equity Income Fund's yield for the 30-day period ended August 31, 1994, was
3.30%.
Short-Term Tax-Free Fund's yield for the 30-day period ended August 31, 1994,
was 3.74%.
Intermediate Tax-Free Fund's yield for the 30-day period ended August 31, 1994,
was 4.27%.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
performance will be reduced for those shareholders paying those fees.
Effective Yield (Money Market Fund only)
The Money Market Fund's effective yield for both classes of shares is computed
by compounding the unannualized base period return by: adding 1 to the base
period return; raising the sum to the 365/7th power; and subtracting 1 from the
result. The Money Market Fund's effective yield for Class A Shares (formerly
Trust Shares) for the seven-day period ended August 31, 1994, was 4.40%. The
Money Market Fund's effective yield for Class B Shares (formerly Investment
Shares) was 4.09% for the same period.
Tax-Equivalent Yield (Tax-Free Income Funds only)
The tax-equivalent yield of the Tax-Free Income Funds is calculated similarly to
the yield, but is adjusted to reflect the taxable yield that these 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. Short-Term Tax-Free Fund's tax-equivalent yield for the 30-day
period ended August 31, 1994, was 6.19%. The tax-equivalent yield for
Intermediate Tax-Free Fund was 7.07% for the same period.
Tax-Equivalency Table
The Tax-Free Income Funds may also use a tax-equivalency table in advertising
and sales literature. The interest earned by the municipal bonds in these 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.
TAX-FREE YIELD VS. TAXABLE YIELD
1994 Federal Income Tax Bracket:
<TABLE>
<CAPTION>
15.00% 28.00% 31.00% 36.00% 39.60%
Joint Return:$1-36,900 $36,901-89,150$89,151-140,000$140,001-250,000Over $250,000
Single Return:$1-22,000$22,101-53,500$53,501-115,000$115,001-250,000Over $250,000
<S> <C> <C> <C> <C> <C> <C> <C>
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 Tax-Free Funds' income may be subject to the federal
alternative minimum tax and state and local taxes.
Performance Comparisons
A Fund's performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities; changes in
Fund or class expenses; the relative amount of Fund cash flow; and various other
factors.
Investors may use financial publications and/or indices to obtain a more
complete view of a Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Morgan Stanley Capital International Europe, Australia And Far East Index
(EAFE) is a market capitalization weighted foreign securities index, which
is widely used to measure the performance of European, Australian and New
Zealand and Far Eastern stock markets. The index covers approximately
1,020 companies drawn from 18 countries in the above regions. The index
values its securities daily in both U.S. dollars and local currency and
calculates total returns monthly. EAFE U.S. dollar total return is a net
dividend figure less Luxembourg withholding tax. The EAFE is monitored by
Capital International, S.A., Geneva, Switzerland.
o 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
and takes into account any change in net asset value over a specific
period of time. From time to time, a Fund will quote its Lipper ranking in
advertising and sales literature.
o Consumer Price Index is generally considered to be a measure of inflation.
o Dow Jones Industrial Average ("DJIA") is an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.
o Standard & Poor's Daily Stock Price Index Of 500 Common Stocks, a
composite index of common stocks in industry, transportation, financial,
and public utility companies. The Standard & Poor's index assumes
reinvestment of all dividends paid by stocks listed on the index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated in the Standard & Poor's figures.
o 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 ratings are effective for
two weeks.
o Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.
o Donoghue's Money Fund Report publishes annualized yields of over 300
taxable money market funds on a weekly basis and through its Money Market
Insight publication reports monthly and 12 month-to-date investment
results for the same money funds.
o Lipper Growth and Income Fund Average is an average of the performance,
adjusted for capital gains distributions and income dividends, of the
Lipper Growth and Income Fund category. Lipper calculations do not
include the sales charges imposed by other funds.
o Lipper Growth and Income Fund Index is an index of the net asset value
weighted performance, adjusted for capital gains distributions and income
dividends, of the largest thirty growth and income funds provided by
Lipper Analytical Services. Lipper calculations do not include the sale
charges imposed by other funds.
o Lipper Growth Fund Average is an average of the performance, adjusted for
capital gains distributions and income dividends, of the Lipper Growth
Fund category. Lipper calculations do not include the sale charges
imposed by other funds.
o Lipper Growth Fund Index is an index of the net asset weighted
performance, adjusted for capital gains distributions and income
dividends, off the largest thirty growth funds provided by Lipper
Analytical Services. Lipper calculations do not include the sale charges
imposed by other funds.
o Lipper Equity Income Fund Average is an average of the performance,
adjusted for capital gains distributions and income dividends, of the
Lipper Equity Income Fund category. Lipper calculations do not include
the sale charges imposed by other funds.
o Lipper Equity Income Fund Index is an index of the net asset value
weighted performance, adjusted for capital gain distributions and income
dividends, of the largest thirty equity income funds provided by Lipper
Analytical Services. Lipper calculations do not include the sale charges
imposed by other funds.
o The S&P/BARRA Value Index and the S&P/BARRA Growth Index are constructed
by Standard & Poor's and BARRA, Inc., an investment technology and
consulting company, by separating the S&P 500 Index into value stocks and
growth stocks. The S&P/BARRA Growth and S&P/BARRA Value Indices are
constructed by dividing the stocks in the S&P 500 Index according to their
price-to-book ratios. The S&P/BARRA Growth Index, contains companies with
higher price-to-earnings ratios, low dividends yields, and high earnings
growth (concentrated in electronics, computers, health care, and drugs).
The Value Index contains companies with lower price-to-book ratios and has
50% of the capitalization of the S&P 500 Index. These stocks tend to have
lower price-to-earnings ratios, high dividend yields, and low historical
and predicted earnings growth (concentrated in energy, utility and
financial sectors). The S&P/BARRA Value and S&P/BARRA Growth Indices are
capitalization-weighted and rebalanced semi-annually. Standard &
Poor's/BARRA calculates these total return indices with dividends
reinvested.
o The S&P/BARRA Equity Income Index is constructed by sorting the
constituents of the S&P 500 according to their yields. The S&P 500 is
divided into two halves, such that the total capitalization of the higher
yield firms approximately equals that of the lower yield firms. These
higher yielding stocks constitute the S&P/BARRA Equity Income Index, which
is capitalization-weighted and rebalanced semi-annually. These higher
yielding firms tend to display low historical and predicted earnings
growth (concentrated in utilities, financial and energy sections). BARRA,
an investment technology and consulting company, calculates the total
return of the index with dividends reinvested.
o Standard & Poor's Midcap 400 Stock Price Index, a composite index of 400
common stocks with market capitalizations between $200 million and $7.5
billion in industry, transportation, financial, and public utility
companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in the Standard & Poor's figures.
o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking short-
term U.S. government securities with maturities between 1 and 2.99 years.
The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Merrill Lynch Corporate Master is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on the composites of ratings assigned by
Standard & Poor's Corporation and Moody's Investors Service, Inc. Only
bonds with a minimum maturity of one year are included.
o Merrill Lynch 1-Year Treasury Bill Index is comprised of the most recently
issued one-year U.S. Treasury bills. Index returns are calculated as total
returns for periods of one, three, six and twelve months as well as year-
to-date.
o Merrill Lynch Corporate A-Rated (1-3 Year) Bond Index is a universe of
corporate bonds and notes with maturities between 1-3 years and rated A3
or higher.
o The Lehman Government/Corporate (Total) Index is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporation; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry,
public utilities, and finance. The average maturity of these bonds
approximates nine years. Traced by Shearson Lehman Hutton, Inc., the
index calculates total return for one-month, three-month, twelve-month,
and ten-year periods and year-to-date.
o The Lehman Intermediate Government/Corporate Bond Index is a universe of
government and corporate bonds rated BBB or higher with maturities between
1-10 years.
o The Salomon Brothers Total Rate-of-Return Index for mortgage pass through
securities reflects the entire mortgage pass through market and reflects
their special characteristics. The index represents data aggregated by
mortgage pool and coupon within a given sector. A market weighted
portfolio is constructed considering all newly created pools and coupons.
o The Merrill Lynch Taxable Bond Indices include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the fixed
income market. The performance indicators capture all rating changes, new
issues, and any structural changes of the entire market.
o The Lehman Mortgage-Backed Securities Index is a universe of fixed rate
securities backed by mortgage pools of Government National Mortgage
Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC), and Federal
National Mortgage Association (FNMA).
o 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.
o 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 also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds.
o Fiduciary Consulting Grid Universe, for example, is composed of over 1,000
funds, representing 350 different investment managers, divided into
subcategories based on asset mix. The funds are ranked quarterly based on
performance and risk characteristics.
o SEI Data Base for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on investor
groups and asset mix. The funds are ranked every three, six, and twelve
months.
o Mercer Meidinger, Inc. compiles a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their
rankings each calendar quarter as well as on a one, three, and five year
basis.
Advertisements and other sales literature for a Fund 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 based on
quarterly reinvestment of dividends over a specified period of time.
Financial Statements
The financial statements for the fiscal period ended August 31, 199_, are
incorporated herein by reference from the Funds' Annual Reports dated August 31,
199_ (File Nos. 33-48907 and 811-58433). A copy of the Annual Report for a Fund
may be obtained without charge by contacting Marshall Funds Investor Services at
the address located on the back cover of the combined prospectus or by calling
Marshall Funds Investor Services at 414-287-8500 or 1-800-236-8560.
Appendix
Standard and Poor's Ratings Group 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.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to BBB 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. Corporate 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 sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
NR--Not rated by Moody's.
Fitch Investors Service, Inc. 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 credit 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.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.
NR--NR indicates that Fitch does not rate the specific issue.
Standard and Poor's Ratings Group Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. The 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 Services, Inc. Commercial Paper Ratings
P-1--Issuers rated PRIME-1 (for 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; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (for 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.
Fitch Investors Service, Inc. Short-Term 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 to 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 Ratings Group 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 Standard & Poor's
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. 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.
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
broad based 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.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (1-11) To be filed by Amendment.
(b) Exhibits:
(1) Conformed copy of Articles of Incorporation of the
Registrant;+
(i) Conformed copy of Amendment No. 1 to the
Articles of Incorporation;+
(ii) Conformed copy of Amendment No. 2 to the
Articles of Incorporation;+
(iii) Conformed copy of Amendment No. 3 to the
Articles of Incorporation;+
(iv) Conformed copy of Amendment No. 4 to the
Articles of Incorporation (6.);
(v) Conformed copy of Amendment No. 5 to the
Articles of Incorporation;+
(2) Copy of By-Laws of the Registrant;+
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant (2.);
(5) Conformed copy of Investment Advisory Contract of the
Registrant (4.);
(i) Conformed copy of Exhibit G of the Investment
Advisory Contract (5.);
(ii) Conformed copy of Exhibit H of the Investment
Advisory Contract (5.);
(iii) Conformed copy of Exhibit I of the Investment
Advisory Contract (5.);
(iv) Conformed copy of Exhibit J of the Investment
Advisory Contract (5.);
(v) Conformed copy of Exhibit K of the Investment
Advisory Contract (7.);
(vi) Conformed copy of Exhibit L of the Investment
Advisory Contract (7.);
________________________
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment #1 on Form N-1A filed September 28, 1992. (File Nos. 33-48907
and 811-7047).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment #5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-
48907 and 811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-
48907 and 811-7047).
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed July 1, 1994. (File Nos. 33-48907
and 811-7047).
(vii) Form of Exhibit M of the Investment Advisory
Contract;+
(viii) Conformed copy of Federated Management Sub-
Advisory Agreement with the Registrant (7.);
(ix) Form of Templeton Investment Counsel, Inc., Sub-
Advisory Agreement with the M & I Investment
Management, Inc.;+
(6) Conformed copy of Distributor's Contract of the
Registrant (4.);
(i) Conformed copy of Exhibit H of the Distributor's
Contract (5.);
(ii) Conformed copy of Exhibit I of the Distributor's
Contract (6.);
(iii) Form of Exhibit J of the Distributor's
Contract;+
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the Registrant
(7.);
(9) (i) Conformed copy of Fund Accounting,
Shareholder Recordkeeping, and Custody
Services Procurement Agreement of the
Registrant;+
(ii) Conformed copy of Administrative Services
Agreement (7.);
(iii) Conformed copy of Shareholder Services Agreement
(4.);
(iv) Conformed copy of Amendment No. 1 of the
Shareholder Services Agreement (6.);
(v) Conformed Copy of Amendment No. 2 of the
Shareholder Services Agreement (7.);
(vi) Form of Amendment No. 3 of the Shareholder
Services Agreement;+
________________________
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment #5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-
48907 and 811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-
48907 and 811-7047).
7. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 10 on Form N-1A filed July 1, 1994. (File
Nos. 33-48907 and 811-7047).
(10) Conformed copy of Opinion and Consent of Counsel
as to legality of shares being registered (4.);
(11) Not applicable;
(12) Not applicable;
(13) Paper copy of copy of Initial Capital
Understanding (2.);
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan (4.);
(ii) Form of Exhibit B of Distribution Plan;+
(iii) Copy of 12b-1 Agreement through and including
Exhibit B (7.);
(16) Conformed copy of Schedule for Computation of
Fund Performance Data (6.);
(17) Copy of Financial Data Schedules (To be filed by
Amendment);
(18) Not applicable.
(19) (i) Conformed copy of Power of Attorney (5.);
(ii) Conformed copy of Power of Attorney
dated December 27, 1993 with respect to
James F. Duca, II, President of the
Corporation
(6.);
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
_____________________
+ All Exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Post-Effective
Amendment #1 on Form N-1A filed September 28, 1992. (File Nos. 33-48907
and 811-7047).
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment #5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-
48907 and 811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-
48907 and 811-7047).
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed July 1, 1994. (File Nos. 33-
48907 and 811-7047).
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of September 28, 1994
Shares of capital stock
Marshall Intermediate Bond Fund 220
Marshall Government Income Fund 1,919
Marshall Money Market Fund
Investment Shares 1,134
Marshall Money Market Fund
Trust Shares 1,916
Marshall Short-Term Income Fund 157
Marshall Stock Fund 2,840
Marshall Balanced Fund 44
Marshall Equity Income Fund 75
Marshall Mid-Cap Stock Fund 126
Marshall Value Equity Fund 107
Marshall Intermediate Tax-Free Fund 17
Marshall Short-Term Tax-Free Fund 17
Marshall International Stock Fund 22
Item 27. Indemnification: (5.)
Item 28. Business and Other Connections of Investment Adviser:
M&I INVESTMENT MANAGEMENT CORP.
(a) M&I Investment Management Corp. is a registered investment
adviser and wholly-owned subsidiary of Marshall & Ilsley
Corporation, 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.
M&I Investment Management Corp. served as investment adviser
to Newton Money Fund, Newton Income Fund and Newton Growth
Fund.
For further information about M & I Investment Mangagement
Corp., its officers and directors, response is incorporated
by reference to M & I Investment Management Corp.'s Form ADV,
File No. 801-9118, dated February 25, 1994, as amended.
TEMPLETON INVESTMENT COUNSEL, INC.
(b) Templeton Investment Counsel, Inc. ("TICI"), 500 East Broward
Blvd., Suite 2100, Ft. Lauderdale, FL 33394-3091, is a
professional investment counseling firm which has been
providing investment services since 1979. As of October 1,
1993, TICI had discretionary investment management of $9.3
billion of assets, including approximately $165 million of
assets of AMR and its subsidiaries and affiliated entitites.
TICI serves as investment adviser to the American Advantage
International Equity Fund.
___________________
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-
48907 and 811-7047).
For a list of the officers and directors of TICI and for
further information about TICI, any other business, vocation
or employment of a substantial nature in which a director or
officer of TICI is, or at any time in the past two fiscal
years has been, engaged for his or her own account or in the
capacity of director, officer, employee, partner or trustee,
response is incorporated by reference to TICI's Form ADV,
File No. 801-15125, dated December 29, 1993, as amended.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; BayFunds; The Biltmore
Funds; The Biltmore Municipal Funds; California Municipal
Cash Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S.
Government Bond Fund; First Priority Funds; First Union
Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fountain Square
Funds; Fund for U.S. Government Securities, Inc.; Government
Income Securities, Inc.; High Yield Cash Trust; Independence
One Mutual Funds; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money
Market Trust; The Monitor Funds; Municipal Securities Income
Trust; New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal
Trust; SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Tower Mutual Funds; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; Vision Fiduciary Funds, Inc.;
Vision Group of Funds, Inc.; and World Investment Series,
Inc.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Chairman,
Federated Investors Tower President, and Treasurer, Director, and
Pittsburgh, PA 15222-3779 Federated Securities Treasurer
Corp.
John W. McGonigle Director, Executive Vice --
Federated Investors Tower President, and Assistant
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records: (7.)
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholders meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment on
behalf of Marshall International Stock Fund, using financial
statements for Marshall International Stock Fund, which need not
be certified, within four to six months from the effective date of
Post-Effective Amendment No. 10.
______________________
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment #10 on Form N-1A filed July 1, 1994. (File Nos. 33-48907
and 811-7047).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MARSHALL FUNDS, INC.,
has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, all
in the City of Pittsburgh and Commonwealth of Pennsylvania, on the 21st
day of October, 1994.
MARSHALL FUNDS, INC.
BY: /s/ Victor R. Siclari
Victor R. Siclari, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 21, 1994
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Victor R. Siclari
Victor R. Siclari Attorney In Fact October 21, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* Chairman, Director, and Treasurer
(Principal Financial and Accounting
Officer)
James F. Duca, II* President
John DeVincentis* Director
Ody J. Fish* Director
Paul E. Hassett* Director
* By Power of Attorney
Exhibit (1) under N-1A
Exhibit 3(a) under Item 601/Reg S-K
ARTICLES OF INCORPORATION
OF
MARSHALL FUNDS, INC.
The undersigned, for the purpose of forming a Wisconsin corporation
under Chapter 180 of the Wisconsin Statutes, adopts the following
Articles of Incorporation:
Article I
The name of the corporation is Marshall Funds, Inc. ("Corporation")
Article II
The period of existence shall be perpetual.
Article III
The purpose for which the Corporation is formed is to act as an open-
end investment company of the management type registered as such with
the Securities and Exchange Commission pursuant to the Investment
Company Act of 1940 and to exercise and generally to enjoy all of the
powers, rights and privileges granted to, or conferred upon,
corporations by Chapter 180 of the Wisconsin Statutes, as amended from
time to time (the "WBCL").
Article IV
(a) The Corporation is authorized to issue fifty billion
(50,000,000,000) shares of common stock, par value $.0001 per share.
Subject to the following paragraph, the authorized shares are classified
as follows:
Authorized Number
Class Series of Shares
Marshall Money Market Fund Investment Shares 5,000,000,000
Marshall Money Market Fund Trust Shares 5,000,000,000
Marshall Government Income Fund 1,000,000,000
Marshall Stock Fund 1,000,000,000
Marshall Tax-Exempt Money Market Fund 2,500,000,000
Marshall Short-Term Income Fund 1,000,000,000
Marshall Intermediate Bond Fund 1,000,000,000
The remaining 33,500,000,000 shares shall remain unclassified until
action is taken by the Board of Directors pursuant to the following
paragraph.
(b) The Board of Directors is authorized to classify or to reclassify
(i.e. into classes and series of classes), from time to time, any
unissued shares of stock of the Corporation, whether now or hereafter
authorized, by setting, changing or eliminating the preferences,
conversion or other rights, voting powers, restrictions, limitations as
to dividends, qualifications or terms or conditions of redemption of the
stock to the fullest extent permissible under the WBCL.
Unless otherwise provided by the Board of Directors prior to the
issuance of the stock, the shares of any and all classes and series of
stock shall be subject to the following:
(i) The Board of Directors may redesignate a class or series
of stock whether or not shares of such class or series are issued and
outstanding, provided that such redesignation does not affect the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption of such class or series of stock.
(ii) The assets and liabilities and the income and expenses for
each class shall be attributable to that class. The assets and
liabilities and the income and expenses of each series within a class of
the Corporation's stock shall be determined separately and, accordingly,
the net asset value of shares of the Corporation's stock may vary from
series to series within a class. The income or gain and the expense or
liabilities of the Corporation shall be allocated to each class or
series of stock as determined by or under the direction of the Board of
Directors.
(iii) Shares of each class or series of stock shall be entitled
to such dividends or distributions, in stock or in cash or both, as may
be declared from time to time by the Board of Directors with respect to
such class or series. Dividends or distributions shall be paid on
shares of a class or series of stock only out of the assets belonging to
that class or series.
(iv) Any shares of stock of the Corporation redeemed by the
Corporation shall be deemed to be cancelled and restored to the status
of authorized but unissued shares of the particular class or series.
(v) In the event of the liquidation or dissolution of the
Corporation, the stockholders of a class or series of the Corporation's
stock shall be entitled to receive, as a class or series, out of the
assets of the Corporation available for distribution to stockholders,
the assets belonging to that class or series less the liabilities
allocated to that class or series. The assets so distributable to the
stockholders of a class or series shall be distributed among such
stockholders in proportion to the number of shares of that class or
series held by them and recorded on the books of the Corporation. In
the event that there are any assets available for distribution that are
not attributable to any particular class or series of stock, such assets
shall be allocated to all classes or series in proportion to the net
asset value of the respective class or series.
(vi) All holders of shares of stock shall vote as a single
series or class except with respect to any matter which affects only one
or more series or class of stock, in which case only the holders of
shares of the series or class affected shall be entitled to vote.
(vii) For purposes of the Corporation's Registration Statement
filed with the Securities and Exchange Commission under the Securities
Act of 1933 and the Investment Company Act of 1940, including all
prospectuses and Statements of Additional Information, references
therein to "classes" of the Corporation's common stock shall mean
"series", as used in these Articles of Incorporation and the WBCL, and
references therein to "series" shall mean "class", as used in these
Articles of Incorporation and the WBCL.
(c) The Corporation may issue fractional shares. Any fractional
share shall carry proportionately all the rights of a whole share,
excepting any right to receive a certificate evidencing such fractional
share, but including, without limitation, the right to vote and the
right to receive dividends.
ARTICLE V
(a) The number of Directors of the Corporation shall initially be
three. The number may be changed by the By-Laws of the Corporation or
by the Board of Directors pursuant to the By-Laws.
(b) The name of the Directors who shall act until the initial meeting
of shareholders and until their successors are elected and qualify, are:
J. Christopher Donahue
Frank Polefrone
Peter J. Germain
Article VI
(a) To the extent the Corporation has funds or property legally
available therefor, each shareholder shall have the right at such times
as may be permitted by the Corporation, but no less frequently than as
required under the Investment Company Act of 1940, to require the
Corporation to redeem all or any part of its shares at a redemption
price equal to the net asset value per share next determined after the
shares are tendered for redemption, less any applicable redemption
charges as determined by the Board of Directors, which payment may be
made in funds or in assets of the class or series. The Board of
Directors may adopt requirements and procedures for redemption of
shares.
Notwithstanding the foregoing, the Corporation may postpone
payment or deposit of the redemption price and may suspend the right of
the shareholders to require the Corporation to redeem shares of any
series or class pursuant to the applicable rules and regulations, or any
order, of the Securities and Exchange Commission.
(b) The Corporation shall have the right, exercisable at the
discretion of the Board of Directors, to redeem any shareholder's shares
of any class or series for their then current net asset value per share
if at such time the shareholders owns shares having an aggregate net
asset value of less than an amount described in the relevant prospectus
for such class or series set forth in the current Registration Statement
of the Corporation filed with the Securities and Exchange Commission.
(c) Each share is subject to redemption by the Corporation at the
redemption price computed in the manner set forth in subparagraph (a) of
Article VI of these Articles of Incorporation at any time if the Board
of Directors, in its sole discretion, determines that failure to so
redeem may result in the Corporation being classified as a personal
holding company as defined in the Internal Revenue Code, as amended.
Article VII
The following provisions are hereby adopted for the purpose of
defining, limiting, and regulating the powers of the Corporation and of
the Directors and shareholders:
(a) The presence in person or by proxy of the holders of one-third of
the shares of stock of the Corporation entitled to vote without regard
to class or series shall constitute a quorum at any meeting of the
shareholders, except with respect to any matter which by law requires
the approval of one or more classes or series of stock, in which case
the presence in person or by proxy of the holders of one-third of the
shares of stock of each class or series entitled to vote on the matter
shall constitute a quorum.
(b) In addition to its other powers explicitly or implicitly granted
under these Articles of Incorporation, by law or otherwise, the Board of
Directors of the Corporation (i) is expressly authorized to make, alter,
amend or repeal the By-Laws of the Corporation, (ii) may from time to
time determine whether, to what extent, at what times and places, and
under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
shareholders, and no shareholder shall have any right to inspect any
account, book or document of the Corporation except as conferred by
statute or as authorized by the Board of Directors of the Corporation,
(iii) is empowered to authorize, without shareholder approval, the
issuance and sale from time to time of shares of stock of the
Corporation whether now or hereafter authorized, and (iv) is authorized
to adopt procedures where appropriate for determination of and, to the
extent deemed desirable by the Board of Directors, to maintain constant
the net asset value of shares of the Corporation's stock.
(c) The Corporation reserves the right from time to time to make any
amendment of its Articles of Incorporation now or hereafter authorized
by law, including any amendment which alters the contract rights, as
expressly set forth in its Articles of Incorporation, of any outstanding
shares or any class or series.
(d) The Board of Directors is expressly authorized to declare and pay
dividends and distributions in cash, securities or other property from
any funds legally available therefor, at such intervals (which may be as
frequently as daily) or on such other periodic basis, as it shall
determine, for any class or series of the Corporation; to declare such
dividends or distributions for any class or series of the Corporation by
means of a formula or other method of determination, at meetings held
less frequently than the frequent of the effectiveness of such
declarations; to establish payment dates for dividends or any other
distributions for any class or series of the Corporation on any basis,
including dates occurring less frequently than the effectiveness of
declarations thereof; and to provide for the payment of declared
dividends on a date earlier or later than the specified payment date in
the case of shareholders of such class or series redeeming their entire
ownership of shares.
(e) Any determination made in good faith by or pursuant to the
direction of the Board of Directors as to the amount of the assets,
debts, obligations or liabilities of the Corporation, as to the amount
of any reserves or charges set up and the propriety thereof, as to the
time of or purpose for creating such reserves or charges, as to the use,
alteration or cancellation of any reserves or charges (whether or not
any debt, obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged or shall be
then or thereafter required to be paid or discharged), as to the value
of or the method of valuing any investment or other asset owned or held
by the Corporation, as to the number of shares of any class or series of
stock outstanding, as to the income of the Corporation or as to any
other matter relating to the determination of net asset value, the
declaration of dividends or the issue, sale, redemption or other
acquisition of shares of the Corporation, shall be final and conclusive
and shall be binding upon the Corporation and all holders of its shares,
past, present and future, and shares of the Corporation are issued and
sold on the condition and understanding that any and all such
determinations shall be binding as aforesaid.
Article VIII
(a) To the fullest extent that limitations on the liability of
directors and officers are permitted by the WBCL, no director or officer
of the Corporation shall have any liability to the Corporation or its
shareholders for damages. This limitation on liability applies to
events occurring at the time a person serves as a director or officer of
the Corporation whether or not such person is a director or officer at
the time of any proceeding in which liability is asserted.
(b) The Corporation shall indemnify and advance expenses to its
currently acting and its former directors and officers to the fullest
extent that indemnification of directors and officers is permitted by
the WBCL. The Board of Directors may by by-law, resolution or agreement
make further provision for indemnification of directors, officers,
employees and agents to the fullest extent permitted by the WBCL.
(c) No provision of this Article shall be effective to protect or
purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders which is
impermissible under the Investment Company Act of 1940.
(d) No amendment to the Articles of Incorporation of the Corporation
shall affect any right of any person under this Article based on any
event, omission or proceeding prior to the amendment.
Article IX
The address of the initial resident agent of the Corporation is 770
North Water Street, Milwaukee, Wisconsin 53202. The resident agent at
such address is Michael A. Hatfield.
Article X
The name and address of the Sole Incorporator is:
Name Address
Scott A. Moehrke Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge them to be my act on the 30th day of July, 1992.
/s/Scott A. Moehrke
SCOTT A. MOEHRKE
SOLE INCORPORATOR
This instrument was drafted by:
Scott A. Moehrke
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
Exhibit 1(i) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
Amendment No. 1
to
ARTICLES OF INCORPORATION
Dated July 30, 1992
THESE Articles of Incorporation are amended as follows:
Delete Section (a) of Article IV and substitute in its place the
following:
"(a) The Corporation is authorized to issue fifty billion
(50,000,000,000) shares of common stock, par value $.0001 per share.
Subject to the following paragraph, the authorized shares are classified as
follows:
Authorized Number
Class Series of Shares
Marshall Money Market Fund Investment 5,000,000,000
Shares
Marshall Money Market Fund Trust Shares 5,000,000,000
Marshall Government Income 1,000,000,000
Fund
Marshall Stock Fund 1,000,000,000
Marshall Tax-Free Money 2,500,000,000
Market Fund
Marshall Short-Term Income 1,000,000,000
Fund
Marshall Intermediate Bond 1,000,000,000
Fund
The remaining 33,500,000,000 shares shall remain unclassified until action
is taken by the Board of Directors pursuant to the following paragraph."
The undersigned Secretary of Marshall Funds, Inc. certifies that the
above stated amendment is a true and correct Amendment to the Articles of
Incorporation, as adopted by the Directors of the Corporation as of the
11th day of August, 1992 in accordance with Section 180.1002 of the
Wisconsin Statutes.
WITNESS the due execution hereof this 11th day of August, 1992.
/s/ Peter J. Germain _
Peter J. Germain
Secretary
This document was drafted by:
James E. Banks, Jr.
Federated Administrative Services, Inc.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Exhibit 1(ii) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
Amendment No. 2
to
ARTICLES OF INCORPORATION
Dated July 30, 1992
THESE Articles of Incorporation are amended as follows:
Delete Section (b) of Article V in its entirety and substitute in its
place the following:
"(b) The names of the Directors who shall act until the initial
meeting of shareholders and until their successors are elected and qualify,
are:
Ody J. Fish
Edward C. Gonzales
Paul E. Hassett
Len E. Ivarson
Warren P. Knowles"
The undersigned Secretary of Marshall Funds, Inc. hereby certifies
that the above-stated amendment is a true and correct Amendment to the
Articles of Incorporation, as adopted by the Directors of the Corporation
as of the 14th day of September, 1992 pursuant to Section 180.1002 of the
Wisconsin Statutes.
WITNESS the due execution hereof this 14th day of September, 1992.
_/s/ Peter J. Germain
Peter J. Germain
Secretary
Exhibit 1(iii) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
Amendment No. 3
to
ARTICLES OF INCORPORATION
Dated July 30, 1992
THESE Articles of Incorporation are amended as follows:
Delete Section (a) of Article IV and substitute in its place the
following:
"(a) The Corporation is authorized to issue fifty billion
(50,000,000,000) shares of common stock, par value $.0001 per share. Subject
to the following paragraph, the authorized shares are classified as follows:
Authorized Number
Class Series of Shares
Marshall Balanced Fund 1,000,000,000
Marshall Equity Income Fund 1,000,000,000
Marshall Government Income 1,000,000,000
Fund
Marshall Intermediate Bond 1,000,000,000
Fund
Marshall Mid-Cap Stock Fund 1,000,000,000
Marshall Money Market Fund Investment 5,000,000,000
Shares
Marshall Money Market Fund Trust Shares 5,000,000,000
Marshall Short-Term Income 1,000,000,000
Fund
Marshall Stock Fund 1,000,000,000
Marshall Tax-Free Money 2,500,000,000
Market Fund
Marshall Value Equity Fund 1,000,000,000
The remaining 29,500,000,000 shares shall remain unclassified until action is
taken by the Board of Directors pursuant to the following paragraph."
The undersigned Secretary of Marshall Funds, Inc. certifies that the
above stated amendment is a true and correct Amendment to the Articles of
Incorporation, as adopted by the Directors of the Corporation as of the 26th
day of April, 1993, in accordance with Section 180.1002 of the Wisconsin
Business Corporation Law.
WITNESS the due execution hereof this 26th day of April, 1993.
/s/ Peter J. Germain
Peter J. Germain
Secretary
This document was drafted by:
Victor R. Siclari
Federated Administrative Services
Federated Investors Tower
Pittsburgh, PA 15222-3779
Exhibit 1(v) under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
Amendment No. 5
to
ARTICLES OF INCORPORATION
Dated July 30, 1992
THESE Articles of Incorporation are amended as follows:
Delete Section (a) of Article IV and substitute in its place the
following:
" (a) The Corporation is authorized to issue fifty billion
(50,000,000,000) shares of common stock, par value $.0001 per share. Subject
to the following paragraph, the authorized shares are classified as follows:
Authorized
Number
Class Series of Shares
Marshall Balanced Fund 1,000,000,000
Marshall Equity Income Fund 1,000,000,000
Marshall Government Income Fund 1,000,000,000
Marshall Intermediate Bond Fund 1,000,000,000
Marshall Mid-Cap Stock Fund 1,000,000,000
Marshall Money Market Fund Investment 5,000,000,000
Shares
Marshall Money Market Fund Trust Shares 5,000,000,000
Marshall Short-Term Income Fund 1,000,000,000
Marshall Stock Fund 1,000,000,000
Marshall Tax-Free Money 2,500,000,000
Market Fund
Marshall Value Equity Fund 1,000,000,000
Marshall Short-Term Tax-Free Fund 1,000,000,000
Marshall Intermediate Tax-Free Fund 1,000,000,000
Marshall International Stock Fund 1,000,000,000
The remaining 26,500,000,000 shares shall remain unclassified until action is
taken by the Board of Directors pursuant to the following paragraph."
The undersigned Secretary of Marshall Funds, Inc. certifies that the
above stated amendment is a true and correct Amendment to the Articles of
Incorporation, as adopted by the Directors of the Corporation as of the 25th
day of July, 1994, in accordance with Section 180.1002 of the Wisconsin
Business Corporation Law.
WITNESS the due execution hereof this 25th day of July, 1994.
/s/ Peter J. Germain
Peter J. Germain
Secretary
This document was drafted by: Victor R. Siclari
Exhibit 2 under Form N-1A
Exhibit 3(b) under Item 601/Reg.S-K
MARSHALL FUNDS, INC.
BY-LAWS
ARTICLE I
MEETING OF SHAREHOLDERS
Section 1. ANNUAL MEETINGS. The Corporation is not required to hold an
Annual Meeting of Shareholders in any year in which the election of Directors is
not required to be acted upon under the Investment Company Act of 1940. If the
Corporation is required to hold a meeting of Shareholders to elect Directors,
the meeting shall be designated the Annual
Meeting of Shareholders for that year. If
an Annual Meeting of Shareholders is held, it shall be held at a date and time
determined by the Board of Directors. Any other business may be considered
at the Annual Meeting.
Section 2. SPECIAL MEETINGS. Special Meetings of Shareholders of the
Corporation or of a particular Series or Class may be called by the
Chairman, or by the Board of Directors; and shall be called by the Secretary
whenever ordered by the Chairman, any Director, or as requested in writing by
Shareholders entitled to
cast at least 10% of the voting shares entitled to be cast on any issue at the
proposed Special Meeting. Such request shall state the purpose of such Special
Meeting and the matters proposed to be acted on thereat, and no other business
shall be transacted at any such special meeting. The Secretary shall inform
such
Shareholders of the reasonably estimated costs of preparing and mailing the
notice
of the meeting, and upon payment to the Corporation of such costs, the Secretary
shall give not less than ten nor more than 60 days' notice of the Special
Meeting.
Unless required by Shareholders entitled to cast a majority of all the votes
entitled to be cast at the meeting, a Special Meeting need not be called to
consider any matter which is substantially the same as a matter voted on at a
Special Meeting of the Shareholders held during the preceding 12 months.
Section 3. PLACE OF MEETINGS. All meetings of the Shareholders of the
Corporation or a particular Series or Class, shall be held at the office of the
Corporation in Pittsburgh, Pennsylvania, or at such other place within or
without the State of Wisconsin as may be fixed by the Board of Directors.
Section 4. NOTICE. Not less than ten nor more than 60 days before
the date
of every Annual or Special Meeting of Shareholders, the Secretary or an
Assistant
Secretary shall give to each Shareholder of record of the Corporation or of the
relevant Series or Class written notice of such Meeting. Such notice shall be
deemed to have been given when mailed to the Shareholder at his address
appearing
on the books of the Corporation, which shall be maintained separately for the
shares of each Series or Class. It shall not be necessary to set forth the
business proposed to be transacted in the notice of any Annual Meeting.
Notice of
a Special Meeting shall include a description of the purpose or purposes
for which it is called.
Section 5. QUORUM. The presence in person or by proxy of holders of one-
third of the shares of capital stock of the Corporation entitled to vote without
regard to Series or Class shall constitute a quorum at any meeting of the
Shareholders, except with respect to any matter which by law requires the
approval of one or more Series or Classes of
stock, in which case the presence in person or
by proxy of the holders of one-third of the shares of stock of each Series
or Class entitled to vote on the matter shall constitute a quorum.
In the absence of a quorum at any meeting, a majority of those Shareholders
present in person or by proxy may adjourn the meeting from time to time to
a date not later than 120 days after the original meeting date without further
notice than by announcement to be given at the meeting until a quorum, as above
defined, shall be present. Any business may be transacted at the adjourned
meeting which might have been transacted at the meeting originally called
had the same been held at the time so called.
Section 6. VOTING. At all meetings of Shareholders each Shareholder
shall be entitled to one vote or fraction thereof for each share or
fraction thereof standing in his name on the books of the Corporation on
the date for the determination of Shareholders entitled to vote at such
meeting.
Section 7. PROXIES. Any Shareholder entitled to vote at any meeting of
Shareholders may vote either in person or by proxy, but no proxy which is dated
more than eleven months before the meeting named therein shall be accepted.
Every proxy shall be in writing and signed by the Shareholder or his duly
authorized attorney in fact and dated, but need not be sealed, witnessed or
acknowledged.
Section 8. INFORMAL ACTION BY SHAREHOLDERS. Any action required or
permitted to be taken at any meeting of Shareholders may be taken without a
meeting, if a consent in writing, setting forth such action, is signed by all
the Shareholders entitled to vote on the subject matter thereof, and such
consent is filed with the records of the Corporation.
ARTICLE II
BOARD OF DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under the authority of the Board of Directors
except as conferred on or reserved to the Shareholders by law, by the
Articles of Incorporation or by these By-Laws.
Section 2. NUMBER, QUALIFICATIONS, MANNER OF ELECTION AND TERM OF OFFICE.
The number of Directors of the Corporation can be changed from time to time to
not less than three nor more than twenty. Directors need not be
Shareholders. The term of office of a Director shall not be affected by any
decrease in the number of Directors made by the Board pursuant to the
foregoing authorization. Each Director shall hold office until the Annual
Meeting next held after he becomes a Director and until the election and
qualification of his successor.
Section 3. PLACE OF MEETING. The Board of Directors may hold its
meetings at such place or places within or without the State of Wisconsin as
the Board or as the person or persons requesting said meeting to be called
may from time to time determine.
Section 4. ANNUAL MEETINGS. The Board of Directors shall meet
annually for the election of Officers and any other business.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such intervals and on such dates as the Board may from time to
time designate, provided that any Director who is absent when such
designation is made shall be given notice of the designation.
Section 6. SPECIAL MEETINGS. Special Meetings of the Board of Directors
may be held at such times and at such places as may be designated at the call of
such meeting. Special Meetings shall be called by the Secretary or Assistant
Secretary at the request of the Chairman or any Director. If the Secretary
when so requested refuses or fails for more than twenty-four hours to call such
meeting, the Chairman or such Director may in the name of the Secretary call
such meeting by giving due notice in the manner required when notice is given
by the Secretary.
Section 7. NOTICE. The Secretary or Assistant Secretary shall give, at
least two days before the meeting, notice of each meeting of the Board of
Directors, whether Annual, Regular or Special, to each member of the Board by
mail, telegram or telephone to his last known address. It shall not be
necessary to state the purpose or business to be transacted in the notice of
any meeting. Personal attendance at any meeting by a Director other than to
protest the validity of said
meeting shall constitute a waiver of the foregoing requirement of notice. In
addition, notice of a meeting need not be given if a written waiver of notice
executed by such Director before or after the meeting is filed with the records
of the meeting.
Section 8. CONDUCT OF MEETINGS AND BUSINESS. The Board of Directors may
adopt such rules and regulations for the conduct of their meetings and the
management of the affairs of the Corporation as they may deem proper and not
inconsistent with applicable law, the Articles of Incorporation of the
Corporation or these By-Laws.
Section 9. QUORUM. One-third of the entire Board of Directors but not
less than two Directors shall constitute
a quorum at any meeting of the Board of
Directors. The action of a majority of Directors present at any meeting at
which a quorum is present shall be the action
of the Board of Directors unless the
concurrence of a greater proportion is required for such action by statute, the
Articles of Incorporation of the Corporation, or these By-Laws. In the absence
of a quorum at any meeting a
majority of Directors present may adjourn the meeting
from day to day or for such longer periods as they may designate until a quorum
shall be present. Notice of any adjourned meeting need not be given other than
by announcement at the meeting.
Section 10. RESIGNATIONS. Any Director of the Corporation may resign at
any time by written notice to the
Corporation. The resignation of any Director shall
take effect at the time specified therein or, if no time is specified, when
received by the Corporation. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 11. REMOVAL. At any meeting of Shareholders duly called for the
purpose, any Director may by the vote of a majority of all of the shares
entitled to vote be removed from office.
At the same meeting, the vacancy in the Board of
Directors may be filled by the election of a Director to serve until the next
Annual Meeting of Shareholders and the election and qualification of his
successor.
Section 12. VACANCIES. Except as otherwise provided by law, any vacancy
occurring in the Board of Directors for any cause other than by reason of an
increase in the number of Directors may be filled by a majority of the remaining
members of the Board of Directors although such majority is less than a quorum
and any vacancy occurring by reason of an
increase in the number of Directors may be
filled by action of a majority of the entire Board of Directors. A Director
elected by the Board to fill a vacancy shall be elected to hold office until the
next Annual Meeting of Shareholders and until his successor is duly elected and
qualified.
Section 13. COMPENSATION OF DIRECTORS. The Directors may receive
compensation for their services as Directors as determined by the Board of
Directors and expenses of attendance at each meeting. Nothing herein contained
shall be construed to preclude any Director from serving the Corporation in any
other capacity, as an Officer, agent or otherwise, and receiving compensation
therefor.
Section 14. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any Annual, Regular or
Special Meeting of the Board of Directors may
be taken without a meeting if a written consent to such action is signed by all
members of the Board and such written consent is filed with the minutes of
proceedings of the Board.
Section 15. TELEPHONE CONFERENCE. Members of the Board of Directors or
any committee thereof may participate in a
meeting of the Board or such committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time and participation by such means shall
constitute presence in person at the meeting.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
Section 1. APPOINTMENT AND TERM OF OFFICE OF EXECUTIVE COMMITTEE.
The Board of Directors may appoint an Executive Committee,
which shall consist of two (2) or
more Directors.
Section 2. VACANCIES IN EXECUTIVE COMMITTEE. Vacancies occurring in the
Executive Committee from any cause may be filled by the Board of Directors.
Section 3. EXECUTIVE COMMITTEE TO REPORT TO BOARD. All action by the
Executive Committee shall be reported to the Board of Directors at its
meeting next succeeding such action.
Section 4. PROCEDURE OF EXECUTIVE COMMITTEE. The Executive Committee
shall fix its own rules of procedure not
inconsistent with these By-Laws or with any
directions of the Board of Directors. It shall meet at such times and places
and upon such notice as shall be
provided by such rules or by resolution of the Board
of Directors. The presence of a majority shall constitute a quorum for the
transaction of business, and in every case the affirmative vote of a majority of
the members of the Executive Committee present shall be necessary for the
taking of any action.
Section 5. POWERS OF EXECUTIVE COMMITTEE. During the intervals
between the meetings of the Board of Directors
the Executive Committee, except as limited by
law or by specific directions of the Board of Directors, shall possess and may
exercise all the powers of the Board of Directors in the management and
direction of the business and conduct of the affairs of the Corporation.
Section 6. OTHER COMMITTEES. From time to time the Board of Directors may
appoint any other committee or committees which shall have such powers as shall
be specified in the resolution of appointment and may be delegated by law.
Section 7. COMPENSATION. The members of any duly appointed committee
shall receive such compensation as from time to time
may be fixed by the Board of
Directors and reimbursement of expenses.
Section 8. INFORMAL ACTION BY EXECUTIVE COMMITTEE OR OTHER COMMITTEES.
Any action required or permitted to be taken at
any meeting of the Executive Committee
or any other duly appointed committee may be taken without a meeting if written
consent to such action is signed by all members of such committee and such
written consent is filed with the minutes of the
proceedings of such committee.
Section 9. ADVISORY BOARD. The Directors may appoint an Advisory Board to
consist in the first instance of not less than three (3) members. Members of
such Advisory Board shall not be Directors or Officers
and need not be Shareholders.
Members of this Board shall hold office for such period as the Directors may by
resolution provide. Any member of such Board may resign therefrom by written
instrument signed by him which shall take effect upon delivery to the Directors.
The Advisory Board shall have no legal powers and shall not perform functions of
Directors in any manner, said Board being intended to act merely in an advisory
capacity. Such Advisory Board shall meet at such times and upon such notice
as the Board of Directors may by resolution provide.
The compensation of the members of
the Advisory Board, if any, shall be determined by the Board of Directors.
ARTICLE IV
OFFICERS
Section 1. GENERAL PROVISIONS. The Officers of the Corporation shall be a
Chairman, a President, one or more Vice Presidents, a Treasurer, and a
Secretary. The Board of Directors may elect or
appoint other Officers or agents, including one
or more Assistant Vice Presidents, one or more Assistant Secretaries and one or
more Assistant Treasurers. The same person may hold any two offices.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Officers
shall be elected annually by the Board of Directors.
Each Officer shall hold office for one year and until the election and
qualification of his successor. Any vacancy in
any of the offices may be filled for the unexpired portion of the term by
the Board
of Directors at any Regular or Special Meeting of the Board. The Board of
Directors may elect or appoint additional Officers or agents at any Regular or
Special Meeting of the Board.
Section 3. REMOVAL. Any Officer elected by the Board of Directors may be
removed with or without cause at any time by the Board of Directors. Any other
employee of the Corporation may be removed or dismissed at any time by the
President.
Section 4. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Corporation. Any such resignation shall take effect
at the time specified therein or, if no time
is specified, at the time of receipt. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other
cause shall be filled for the unexpired
portion of the term in the manner prescribed in these By-Laws for regular
election or appointment to such office.
Section 6. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of
Directors, if there be a Chairman, shall preside at the meetings of Shareholders
and of the Board of Directors. He shall receive such information and reports
as he may request from the Officers of the Corporation. He shall counsel
and advise the President on matters of major importance.
Section 7. PRESIDENT. The President of Marshall Funds, Inc. shall be the
chief executive officer of the Corporation.
He shall, unless other provisions are
made therefor by the Board or Executive Committee, employ and define the
duties of all employees of the Corporation,
shall have the power to discharge any such
employees, shall exercise general supervision over the affairs of the
Corporation
and shall perform such other duties as may be assigned to him from time to
time by
the Board of Directors. In the absence of the Chairman of the Board of
Directors, the President or an Officer or Director appointed by the President,
shall preside at all meetings of Shareholders.
Section 8. VICE PRESIDENT. The Vice President (or if more than one, the
senior Vice President) in the absence of the President shall perform all duties
and
may exercise any of the powers of the President subject to the control of the
Board. Each Vice President shall perform such other duties as may be assigned
to
him from time to time by the Board of Directors, the Executive Committee, or the
President.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept in
books
provided for the purpose the minutes of the meetings of the Shareholders, and of
the Board of Directors; shall see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law; shall be
custodian of the records and of the Seal of the
Corporation and see that the Seal is affixed to
all documents the execution of which on behalf of the Corporation under its
Seal is duly authorized; shall keep directly or
through a transfer agent a register of the
post office address of each Shareholder, and make all proper changes in such
register, retaining and filing his authority for such entries; shall see that
the books, reports, statements, certificates
and all other documents and records
required by law are properly kept and filed; and in general shall perform all
duties incident to the Office of Secretary and such other duties as may,
from time to time, be assigned to him by the Board of Directors,
the Executive Committee, or the President.
Section 10. TREASURER. The Treasurer shall have supervision of the
custody of all funds and securities of the Corporation,
subject to applicable law. He
shall perform such other duties as may be from time to time assigned to him
by the Board of Directors, the Executive Committee, or the President.
Section 11. ASSISTANT VICE PRESIDENT. The Assistant Vice President
or Vice Presidents of the Corporation shall
have such authority and perform such duties as may be assigned to them
by the Board of Directors, the Executive Committee, or the
President of the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretary or Secretaries and the Assistant Treasurer or Treasurers shall perform
the duties of the Secretary and of the Treasurer respectively, in the absence of
those Officers and shall have such further powers and perform such other
duties as may be assigned to them respectively
by the Board of Directors or the Executive Committee or by the President.
Section 13. SALARIES. The salaries of the Officers shall be fixed from
time to time by the Board of Directors.
No Officer shall be prevented from receiving
such salary by reason of the fact that he is also a Director of the Corporation.
ARTICLE V
SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES. All share certificates shall be signed by the
Chairman, the President, or any Vice President and by the Treasurer or
Secretary or any Assistant Treasurer or Assistant Secretary
and may be sealed with the Seal of
the Corporation. The signatures may be either manual or facsimile
signatures and the Seal may be either facsimile or any
other form of seal. Certificates for
shares for which the Corporation has appointed an independent Transfer Agent and
Registrar shall not be valid unless countersigned by such Transfer Agent and
registered by such Registrar. In case any Officer who has signed any
certificate ceases to be an Officer of the Corporation before
the certificate is issued, the certificate may nevertheless be issued by
the Corporation with the same effect as
if the Officer had not ceased to be such Officer as of the date of its issuance.
Share certificates shall be in such form not inconsistent with law and these By-
Laws as may be determined by the Board of Directors.
Section 2. TRANSFER OF SHARES. Shares of each Series and Class shall be
transferable on the books of the Corporation by the holder thereof in
person or by duly authorized attorney upon surrender of the certificate
representing the shares to be transferred properly endorsed.
Section 3. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATE. The Board of
Directors may fix in advance a date as the record date for the purpose of
determining Shareholders of a Series or Class entitled to notice of or to
vote at any meeting of Shareholders or Shareholders
to receive payment of any dividend.
Such date shall in any case not be more than 60 days and in case of a meeting of
Shareholders not more than 70 days prior to the date on which the
particular action requiring such determination of Shareholders is to be
taken. Only Shareholders of
record on the record date shall be entitled to notice of and to vote at such
meeting or to receive such dividends or rights, as the case may be. In lieu of
fixing a record date the Board of Directors may provide that the share transfer
books of the Corporation shall be closed for a stated period not to exceed
in any case 20 days. If the share transfer
books are closed for the purpose of
determining Shareholders entitled to notice of or to vote at a meeting of
Shareholders such books shall be closed for at least l0 days
immediately preceding such meeting.
Section 4. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case any share
certificate is lost, mutilated or destroyed the Board of Directors may
issue a new certificate in place thereof upon
indemnity to the relevant Series or Class against
loss and upon such other terms and conditions as the Board may deem advisable.
Section 5. TRANSFER AGENT AND REGISTRAR: REGULATIONS. The Board of
Directors shall have power and authority to make all such rules and
regulations as they may deem expedient concerning the
issuance, transfer and registration of share
certificates and may appoint a Transfer Agent and/or Registrar of share
certificates of each Series or Class, and may require all such share
certificates to bear the signature of such Transfer
Agent and/or of such Registrar.
ARTICLE VI
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. AGREEMENTS, ETC. The Board of Directors or the Executive
Committee may authorize any Officer or Officers, or agent or agents of the
Corporation to enter into any Agreement or execute and deliver any instrument in
the name of the Corporation and such authority may be general or confined to
specific instances; and, unless so authorized by the Board of Directors or
by the Executive Committee or by these By-Laws, no Officer,
agent or employee shall have any power or authority to bind the Corporation by
any agreement or engagement or to pledge its credit or to
render it liable pecuniarily for any purpose or to any amount.
Section 2. CHECKS, DRAFTS, ETC. All checks, drafts, or orders for the
payment of money, notes and other evidences of indebtedness shall be
signed by such Officer or Officers, employee or employees, or agent
or agents as shall be from
time to time designated by the Board of Directors or the Executive
Committee, or as may be specified in or pursuant to the agreement
between the Corporation on behalf
of any Series or Class and the Bank or Trust Company appointed as custodian.
Section 3. ENDORSEMENTS, ASSIGNMENTS AND TRANSFER OF SECURITIES. All
endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Corporation or its nominee or
directions for
the transfer of securities belonging to the Corporation shall be made by such
Officer or Officers, employee or employees, or agent or agents as may be
authorized by the Board of Directors or the Executive Committee.
ARTICLE VII
BOOKS AND RECORDS
Section 1. LOCATION. The books and records of the
Corporation, including the stock ledger or ledgers, may be kept in or
outside the State of Wisconsin at such
office or agency of the Corporation as may be from time to time
determined by the Board of Directors.
ARTICLE VIII
MISCELLANEOUS
Section 1. SEAL. The Seal of the Corporation shall be a disk
inscribed with the words "Marshall Funds, Inc. 1992 - Incorporated Wisconsin".
Section 2. FISCAL YEAR. The Fiscal Year of the Corporation shall be
designated from time to time by the Board of Directors.
ARTICLE IX
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify its Directors to the fullest extent that
indemnification of directors is
permitted by the Wisconsin Business Corporation Law, and applicable federal and
Wisconsin state securities laws. The Corporation shall indemnify its
Officers to the same extent as its Directors and
to such further extent as is consistent with
law. The Corporation shall indemnify its Directors and Officers who while
serving as Directors or Officers also serve at
the request of the Corporation as a
director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the fullest extent consistent with law. The indemnification and
other rights provided by this Article shall continue as to a person who has
ceased to be a Director or Officer and
shall inure to the benefit of the heirs, executors
and administrators of such a person. This Article shall not protect any such
person against any liability to the Corporation or any Shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office ("disabling conduct").
Section 2. ADVANCES. Any current or former Director or Officer of the
Corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to fullest extent permissible under the
Wisconsin Business Corporation Law. The person seeking indemnification
shall provide to the Corporation a written affirmation of his
good faith belief that the standard of
conduct necessary for indemnification by the Corporation has been met and a
written
undertaking to repay any such advance if it should ultimately be determined that
the standard of conduct has not been met. In addition, at least one of the
following additional conditions shall be met: (a) the person seeking
indemnification shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured against losses
arising by reason of the advance, or (c) a majority of a quorum of Directors
of the Corporation who are neither 'interested persons'
as defined in Section 2(a)(19) of
the Investment Company Act of 1940, as amended, nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall be determined, based on a review of facts
readily available to the
Corporation at the time the advance is proposed to be made, that there is
reason to
believe that the person seeking indemnification will ultimately be found to be
entitled to indemnification.
Section 3. PROCEDURE. At the request of any person claiming
indemnification
under this Article, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the Wisconsin Business Corporation Law,
whether the standards required by this Article have been met. Indemnification
shall be made only following: (a) a final decision on the merits by a court or
other body before whom the proceeding was brought that the person to be
indemnified
was not liable by reason of disabling conduct or (b) in the absence of such a
decision, a reasonable determination, based upon a review of the facts, that the
person to be indemnified was not liable by reason of disabling conduct by (i)
the vote of a majority of a quorum of disinterested
non-party directors or (ii) an
independent legal counsel in a written opinion.
Section 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and
agents who are not Officers or Directors of the Corporation may be
indemnified, and reasonable expenses may be advanced to such
employees or agents, as may be provided by action
of the Board of Directors or by contract, subject to any limitations
imposed by the Investment Company Act of 1940.
Section 5. OTHER RIGHTS. The Board of Directors may make
further provisions
consistent with law for indemnification and advance of expenses to Directors,
Officers, employees and agents by resolution, agreement or otherwise. The
indemnification provided by this Article IX shall not be deemed exclusive of any
other right, with respect to indemnification or otherwise, to which
those seeking
indemnification may be entitled under any insurance or other agreement or
resolution of Shareholders or disinterested non-party directors or otherwise.
Section 6. AMENDMENTS. References in this Article are to the Wisconsin
Business Corporation Law and to the Investment Company Act of 1940,
as from time to time amended. No amendment of these By-Laws shall
affect any right of any person
under this Article based on any event, omission or proceeding prior to the
amendment.
ARTICLE X
AMENDMENTS
Section 1. The Board of Directors shall have the power to alter, amend or
repeal any By-Laws of the Corporation and to make new By-Laws.
Exhibit 5(vii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT M
to the
Investment Advisory Contract
Marshall International Stock Fund
1. Fees. For all services rendered by Adviser hereunder, the above-
named Portfolio to the Fund (hereinafter, the "Portfolio") shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to 1% of the
average daily net assets of the Portfolio. The portion of the fee based upon
the average daily net assets of the Portfolio shall be accrued daily at the
rate of 1/365 of 1% applied to the daily net assets of the Portfolio. The
advisory fee so accrued shall be paid to the Adviser daily.
2. Indemnification. Reference is hereby made to the Subadvisory
Contract dated August 1, 1994 between the Adviser and Templeton Investment
Counsel, Inc. (the "Subadvisory Contract"). All capitalized terms used herein
shall have the same meaning as used in the Subadvisory Contract. The Adviser
shall indemnify and hold the Portfolio harmless for acts or omissions of
Subadviser as a result of Subadviser's willful misfeasance, bad faith, gross
negligence, or reckless disregard of Subadviser's obligations or duties under
the Subadvisory Contract. In the absence of Subadviser's willful misfeasance,
bad faith, or gross negligence or reckless disregard of Subadviser's duties,
Adviser shall not be liable to the Fund or to the Portfolio or to any
shareholder of the Fund, or to any person, firm or organization, for any act
or omission in the course of or connected in any way with rendering services
or for any losses that may be sustained in the purchase, holding, or sale of
any security or other investment of the Portfolio.
3. Sales Literature. The Adviser acknowledges that all sales
literature for investment companies (such as the Portfolio) are subject to
strict oversight. The Adviser agrees to submit any proposed sales literature
for the Portfolio (including any sales literature that Adviser is aware that is
proposed to be used by the Subadviser), or for itself and its affiliates that
mentions the Portfolio to the Fund's distributor for review and filing with the
appropriate regulatory authorities prior to the public release of any such
sales literature; provided, however, that nothing herein shall be construed so
as to create any obligation or duty on the part of the Adviser to produce sales
literature for the Portfolio or Fund. The Fund agrees to cause its distributor
to promptly review all such sales literature to ensure compliance with relevant
requirements, to promptly notify Adviser of any deficiencies contained in such
sales literature, to promptly file complying sales literature with the relevant
authorities, and to cause such sales literature to be distributed to
prospective investors in the Portfolio.
Witness the due execution hereof this 1st day of August, 1994.
Attest: M & I Investment Management Corp.
By:
Secretary President
Attest: Marshall Funds, Inc.
By:
Secretary President
Exhibit 5(ix) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SUBADVISORY CONTRACT
AGREEMENT made of the 1st day of August, 1994, between M&I
Investment Management Corp., an investment adviser registered under the
Investment Advisers Act of 1940, organized under the laws of Wisconsin
and having its principal place of business in Milwaukee, Wisconsin (the
"Adviser"), and Templeton Investment Counsel, Inc., a Florida
corporation (the "Subadviser").
W I T N E S S T H
WHEREAS, Marshall Funds, Inc. (the "Corporation") is an open-
and, management investment company, registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), the Corporation has
thirteen portfolios including the Marshall International Stock Fund (the
"Fund") and the Subadviser is an investment adviser registered under the
Investment Advisers Act of 1940 (the "Advisers Act"), and
WHEREAS, pursuant to authority granted the Adviser by the
Corporation's Directors and pursuant to the provisions of the Investment
Advisory Contract dated October 1, 1992 between the Adviser and the
Corporation with respect to the Fund (the "Advisory Contract"), the
Adviser has selected the Subadviser to act as a sub-investment adviser
of the Fund and to provide certain other services, as more fully set
forth below, and to perform such services under the terms and conditions
hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual agreements
herein contained, it is agreed as follows:
1. The Subadviser's Services.
(a) Within the framework of the fundamental policies, investment
objectives, and investment restrictions of the Fund, and
subject to the supervision and review of the Adviser and of
the Directors of the Corporation, the Subadviser shall have
the sole and exclusive responsibility for the making and
execution of all investment decisions for that portion or
all of the Fund's portfolio as designated by the Adviser
(the "Portfolio"), including the purchase, retention and
disposition of securities, in accordance with the Fund's
investment objectives, policies and restrictions as stated
in the Corporation's Registration Statement, including the
Prospectus and Statement of Additional Information (such
Registration Statement, as currently in effect and as
amended or supplemented from time to time, collectively
called the "Prospectus") and subject to the following
understandings:
(i) The Subadviser shall supervise the Portfolio's
investments and determine from time to time what
securities will be purchased, retained, sold or
loaned by the Portfolio, and what portion of the
assets will be invested or held uninvested as cash.
(ii) In the performance of its duties and obligations
under this Agreement, the Subadviser shall act in
conformity with the Corporation's Articles of
Incorporation and By-Laws and the Fund's Prospectus
and with the instructions and directions received in
writing from the Adviser or the Directors of the
Corporation and will conform to and comply with the
requirements of the 1940 Act, the Internal Revenue
Code of 1986, as amended (including the requirements
for qualification as a regulated investment company)
and all other applicable federal and state laws and
regulations.
(b) The Subadviser shall not be responsible for the provision of
administrative, bookeeping or accounting services to the
Fund, except as otherwise provided herein or as may be
necessary for the Subadviser to supply to the Adviser, the
Corporation or its Directors the information required to be
supplied under this Contract.
The Subadviser shall maintain separate books and detailed
records of all matters pertaining to the Fund and the
Portfolio (the "Fund's Books and Records"), including
without limitation a daily ledger of such assets and
liabilities relating thereto and brokerage and other records
of all securities transactions. The Subadviser shall also
require that its Access Persons (as defined in the
Corporation's Code of Ethics) provide the Subadviser with
monthly reports of their personal securities transactions.
The Fund's Books and Records shall be available to the
Adviser at any reasonable time upon request and shall be
available by overnight delivery of copies or for telecopying
without delay to the Adviser during any day that the Fund is
open for business.
(c) The Subadviser shall determine the securities to be
purchased or sold by the Fund in respect of the Portfolio
and will place orders with or through such persons, brokers
or dealers to carry out the policy with respect to brokerage
as set forth in the Fund's Prospectus or as the Directors
may direct from time to time. Subject to the provisions of
the following paragraph, the Subadviser will take reasonable
steps to assure that Portfolio transactions are effected at
the best price and execution available, as such phrase is
used in the Fund's Prospectus, as in effect from time to
time.
In using its best efforts to obtain for the Fund the most
favorable price and execution available, the Subadviser,
bearing in mind the Fund's best interests at all times,
shall consider all factors it deems relevant, including by
way of illustration, price, the size of the transaction, the
nature of the market for the security, the amount of the
commission, the timing of the transaction taking into
account market prices and trends, the reputation, experience
and financial stability of the broker or dealer involved and
the quality of service rendered by the broker or dealer in
other transactions. Subject to such policies as the
Directors of the Corporation may determine, the Subadviser
is specifically authorized to allocate brokerage business to
firms that provide such services or facilities and to cause
the Fund to pay a member of a securities exchange or any
other securiites broker or dealer an amount of commission
for effecting a securities transaction in excess of the
amount of commission another member of an exchange, broker,
or dealer would have charged for effecting that transaction,
if the Subadviser determines in good faith that such amount
of commission is reasonable in relation to the value of the
brokerage and research services (as such services are
defined in Section 28(e) of the Securities Exchange Act of
1934) provided by such member, broker, or dealer, viewed in
terms either of that particular transaction or the
Subadviser's overall responsibilities with respect to the
accounts as to which it exercises investment discretion.
It is understood that the Subadviser may have advisory,
management, service or other contracts with other
individuals or entities, and may have other interests and
businesses. When a security proposed to be purchased or
sold for the Fund is also to be purchased or sold for other
accounts managed by the Subadviser at the same time, the
Subadviser shall make such purchases or sales on a pro-rata,
rotating or other equitable basis so as to avoid any one
account being preferred over any other account.
The Subadviser will advise the Adviser and, if instructed by
the Adviser, the Fund's custodian or sub-custodians on a
prompt basis each day by electronic telecommunication of
each confirmed purchase and sale of a Portfolio security
specifying the name of the issuer, the full description of
the security including its class, and amount or number of
shares of the security purchased or sold, the market price,
commission, government charges and gross or net price, trade
date, settlement date and identity of the effecting broker
or dealer and, if different, the identity of the clearing
broker. Under no circumstances may the Subadviser or any
affiliates of the Subadviser act as a principal in a
securities transaction with the Fund or any other investment
company managed by the Adviser unless (i) permitted by an
exemptive provision, rule or order under the 1940 Act and
(ii) upon obtaining prior approval of the securities
transaction from the Adviser. Any such transactions shall
be reported quarterly to the Corporation's Directors.
(d) From time to time as the Adviser or the Directors of
the Corporation may reasonably request, the Subadviser shall
furnish the Adviser and to each of the Corporation's
Directors reports of Portfolio transactions and reports on
securities held in the Portfolio, all in such detail as the
Adviser or the Directors may reasonably request. The
Subadviser will also inform the Adviser and the
Corporation's Directors on a current basis of changes in
investment strategy or tactics or in key personnel.
It shall be the duty of the Subadviser to furnish to the
Corporation's Directors such information as may reasonably
be necessary in order for such Directors to evaluate this
Contract or any proposed amendments thereto for the purpose
of casting a vote pursuant to Section 8 or 9 hereof.
2. Allocation of Charges and Expenses. The Subadviser will
bear its own costs of providing services hereunder. Other than as
specifically indicated herein the Subadviser shall not be responsible
for the Corporation's or the Adviser's expenses, including, without
limitation the expenses of organizing the Corporation and continuing its
existence; fees and expenses of Directors and officers of the
Corporation; fees for investment advisory services and administrative
personnel and services, expenses incurred in the distribution of its
shares ("Shares"), including expenses of administrative support
services, fees and expenses of preparing and printing its Registration
Statements under the Securities Act of 1933 and the 1940 Act, and any
amendments thereto, expenses of registering and qualifying the
Corporation, the Fund and Shares of the Fund under federal and state
laws and regulation; expenses of preparing, printing and distributing
prospectus (and any amendments thereto) to shareholders, interest
expense, taxes, fees and commissions of every kind, expenses of issue
(including cost of Share certificate), purchase, repurchase and
redemption of Shares including expenses attributable to a program of
periodic issue, charges and expenses of custodians, transfer agents,
dividend disbursing agents, shareholder servicing agents and registrars,
printing and mailing costs, auditing, accounting and legal expenses;
reports to shareholders and governmental officers and commissions;
expenses of meetings of Directors and shareholders and proxy
solicitations therefor; insurance expenses; association membership dues
and such nonrecurring items as may arise, including all losses and
liabilities incurred in administrating the Corporation and the Fund. The
Corporation or the Adviser, as the case may be, shall reimburse the
Subadviser for any such expenses or other expenses of the Fund or the
Adviser, as may be reasonably incurred by such Subadviser on behalf of
the Fund or the Adviser. The Subadviser shall keep and supply to the
Corporation and the Adviser adequate records of all such expenses.
3. Information Supplied by the Adviser. The Adviser shall
provide the Subadviser with the Corporation's Articles of Incorporation
and By-Laws, the Fund's most current Prospectus and Statement of
Additional Information, and Code of Ethics and instructions as in effect
from time to time; and the Subadviser shall have no responsibility for
actions taken in reliance on any such documents. The Adviser shall
promptly furnish to the Subadviser copies of all material amendments or
supplements to the foregoing documents.
4. Registration as an Adviser. The Adviser and the Subadviser
represent and warrant to each of the Corporation and each other that
they are registered as an "investment adviser" under the Advisers Act
and covenants that they willremain so registered for the duration of
this Contract.
5. Subadviser's Compensation. The Adviser shall pay to the
Subadviser, as compensation for the Subadviser's services hereunder
0.50% per annum of the Fund's average daily net assets up to $70 million
and 0.40% of such assets in excess thereof ("Sub-Advisory Fee"). Such
fee shall be computed daily and paid monthly. The method of determining
net assets of the Fund for purposes hereof shall be the same as the
method of determining net assets for purposes of establishing the
offering and redemption price of Fund shares as described in the Fund's
Prospectus. If this Contract shall be effective for only a portion of a
month, the aforesaid fee shall be prorated for the portion of such month
during which this contract is in effect.
Notwithstanding any other provision of the Contract, the
Subadviser may from time to time agree not to impose all or a portion of
its fee otherwise payable hereunder (in advance of the time such fee or
portion thereof would otherwise accrue). Any such fee reduction may be
discontinued or modified by the Subadviser at any time.
6. Independent Contractor. In the performance of its duties
hereunder, the Subadviser is and shall be an independent contractor and
unless otherwise expressly provided herein or otherwise authorized in
writing, shall have no authority to act for or represent the Corporation
in any way or otherwise be deemed to be an agent of the Corporation or
of the Adviser.
7. Sales Literature. The Adviser and Subadviser acknowledge
that all sales literature for investment companies (such as the
Corporation) are subject to strict regulatory oversight. The Subadviser
agrees to submit any proposed sales literature for the Corporation (or
any Fund) or for itself or its affiliates which mentions the Corporation
(or any Fund) to the Corporation's distributor for review and filing
with the appropriate regulatory authorities prior to the public release
of any such sales literature, provided, however, that nothing herein
shall be construed so as to create any obligation or duty on the part of
the Subadviser to produce sales literature for the Corporation (or any
Fund). Further, the Adviser agrees to submit to the Subadviser any and
all sales literature referencing "Templeton," "Templeton Investment
Counsel, Inc.," or any affiliate thereof, for review and approval prior
to filing or public release.
8. Assignment and Amendments. This Contract may not be
assigned by the Subadviser and shall automatically terminate, without
the payment of any penalty, in the event of (i) its assignment,
including any change of control of the Adviser or the Subadviser, or
(ii) in the event of the termination of the Advisory Contract, provided
that such termination shall not relieve the Adviser or the Subadviser of
any liability incurred hereunder.
The terms of this Contract shall not be changed unless such
change is approved at a meeting by the affirmative vote of a majority of
the outstanding voting securities of the Fund and unless also approved
by the affirmative vote of a majority of Directors of the Corporation
voting in person, including a majority of the Directors who are not
interested persons of the Corporation, the Adviser or the Subadviser, at
a meeting called for the
purpose of voting at such change.
9. Duration and Termination. This Contract shall become
effective as of the date first above written and shall remain in full
force and effect continually thereafter unless terminated automatically
as set forth in Section 8 hereof or until terminated as follows:
(a) The Corporation or the Adviser may at any time terminate
this Contract, without payment of any penalty, by not more
than sixty (60) days' nor less than thirty (30) days'
written notice delivered or mailed by registered mail,
postage prepaid, to the Subadviser. Action of the
Corporation under this Subsection may be taken either (i) by
vote of its Directors or (ii) by the affirmative vote of a
majority of the outstanding voting securities of the Fund.
(b) The Subadviser may at any time terminate this Contract by
not less than sixty (60) days' written notice delivered or
mailed by registered mail, postage prepaid, to the Adviser;
or
(c) This contract shall automatically terminate on August 1, of
any year beginning in 1996, in which its terms and renewal
shall not have been approved by (i) a majority vote of the
Directors of the Corporation voting in person, including a
majority of the Directors who are not interested persons of
the Corporation, the Adviser or the Subadviser, at a meeting
called for the purpose of voting on such approval or (ii)
the affirmative vote of a majority of the outstanding voting
securities of the Fund; provided, however, that if the
continuance of this Contract is submitted to the
shareholders of the Fund for their approval and such
shareholders fail to approve such continuance of this
contract as provided herein, the Subadviser may continue to
serve hereunder as to the Fund in a manner consistent with
the 1940 Act and the rules and regulations thereunder.
Termination of this Contract pursuant to this Section shall
be without payment of any penalty.
In the event of termination of this Contract for any reason,
the Subadviser shall, immediately upon notice of termination
or on such later date as may be specified in such notice,
cease all activity on behalf of the Portfolio and with
respect to any of its assets, except as expressly directed
by the Adviser. In addition, the Subadviser shall deliver
the Fund's Books and Records to the Adviser by such means
and in accordance with such schedule as the Adviser shall
direct and shall otherwise cooperate, as reasonably directed
by the Adviser, in the transition of portfolio assets
management to any successors of the Subadviser, including
the Adviser.
10. Certain Definitions. For the purposes of this Contract:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" means the affirmative vote, at an
annual or special meeting of shareholders of the Fund, duly
called and held, (a) of 67% or more of the shares of the
Fund present (in person or by proxy) and entitled to vote at
such meeting, if the holder or more than 50% of the
outstanding shares of the Fund entitled to vote at such
meeting are present (in person or by proxy), or (b) of more
than 50% of the outstanding shares of the Fund entitled to
vote at such meeting, whichever is less.
(b) "Interested persons" and "Assignment" shall have their
respective meetings as set forth in the 1940 Act, subject,
however, to such exemptions as may be granted by the
Securities and Exchange Commission under said Act.
11. Liability and Indemnification. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Subadviser, or of reckless disregard of its obligations and duties
hereunder, the Subadviser shall not be subject to any liability to the
Adviser or the Corporation, to any shareholder of the Fund, or to any
person, firm or organization, for any act or omission in the course of,
or connected with the rendering of services by Subadviser. Nothing
herein, however, shall derogate from the Subadviser's obligations under
federal and state securities laws.
The Subadviser shall indemnify and hold the Adviser harmless from
and against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or attributable to any
action or failure or omission to act by the Subadviser as a result of
the Subadviser's willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties hereunder.
12. Jurisdiction. This Contract shall be governed by and
construed to be consistent with the Advisory Contract and in accordance
with substantive laws of the State of Wisconsin without giving regard to
the conflicts of law principles thereof and in accordance with the 1940
Act. In the case of any conflict between state law and the 1940 Act,
the 1940 Act shall control.
13. Counterparts. This Contract may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be signed on their behalf by their duly authorized
officers as the date first above written.
M&I INVESTMENT MANAGEMENT INC.
By
ATTEST: Secretary President
TEMPLETON INVESTMENT COUNSEL, INC.
By
ATTEST: Secretary President
Exhibit 6(iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit J
to the
Distributor's Contract
MARSHALL FUNDS, INC.
Marshall International Stock Fund
The following provisions are hereby incorporated and made part of
the Distributor's Contract dated the 1st day of October, 1992 between
Marshall Funds, Inc. and Federated Securities Corp. with respect to the
Fund set forth above.
1. The Fund hereby appoints FSC to engage in activities
principally intended to result in the sale of Shares. Pursuant to this
appointment FSC is authorized to select a group of brokers ("Brokers")
to sell shares of the above-listed Fund ("Shares"), at the current
offering price thereof as described and set forth in the prospectus of
the Fund, and to render administrative support services to the Fund and
its shareholders. In addition, FSC is authorized to select a group of
Administrators ("Administrators") to render administrative support
services to the Fund and its shareholders.
2. Administrative support services may include, but are not
limited to, the following eleven functions: (1) account openings: the
Broker or Administrator communicates account openings via computer
terminals located on the Broker or Administrator's premises; 2) account
closings: the Broker or Administrator communicates account closings via
computer terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker or Administrator's own
personal computer or through the use of a toll-free telephone number; 4)
enter redemption transactions: Broker or Administrator enters
redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide
accounting support for all transactions. Broker or Administrator also
wires funds and receives funds for Fund share purchases and redemptions,
confirms and reconciles all transactions, reviews the activity in the
Fund's accounts, and provides training and supervision of its personnel;
6) interest posting: Broker or Administrator posts and reinvests
dividends to the Fund's accounts; 7) prospectus and shareholder reports:
Broker or Administrator maintains and distributes current copies of
prospectuses and shareholder reports; 8) advertisements: the Broker or
Administrator continuously advertises the availability of its services
and products; 9) customer lists: the Broker or Administrator
continuously provides names of potential customers; 10) design services:
the Broker or Administrator continuously designs material to send to
customers and develops methods of making such materials accessible to
customers; and 11) consultation services: the Broker or Administrator
continuously provides information about the product needs of customers.
3. During the term of this Agreement, the Fund will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of .25% of the average aggregate net asset value of the
Shares of the Marshall International Stock Fund held during the month.
For the month in which this Agreement becomes effective or terminates,
there shall be an appropriate proration of any fee payable on the basis
of the number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Shares' expenses
exceed such lower expense limitation as FSC may, by notice to the Fund,
voluntarily declare to be effective.
5. FSC will enter into separate written agreements, as set forth
in the Rule 12b-1 Plan adopted on behalf of the Fund listed above, with
various firms to provide certain of the services set forth in Paragraph
1 herein. FSC, in its sole discretion, may pay Brokers and
Administrators a periodic fee in respect of Shares owned from time to
time by their clients or customers. The schedules of such fees and the
basis upon which such fees will be paid shall be determined from time to
time by FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors of the Fund
on a quarterly basis showing amounts expended hereunder including
amounts paid to Brokers and Administrators and the purpose for such
payments.
7. In the event any amendment to this Agreement materially
increases the fees set forth in Paragraph 3, such amendment must be
approved by a vote of a majority of the outstanding voting securities of
the Fund.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated October 1, 1992 between Marshall Funds,
Inc. and Federated Securities Corp., Marshall Funds, Inc. executes and
delivers this Exhibit on behalf of the Fund set forth in this Exhibit.
Witness the due execution hereof this 1st day of August, 1994.
ATTEST: MARSHALL FUNDS, INC.
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary President
(SEAL)
FSCO Services Providers Contract10 Page 1 June 20, 1994
Exhibit 9i under Form N-1A
Exhibit 10 under Item
601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December, 1993, by and between
those investment companies listed on Exhibit 1 as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on
behalf of the portfolios (individually referred to herein as a "Fund" and
collectively as "Funds") of the Trust, and FEDERATED SERVICES COMPANY, a
Delaware business trust, having its principal office and place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares"); and
WHEREAS, the Trust wishes to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes"), and the
Company is willing to furnish such services; and
WHEREAS, the Trust desires to appoint the Company as its transfer
agent, dividend disbursing agent, and agent in connection with certain
other activities, and the Company desires to accept such appointment; and
WHEREAS, the Trust desires to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved
list of qualified banks and the Company desires to accept such
appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or
another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and
on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Article 3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust with
regard to fund accounting for the Trust, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds and determine the net asset value
per share of each Fund and/or Class, at the time and in the
manner from time to time determined by the Board and as set forth
in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
B. Calculate the net income of each of the Funds, if any;
C. Calculate capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
D. Maintain the general ledger and other accounts, books and
financial records of the Trust, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the
Rules thereunder in connection with the services provided by the
Company;
E. Preserve for the periods prescribed by Rule 31a-2 under the 1940
Act the records to be maintained by Rule 31a-1 under the 1940 Act
in connection with the services provided by the Company. The
Company further agrees that all such records it maintains for the
Trust are the property of the Trust and further agrees to
surrender promptly to the Trust such records upon the Trust's
request;
F. At the request of the Trust, prepare various reports or other
financial documents required by federal, state and other
applicable laws and regulations; and
G. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the
fees set forth on Fee Schedules A ("A1, A2, A3 etc..."), annexed
hereto and incorporated herein, as may be added or amended from
time to time. Such fees do not include out-of-pocket
disbursements of the Company for which the Funds shall reimburse
the Company upon receipt of a separate invoice. Out-of-pocket
disbursements shall include, but shall not be limited to, the
items specified in Schedules B ("B1, B2, B3, etc..."), annexed
hereto and incorporated herein, as may be added or amended from
time to time. Schedules B may be modified by the Company upon
not less than thirty days' prior written notice to the Trust.
B. The Fund and/or the Class, and not the Company, shall bear the
cost of: custodial expenses; membership dues in the Investment
Company Institute or any similar organization; transfer agency
expenses; investment advisory expenses; costs of printing and
mailing stock certificates, Prospectuses, reports and notices;
administrative expenses; interest on borrowed money; brokerage
commissions; taxes and fees payable to federal, state and other
governmental agencies; fees of Trustees or Directors of the
Trust; independent auditors expenses; Federated Administrative
Services and/or Federated Administrative Services, Inc. legal and
audit department expenses billed to Federated Services Company
for work performed related to the Trust, the Funds, or the
Classes; law firm expenses; or other expenses not specified in
this Article 3 which may be properly payable by the Funds and/or
classes.
C. The Company will send an invoice to each of the Funds as soon as
practicable after the end of each month. Each invoice will
provide detailed information about the compensation and out-of-
pocket expenses in accordance with Schedules A and Schedules B.
The Funds and or the Classes will pay to the Company the amount
of such invoice within 30 days of receipt of the invoices.
D. Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedules A revised Schedules dated and
signed by a duly authorized officer of the Trust and/or the Funds
and a duly authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period
bears to the full month period. Upon any termination of this
Agreement before the end of any month, the fee for such period
shall be prorated according to the proportion which such period
bears to the full month period. For purposes of determining fees
payable to the Company, the value of the Fund's net assets shall
be computed at the time and in the manner specified in the Fund's
Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing services under this Section One. Such
person or persons may be third-party service providers, or they
may be officers and employees who are employed by both the
Company and the Funds. The compensation of such person or
persons shall be paid by the Company and no obligation shall be
incurred on behalf of the Trust, the Funds, or the Classes in
such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic investment
plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian of the
relevant Fund, (the "Custodian"). The Company shall notify
the Fund and the Custodian on a daily basis of the total
amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute and
issue the appropriate number of Shares of each Fund and/or
Class and hold such Shares in the appropriate Shareholder
accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or
its agent requests a certificate, the Company, as Transfer
Agent, shall countersign and mail by first class mail, a
certificate to the Shareholder at its address as set forth
on the transfer books of the Funds, and/or Classes, subject
to any Proper Instructions regarding the delivery of
certificates.
(4) In the event that any check or other order for the purchase
of Shares of the Fund and/or Class is returned unpaid for
any reason, the Company shall debit the Share account of
the Shareholder by the number of Shares that had been
credited to its account upon receipt of the check or other
order, promptly mail a debit advice to the Shareholder, and
notify the Fund and/or Class of its action. In the event
that the amount paid for such Shares exceeds proceeds of
the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the Company
on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with
the provisions of its governing document and the then-
current Prospectus of the Fund. The Company shall prepare
and mail or credit income, capital gain, or any other
payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of
any such distribution, notify the Custodian of the
estimated amount required to pay any portion of said
distribution which is payable in cash and request the
Custodian to make available sufficient funds for the cash
amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with
the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made
to the Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or
set forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the
Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the
Company shall pay or cause to be paid the redemption
proceeds in the manner instructed by the redeeming
Shareholders, pursuant to procedures described in the then-
current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the
reason therefor, and shall effect such redemption at the
price applicable to the date and time of receipt of
documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(5) The Company shall identify and process abandoned accounts
and uncashed checks for state escheat requirements on an
annual basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each
Fund, and/or Class, and maintain pursuant to applicable
rules of the Securities and Exchange Commission ("SEC") a
record of the total number of Shares of the Fund and/or
Class which are authorized, based upon data provided to it
by the Fund, and issued and outstanding. The Company shall
also provide the Fund on a regular basis or upon reasonable
request with the total number of Shares which are
authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such
Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be the
sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by
the Trust or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and
whether such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account,
including dividends paid and date and price for all
transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholding in the case of
a foreign account or an account for which withholding
is required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any
Shareholder holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by
this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company,
and such records may be inspected by the Fund at reasonable
times. The Company may, at its option at any time, and
shall forthwith upon the Fund's demand, turn over to the
Fund and cease to retain in the Company's files, records
and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by
the Company in performance of its services or for its
protection. If not so turned over to the Fund, such
records and documents will be retained by the Company for
six years from the year of creation, during the first two
of which such documents will be in readily accessible form.
At the end of the six year period, such records and
documents will either be turned over to the Fund or
destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in
each state for "blue sky" purposes as determined
according to Proper Instructions delivered from time
to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments;
(f) Such other information as may be agreed upon from time
to time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state
agencies, and, if required, mail to Shareholders, such
notices for reporting dividends and distributions paid as
are required to be so filed and mailed and shall withhold
such sums as are required to be withheld under applicable
federal and state income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account
or similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports
and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other
withholding (including non-resident alien accounts),
preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms
required with respect to dividends and distributions
by federal authorities for all Shareholders,
preparing and mailing confirmation forms and
statements of account to Shareholders for all
purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts,
preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund and/or Class
sold in each state ("blue sky reporting"). The Fund
shall by Proper Instructions (i) identify to the
Company those transactions and assets to be treated
as exempt from the blue sky reporting for each state
and (ii) verify the classification of transactions
for each state on the system prior to activation and
thereafter monitor the daily activity for each state.
The responsibility of the Company for each Fund's
and/or Class's state blue sky registration status is
limited solely to the recording of the initial
classification of transactions or accounts with
regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other
correspondence as may from time to time be addressed to the
Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund
in connection with Shareholder Meetings of each Fund;
receive, examine and tabulate returned proxies, and certify
the vote of the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share
certificates shall be properly signed, manually or by facsimile,
if authorized by the Trust and shall bear the seal of the Trust
or facsimile thereof; and notwithstanding the death, resignation
or removal of any officer of the Trust authorized to sign
certificates, the Company may continue to countersign
certificates which bear the manual or facsimile signature of such
officer until otherwise directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of
any dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as set out in
Schedules C ("C1, C2, C3 etc..."), attached hereto, as may be
added or amended from time to time. Such fees may be changed
from time to time subject to written agreement between the Trust
and the Company. Pursuant to information in the Fund Prospectus
or other information or instructions from the Fund, the Company
may sub-divide any Fund into Classes or other sub-components for
recordkeeping purposes. The Company will charge the Fund the
fees set forth on Schedule C for each such Class or sub-component
the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items set
out in Schedules D ("D1, D2, D3 etc..."), attached hereto, as may
be added or amended from time to time. In addition, any other
expenses incurred by the Company at the request or with the
consent of the Trust and/or the Fund, will be reimbursed by the
appropriate Fund.
C. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to the Trust or each of the Funds as soon
as practicable at the end of each month. Each invoice will
provide detailed information about the Compensation and out-of-
pocket expenses in accordance with Schedules C and Schedules D.
The Trust or the Funds will pay to the Company the amount of such
invoice within 30 days following the receipt of the invoices.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this
Section Two may be assigned by either party without the written
consent of the other party.
(1) This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors
and assigns.
(2) The Company may without further consent on the part of the
Trust subcontract for the performance hereof with (A) State
Street Bank and its subsidiary, Boston Financial Data
Services, Inc., a Massachusetts Trust ("BFDS"), which is
duly registered as a transfer agent pursuant to
Section 17A(c)(1) of the Securities Exchange Act of 1934,
as amended, or any succeeding statute ("Section
17A(c)(1)"), or (B) a BFDS subsidiary duly registered as a
transfer agent pursuant to Section 17A(c)(1), or (C) a BFDS
affiliate, or (D) such other provider of services duly
registered as a transfer agent under Section 17A(c)(1) as
Company shall select; provided, however, that the Company
shall be as fully responsible to the Trust for the acts and
omissions of any subcontractor as it is for its own acts
and omissions; or
(3) The Company shall upon instruction from the Trust
subcontract for the performance hereof with an Agent
selected by the Trust, other than BFDS or a provider of
services selected by Company, as described in (2) above;
provided, however, that the Company shall in no way be
responsible to the Trust for the acts and omissions of the
Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i)
meets the criteria established in Section 17(f) of the 1940 Act
and (ii) has been approved by the Board as eligible for selection
by the Company as a custodian (the "Eligible Custodian"). The
Company accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
(1) evaluate the nature and the quality of the custodial
services provided by the Eligible Custodian;
(2) employ the Eligible Custodian to serve on behalf of the
Trust as Custodian of the Trust's assets substantially on
the terms set forth as the form of agreement in Exhibit 2;
(3) negotiate and enter into agreements with the Custodians for
the benefit of the Trust, with the Trust as a party to each
such agreement. The Company shall not be a party to any
agreement with any such Custodian;
(4) establish procedures to monitor the nature and the quality
of the services provided by the Custodians;
(5) continuously monitor the nature and the quality of services
provided by the Custodians; and
(6) periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature
and amount of disbursement made on account of the Trust
with respect to each custodial agreement; and (iii) such
other information as the Board shall reasonably request to
enable it to fulfill its duties and obligations under
Sections 17(f) and 36(b) of the 1940 Act and other duties
and obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of
this Agreement, the Trust and/or the Fund agree to pay the
Company an annual fee as set forth in Schedule E, attached
hereto.
B. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to each of the Trust/or Fund as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket
expenses in occurrence with Schedule E. The Trust and/or Fund
will pay to the Company the amount of such invoice within 30 days
following the receipt of the invoice.
Article 12. Representations.
The Company represents and warrants that it has obtained all
required approvals from all government or regulatory authorities
necessary to enter into this arrangement and to provide the
services contemplated in Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Trust or the Funds in the forms approved by the Board
of the Trust with a certificate of the Secretary of the
Trust as to such approval;
(4) All account application forms and other documents relating
to Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in effect
with respect to the sale of Shares of any Fund, and/or
Class;
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement,
and shareholder recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares
of any Fund, accompanied by Board resolutions approving
such forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in
good standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State
of Delaware.
(3) It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations
under this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
(6) It is in compliance with federal securities law requirements
and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and
in good standing under the laws of its state of
organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under
this Agreement;
(3) All corporate proceedings required by said Charter and By-
Laws have been taken to authorize it to enter into and
perform its obligations under this Agreement;
(4) The Trust is an open-end investment company registered under
the 1940 Act; and
(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law filings
have been made and will continue to be made, with respect
to all Shares of each Fund being offered for sale.
Article 15. Indemnification.
A. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and
affiliates, harmless against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to:
(1) The acts or omissions of any Custodian,
(2) The Trust's or Fund's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Trust's
or The Fund's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any
representation or warranty of the Trust or Fund hereunder
or otherwise.
(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in
proper form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of
the Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and
Shareholder account information; or
(b) have been prepared and/or maintained by the Fund or
its affiliates or any other person or firm on behalf
of the Trust.
(4) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the
Trust or the Fund.
(5) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such
Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of
such Shares in such state.
Provided, however, that the Company shall not be protected
by this Article 15.A. from liability for any act or
omission resulting from the Company's willful misfeasance,
bad faith, gross negligence or reckless disregard of its
duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or each Fund
harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to any action or failure or omission to
act by the Company as a result of the Company's willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties.
C. Reliance
At any time the Company may apply to any officer of the Trust or
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to
be performed by the Company under this Agreement, and the Company
and its agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any action
reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust or the Fund, and the
proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with
respect to all developments concerning such claim. The party who
may be required to indemnify shall have the option to participate
with the party seeking indemnification in the defense of such
claim. The party seeking indemnification shall in no case
confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust
exercise its rights to terminate, all out-of-pocket expenses
associated with the movement of records and materials will be
borne by the Trust or the appropriate Fund. Additionally, the
Company reserves the right to charge for any other reasonable
expenses associated with such termination. The provisions of
Article 15 shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company
and the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the
general tenor of this Agreement. Any such interpretive or
additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Charter. No interpretive or additional provisions made as
provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and
other writings delivered or mailed postage prepaid to the Trust
at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-
3779, or to the Company at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, or to such other address as the Trust
or the Company may hereafter specify, shall be deemed to have
been properly delivered or given hereunder to the respective
address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an authorized officer
of the Trust, acting as such, and neither such authorization by
such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the
Trustees or Shareholders of the Trust, but bind only the
appropriate property of the Fund, or Class, as provided in the
Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Company and signed by an authorized
officer of the Company, acting as such, and neither such
authorization by such Trustees nor such execution and delivery by
such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding
upon any of the Trustees or Shareholders of the Company, but bind
only the property of the Company as provided in the Declaration
of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of
the parties hereto except by the specific written consent of the
other party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to
the subject hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the
Trust, the Company shall upon termination of this Agreement
deliver to such successor agent at the office of the Company all
properties of the Trust held by it hereunder. If no such
successor agent shall be appointed, the Company shall at its
office upon receipt of Proper Instructions deliver such
properties in accordance with such instructions.
In the event that no written order designating a successor agent
or Proper Instructions shall have been delivered to the Company
on or before the date when such termination shall become
effective, then the Company shall have the right to deliver to a
bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus,
and undivided profits, as shown by its last published report, of
not less than $2,000,000, all properties held by the Company
under this Agreement. Thereafter, such bank or trust company
shall be the successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a
result of work stoppage, power or other mechanical failure,
natural disaster, governmental action, communication disruption
or other impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that either
party may assign to a successor all of or a substantial portion
of its business, or to a party controlling, controlled by, or
under common control with such party. Nothing in this Article 28
shall prevent the Company from delegating its responsibilities to
another entity to the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal,
void or unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
ATTEST: INVESTMENT COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY PROVIDED SCHEDULES
12/1/93 Marshall Funds, Inc.
Exhibit 9(vi) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Amendment #3
Dated August 1, 1994
to
Schedule A
Shareholder Services Agreement
between
Marshall Funds, Inc.
and
Marshall & Ilsley Trust Company
Marshall Funds, Inc. (the "Corporation") consists of the following
portfolios and classes:
Name
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 and Investment Shares
Marshall Short-Term Income Fund
Marshall Stock Fund
Marshall Tax-Free Money Market Fund
Marshall Value Equity Fund
Marshall Short-Term Tax-Free Fund
Marshall Intermediate Tax-Free Fund
Marshall International Stock Fund
ATTEST: Marshall Funds, Inc.
By:
Assistant Secretary Vice President
ATTEST: Marshall & Ilsley Trust Company
By:
Secretary Vice President
Exhibit 15(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT B
to the
Plan
MARSHALL FUNDS, INC.
Marshall International Stock Fund
This Plan is adopted by Marshall Funds, Inc. with respect to the
portfolio of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of .25 of 1%
of the average aggregate net asset value of the shares of Marshall
International Stock Fund, a portfolio of Marshall Funds, Inc. held
during the month.
Witness the due execution hereof this 1st day of August, 1994.
Marshall Funds, Inc.
By:
President
