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. 14 .......... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 15 ........................ 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)
-
X on December 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on October 15, 1995; 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.
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;
(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; relates only to one of the portfolios, 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.....(1-10) The Financial Statements for the
fiscal period ended August 31, 1994, are
incorporated herein
reference from the Funds' Annual Reports
dated August 31, 1994. (11) Filed in
Part A.
MARSHALL FUNDS(R)
-------------------------
CHOICES FOR CONFIDENT INVESTING
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.
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
EQUITY FUNDS TAX-FREE INCOME FUNDS
- MARSHALL EQUITY INCOME FUND - MARSHALL SHORT-TERM TAX-FREE FUND
- MARSHALL VALUE EQUITY FUND - MARSHALL INTERMEDIATE TAX-FREE FUND
- MARSHALL STOCK FUND
- MARSHALL MID-CAP STOCK FUND
- MARSHALL INTERNATIONAL STOCK FUND
INCOME FUNDS MONEY MARKET FUND
- MARSHALL SHORT-TERM INCOME FUND - MARSHALL MONEY MARKET FUND
- MARSHALL INTERMEDIATE BOND FUND
- MARSHALL GOVERNMENT INCOME FUND
</TABLE>
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 December
31, 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 which is in paper form only, or a paper copy of this prospectus if
you have received your prospectus electronically, free of charge, obtain other
information, or make inquiries about the Funds by writing to or calling Marshall
Funds Investor Services at 414-287-8555 or 1-800-236-8554 or M&I Brokerage
Services, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus
December 31, 1995
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Table of Contents.................................................................................. 2
Summary of Investment Information.................................................................. 3
Who May Want To Invest In the Marshall Funds?................................................. 3
Who Manages The Funds?........................................................................ 3
How to Buy And Sell Shares.................................................................... 3
What About Investment Risks?.................................................................. 4
Summary of Fund Expenses........................................................................... 5
Financial Highlights............................................................................... 6
Fund Objective and Policies........................................................................ 8
The EQUITY FUNDS.............................................................................. 8
The INCOME FUNDS.............................................................................. 9
The TAX-FREE INCOME FUNDS..................................................................... 10
The MONEY MARKET FUND......................................................................... 11
How to Buy Fund Shares............................................................................. 12
Net Asset Value............................................................................... 13
How to Redeem Shares............................................................................... 13
Additional Conditions......................................................................... 14
Exchange Privilege................................................................................. 15
Telephone Transactions............................................................................. 15
Marshall Funds, Inc. Information................................................................... 16
Organization and History...................................................................... 16
Management.................................................................................... 16
Distribution of Fund Shares................................................................... 18
Administration of the Funds........................................................................ 19
Brokerage Transactions........................................................................ 19
Expenses of the Funds......................................................................... 19
Shareholder Information............................................................................ 19
Certificates and Confirmations................................................................ 19
Dividends and Capital Gains................................................................... 20
Common Stock and Voting Rights................................................................ 20
Performance Information............................................................................ 20
Portfolio Investments and Strategies............................................................... 21
Additional Investment Risks................................................................... 28
Tax Information.................................................................................... 30
Federal Income Tax............................................................................ 30
State and Local Taxes......................................................................... 31
Effect of Banking Laws............................................................................. 31
Standard & Poor's Corporation...................................................................... 31
Addresses.......................................................................................... 32
</TABLE>
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SUMMARY OF INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST IN THE MARSHALL FUNDS?
The Marshall Funds offer investment opportunities to a wide range of investors,
from those who may be investing for the short-term to those with long-term
goals. The Corporation currently offers the following eleven professionally
managed, diversified portfolios:
- 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 capitalizations;
- 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;
- MARSHALL STOCK FUND ("STOCK FUND")--seeks growth of capital and income by
investing primarily in common stocks of companies with an established
market (such as those with a large market capitalization);
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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
- 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 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 EQUITY 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 increases with the
length 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 comfortable with only a small amount of
risk, you should not expect a large return. Set forth below is a risk/reward
chart that depicts the investment potential and corresponding risks associated
with different types of mutual funds. The Marshall Funds are listed under the
relevant categories.
At the top of the chart are equity funds, 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,
which offer a middle range of potential risk and return. At the bottom of the
chart are money market funds, 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.
Equity Funds
Marshall International Stock Fund
Marshall Mid-Cap Stock Fund
Marshall Stock Fund
Marshall Value Equity Fund
Marshall Equity Income Fund
Income Funds
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
Marshall Money Market Fund
LOGO
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
EQUITY VALUE MID-CAP INTERNATIONAL SHORT-TERM
INCOME EQUITY STOCK STOCK STOCK INCOME
FUND FUND FUND FUND FUND FUND
------------- ----------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES...................... None None None None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average
net assets)
Management Fee (after
waiver)(1).................... 0.66% 0.75% 0.74% 0.67% 0.96% 0.20%
12b-1 Fees (2)................. None None None None 0.00% None
Total Other Expenses........... 0.35% 0.21% 0.24% 0.34% 0.58% 0.31%
Shareholder Servicing
Fee................. 0.02%
------------- ----------- ------------ ------------- -------------- ------------
Total Annual Fund Operating
Expenses (4).................. 1.01% 0.96% 0.98% 1.01% 1.54% 0.51%
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT SHORT-TERM INTERMEDIATE MONEY MARKET FUND
BOND INCOME TAX-FREE TAX-FREE CLASS A CLASS B
FUND FUND FUND FUND SHARES SHARES
------------- ----------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES...................... None None None None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average
net assets)
Management Fee (after
waiver)(1).................... 0.52% 0.49% 0.03% 0.17% 0.24% 0.24%
12b-1 Fees..................... None None None None None 0.30%
Total Other Expenses (after
waiver and expense
reimbursement) (3)............ 0.19% 0.37% 0.48% 0.44% 0.17% 0.17%
Shareholder Servicing
Fee................. 0.02%
------------- ----------- ------------ ------------- -------------- ------------
Total Annual Fund Operating
Expenses (4).................. 0.71% 0.86% 0.51% 0.61% 0.41% 0.71%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser for all of the Funds except the Value Equity Fund. The
adviser may terminate this voluntary waiver at any time at its sole discretion.
The maximum management fee is 0.75% for the Stock Fund, Equity Income Fund,
Mid-Cap Stock Fund and Government Income Fund; 1.00% for the International Stock
Fund; 0.60% for the Short-Term Income Fund, Intermediate Bond Fund and
Intermediate Tax-Free Fund; and 0.50% for the Short-Term Tax-Free Fund and Money
Market Fund - Class A and Class B Shares.
(2) The International Stock Fund has no present intention of paying or accruing
12b-1 fees during the fiscal year ending August 31, 1996. If the International
Stock Fund were paying or accruing 12b-1 fees, the International Stock Fund
would be able to pay up to 0.25% of its average daily net assets for 12b-1 fees.
See "Marshall Funds, Inc. Information."
(3) Total Other Expenses were 0.79% for the Short-Term Tax-Free Fund absent the
voluntary expense reimbursement by the adviser and the voluntary waiver by the
administrator and 0.47% for the Intermediate Tax-Free Fund absent the voluntary
waiver by the administrator. The administrator and adviser may terminate this
waiver and reimbursement at any time at their sole discretion.
(4) Total Fund Operating Expenses were 1.10% for the Equity Income Fund, 0.99%
for the Stock Fund, 1.09% for the Mid-Cap Stock Fund, 1.58% for the
International Stock Fund, 0.91% for the Short-Term Income Fund, 0.79% for the
Intermediate Bond Fund, 1.12% for the Government Income Fund, 1.29% for the
Short-Term Tax-Free Fund, 1.07% for the Intermediate Tax-Free Fund, 0.67% for
the Money Market Fund - Class A Shares, and 0.97% for the Money Market Fund -
Class B Shares absent the voluntary waivers described above in notes 1 and 3.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Funds will bear either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Marshall Funds, Inc. Information" Wire-transferred redemptions may be
subject to an additional fee.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. The Funds
charge no redemption fees.
<TABLE>
<CAPTION>
EQUITY VALUE MID-CAP INTERNATIONAL SHORT- TERM
INCOME EQUITY STOCK STOCK STOCK INCOME
FUND FUND FUND FUND FUND FUND
------------- ----------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Year........................... $10 $10 $10 $10 $16 $5
3 Years.......................... $32 $31 $31 $32 $49 $16
5 Years.......................... $56 $53 $54 $56 $85 $29
10 Years......................... $124 $118 $121 $124 $185 $64
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT SHORT- TERM INTERMEDIATE MONEY MARKET FUND
BOND INCOME TAX-FREE TAX-FREE CLASS A CLASS B
FUND FUND FUND FUND SHARES SHARES
------------- ----------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Year........................... $7 $9 $5 $6 $4 $7
3 Years.......................... $23 $28 $16 $20 $13 $23
5 Years.......................... $40 $48 $29 $34 $23 $40
10 Years......................... $88 $106 $64 $76 $52 $88
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following table has been audited by Arthur Andersen LLP, the Funds'
independent public accountants. Their report dated October 13, 1995, is included
in the Annual Report for the Funds, which is incorporated by reference. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained free of charge from the Funds.
Further information about the performance of the Funds is contained in the
Funds' Annual Report dated August 31, 1995, which may be obtained free of
charge.
<TABLE>
<CAPTION>
DIVIDENDS TO
NET ASSET NET REALIZED SHAREHOLDERS
VALUE, NET AND UNREALIZED TOTAL FROM FROM NET
BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT
PERIOD ENDED AUGUST 31, OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME
- ----------------------------------------- ---------- ---------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
EQUITY INCOME FUND
1994(b)................................. $10.00 0.28 (0.09) 0.19 (0.23)
1995.................................... $ 9.96 0.33 1.26 1.59 (0.33)
VALUE EQUITY FUND
1994(b)................................. $10.00 0.12 0.93 1.05 (0.10)
1995.................................... $10.95 0.22 1.22 1.44 (0.20)
STOCK FUND
1993(a)................................. $10.00 0.10 0.07 0.17 (0.09)
1994.................................... $10.08 0.07 (0.03) 0.04 (0.07)
1995.................................... $10.05 0.09 1.59 1.68 (0.09)
MID-CAP STOCK FUND
1994(b)................................. $10.00 0.02 (0.29) (0.27) (0.01)
1995.................................... $ 9.69 (0.00) 2.61 2.61 (0.01)
INTERNATIONAL STOCK FUND
1995(g)................................. $10.00 0.20 0.01 0.21 (0.05)
SHORT-TERM INCOME FUND
1993(c)................................. $10.00 0.40 (0.05) 0.35 (0.40)
1994.................................... $ 9.95 0.45 (0.25) 0.20 (0.44)
1995.................................... $ 9.71 0.56 0.05 0.61 (0.58)
INTERMEDIATE BOND FUND
1993(a)................................. $10.00 0.46 0.33 0.79 (0.39)
1994.................................... $10.40 0.61 (0.81) (0.20) (0.67)
1995.................................... $ 9.36 0.61 0.16 0.77 (0.62)
GOVERNMENT INCOME FUND
1993(d)................................. $10.00 0.47 0.16 0.63 (0.41)
1994.................................... $10.22 0.64 (0.78) (0.14) (0.68)
1995.................................... $ 9.26 0.60 0.26 0.86 (0.62)
SHORT-TERM TAX-FREE FUND
1994(e)................................. $10.00 0.18 (0.08) 0.10 (0.18)
1995.................................... $ 9.92 0.39 0.13 0.52 (0.39)
INTERMEDIATE TAX-FREE FUND
1994(e)................................. $10.00 0.19 (0.29) (0.10) (0.19)
1995.................................... $ 9.71 0.42 0.20 0.62 (0.42)
MONEY MARKET FUND--CLASS A SHARES
1993(a)................................. $1.00 0.02 -- 0.02 (0.02)
1994.................................... $1.00 0.03 -- 0.03 (0.03)
1995.................................... $1.00 0.05 -- 0.05 (0.05)
MONEY MARKET FUND--CLASS B SHARES
1993(f)................................. $1.00 0.02 -- 0.02 (0.02)
1994.................................... $1.00 0.03 -- 0.03 (0.03)
1995.................................... $1.00 0.05 -- 0.05 (0.05)
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS FROM DISTRIBUTIONS TO
NET REALIZED GAIN SHAREHOLDERS IN
ON INVESTMENT EXCESS OF NET
PERIOD ENDED AUGUST 31, TRANSACTIONS INVESTMENT INCOME
- ----------------------------------------- ----------------- -----------------
<S> <C> <C>
EQUITY INCOME FUND
1994(b)................................. -- --
1995.................................... -- --
VALUE EQUITY FUND
1994(b)................................. -- --
1995.................................... (0.11) --
STOCK FUND
1993(a)................................. -- --
1994.................................... -- --
1995.................................... -- --
MID-CAP STOCK FUND
1994(b)................................. (0.03) --
1995.................................... -- 0.00
INTERNATIONAL STOCK FUND
1995(g)................................. 0.00 --
SHORT-TERM INCOME FUND
1993(c)................................. -- --
1994.................................... -- --
1995.................................... -- --
INTERMEDIATE BOND FUND
1993(a)................................. -- --
1994.................................... (0.17) --
1995.................................... -- --
GOVERNMENT INCOME FUND
1993(d)................................. -- --
1994.................................... (0.14) --
1995.................................... -- --
SHORT-TERM TAX-FREE FUND
1994(e)................................. -- --
1995.................................... -- --
INTERMEDIATE TAX-FREE FUND
1994(e)................................. -- --
1995.................................... -- --
MONEY MARKET FUND--CLASS A SHARES
1993(a)................................. -- --
1994.................................... -- --
1995.................................... -- --
MONEY MARKET FUND--CLASS B SHARES
1993(f)................................. -- --
1994.................................... -- --
1995.................................... -- --
(a) Reflects operations for the period from November 23, 1992 (date of initial public investment) to August 31, 1993.
(b) Reflects operations for the period from October 1, 1993 (date of initial public investment) to August 31, 1994.
(c) Reflects operations for the period from November 2, 1992 (date of initial public investment) to August 31, 1993.
(d) Reflects operations for the period from December 14, 1992 (date of initial public investment) to August 31, 1993.
(e) Reflects operations for the period from February 2, 1994 (date of initial public investment) to August 31, 1994.
(f) Reflects operations for the period from December 17, 1992 (date of initial public investment) to August 31, 1993.
(g) Reflects operations for the period from September 2, 1994 (date of initial public investment) to August 31, 1995.
(h) Based on net asset value.
(i) Computed on an annualized basis.
(j) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above.
</TABLE>
- --------------------------------------------------------------------------------
MARSHALL FUNDS
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------
NET ASSET NET NET ASSETS, PORTFOLIO
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE END OF PERIOD TURNOVER
DISTRIBUTIONS OF PERIOD RETURN(H) EXPENSES INCOME WAIVER (J) (000 OMITTED) RATE
- ------------- ----------- --------- -------- ----------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.23) $ 9.96 2.02% 1.01%(i) 3.30%(i) 0.16%(i) $ 49,396 44%
(0.33) $ 11.22 16.40% 1.01% 3.45% 0.09% $ 107,499 43%
(0.10) $ 10.95 10.59% 1.00%(i) 1.82%(i) 0.15%(i) $ 218,755 39%
(0.31) $ 12.08 13.57% 0.96% 1.98% 0.00% $ 220,436 78%
(0.09) $ 10.08 1.67% 0.94%(i) 1.39%(i) 0.03%(i) $ 309,128 98%
(0.07) $ 10.05 0.44% 0.99% 0.77% 0.01% $ 250,155 86%
(0.09) $ 11.64 16.85% 0.98% 0.88% 0.01% $ 257,019 79%
(0.04) $ 9.69 (2.74%) 1.01%(i) 0.23%(i) 0.28%(i) $ 53,642 113%
(0.01) $ 12.30 27.06% 1.01% (0.13%) 0.08% $ 108,256 157%
(0.05) $ 10.16 2.11% 1.54%(i) 2.42%(i) 0.04%(i) $ 94,048 61%
(0.40) $ 9.95 3.57% 0.50%(i) 4.91%(i) 0.51%(i) $ 74,742 79%
(0.44) $ 9.71 2.05% 0.50% 4.58% 0.39% $ 100,452 185%
(0.58) $ 9.74 6.47% 0.51% 5.78% 0.40% $ 84,273 194%
(0.39) $ 10.40 7.99% 0.70%(i) 6.08%(i) 0.10%(i) $ 346,808 220%
(0.84) $ 9.36 (2.02%) 0.71% 6.26% 0.11% $ 357,740 228%
(0.62) $ 9.51 8.58% 0.71% 6.50% 0.08% $ 344,071 232%
(0.41) $ 10.22 6.40% 0.85%(i) 6.56%(i) 0.33%(i) $ 57,822 218%
(0.82) $ 9.26 (1.34%) 0.86% 6.58% 0.40% $ 64,823 175%
(0.62) $ 9.51 9.78% 0.86% 6.54% 0.26% $ 103,708 360%
(0.18) $ 9.92 0.98% 0.52%(i) 3.22%(i) 0.71%(i) $ 24,903 37%
(0.39) $ 10.05 5.41% 0.51% 3.95% 0.78% $ 21,422 71%
(0.19) $ 9.71 (0.94%) 0.62%(i) 3.58%(i) 0.59%(i) $ 35,212 45%
(0.42) $ 9.91 6.58% 0.61% 4.35% 0.47% $ 46,051 105%
(0.02) $ 1.00 2.33% 0.40%(i) 2.97%(i) 0.28%(i) $ 775,890 --
(0.03) $ 1.00 3.41% 0.40% 3.40% 0.29% $ 967,988 --
(0.05) $ 1.00 5.57% 0.41% 5.44% 0.26% $1,128,623 --
(0.02) $ 1.00 1.89% 0.72%(i) 2.72%(i) 0.28%(i) $ 1,980 --
(0.03) $ 1.00 3.11% 0.70% 3.39% 0.29% $ 11,929 --
(0.05) $ 1.00 5.25% 0.71% 5.21% 0.26% $ 30,331 --
</TABLE>
- -------------------------------------------------------------
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 purposes of each EQUITY FUND'S respective 65% investment
policy, total assets shall be determined without regard to collateral for any
securities lending activity. Additional information about investments,
investment limitations and strategies, and certain investment policies appears
in the "Portfolio Investments and Strategies" section of this prospectus.
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 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.
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 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, i.e., common stocks and preferred
stocks. 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 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 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:
- 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;
- preferred stocks;
- convertible securities rated investment grade by a nationally recognized
statistical 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);
- U.S. Government Securities, including certain Mortgage-Backed Securities
(as defined under "Portfolio Investments and Strategies");
- 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;
- American Depositary Receipts ("ADRs"); except for INTERNATIONAL STOCK
FUND, each Fund is limited to 20% of its net assets;
- Global Depositary Receipts ("GDRs") and European Depositary Receipts
("EDRs") (only the INTERNATIONAL STOCK FUND);
- Asset-Backed Securities (as defined under "Portfolio Investments and
Strategies");
- put and call options on securities and indices and futures contracts;
- swap transactions, including interest rate and index-based swaps;
- Prime Commercial Paper (as defined under "Portfolio Investments and
Strategies");
- foreign and domestic Bank Instruments (as defined under "Portfolio
Investments and Strategies");
- warrants (no more than 5% of an EQUITY FUND'S net assets);
- repurchase agreements; and
- 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.
-------------------------------------------------------------
------------------------------------------------------------
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.
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 include the following:
- 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;
- U.S. Government Securities (as defined under "Portfolio Investments and
Strategies");
- Prime Commercial Paper (as defined under "Portfolio Investments and
Strategies");
- domestic Bank Instruments (as defined under "Portfolio Investments and
Strategies");
- repurchase agreements;
- master demand notes;
- Mortgage-Backed Securities (as defined under "Portfolio Investments and
Strategies");
- Asset-Backed Securities (as defined under "Portfolio Investments and
Strategies");
- Municipal Securities (except the GOVERNMENT INCOME FUND) (as defined
under "Portfolio Investments and Strategies");
- swap transactions, including interest rate and index-based swaps; and
- securities of other investment companies.
The GOVERNMENT INCOME FUND may also engage in options, futures and options on
futures for bona fide hedging purposes. 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 that 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 that 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
pursue 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 that 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:
- 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);
- guaranteed at the time of purchase by the U.S. government as to the
payment of principal and interest;
- fully collateralized by an escrow of U.S. government securities or other
securities acceptable to the Funds' Adviser, including certain
Mortgage-Backed Securities (as defined under "Portfolio Investments and
Strategies");
- rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal
commercial paper rating (P-1) or S&P's highest municipal commercial paper
rating (SP-1) or Fitch's highest short-term municipal obligations rating
(FIN-1+ or FIN-1) or the highest rating by another NRSRO;
- unrated if, at the time of purchase, other Municipal Securities of that
issuer are rated the same quality as described above by an NRSRO; or
- unrated if determined to be of comparable quality to one of the foregoing
rating categories by the Funds' Adviser.
The TAX-FREE INCOME FUNDS may also engage in options, futures and options on
futures for bona fide hedging purposes. The Funds may also invest in swap
transactions, including interest rate and index-based swaps. 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. While there is no
assurance that the MONEY MARKET FUND will achieve its investment objective, it
endeavors to do so by complying with the various requirements of Rule 2a-7 under
the Investment Company Act of 1940 which regulates money market mutual funds and
by following the investment policies described in this prospectus.
Shares of the MONEY MARKET FUND are offered in two classes of shares: CLASS A
SHARES and CLASS B 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:
- issues of domestic and foreign corporate debt obligations, including
bonds, notes, and debentures;
- commercial paper, including Eurodollar commercial paper ("Europaper");
- domestic and foreign Bank Instruments (as defined under "Portfolio
Investments and Strategies");
- demand master notes;
- U.S. Government Securities, except for Mortgage-Backed Securities (as
defined under "Portfolio Investments and Strategies");
- repurchase agreements;
- guaranteed investment contracts;
- funding agreements; and
- short-term tranches of Asset-Backed Securities (as defined under
"Portfolio Investments and Strategies").
-------------------------------------------------------------
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. Your order must be
received by the Fund by 12:00 p.m. (Central Time) for the MONEY MARKET FUND or
3:00 p.m. (Central Time) for all other Funds to get that day's net asset value.
See "Net Asset Value" below. Each Fund reserves the right to reject any purchase
request.
Investors may purchase Fund shares by contacting Marshall Funds Investor
Services ("MFIS") at 1-800-236-8554, 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.
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") may
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 1-800-236-8554.
<TABLE>
<S> <C>
MINIMUM INVESTMENTS
$1,000 To open an Account
$50 To add to an Account
(including through a
Systematic Investment
Program)
</TABLE>
The Funds may waive or lower these minimums from time to time, such as for M&I
Corp. employees.
<TABLE>
<S> <C>
PHONE Contact MFIS. If you autho-
1-800-236-8554 rized telephone exchange priv-
LOGO ileges in your account
application or by sub-
sequent authorization form, you may exchange shares
from another Fund having an identical shareholder
registration. See "Telephone Transactions" on page
15 for more information.
MAIL To open a new Fund account, send
LOGO in your completed account
application and a check payable
to "Marshall Funds" 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
LOGO application (for new accounts)
and a check to Marshall Fund
Investor Services, 1000 N. Water
St. (M-F 8-5 Central Time), any
M&I Bank employing a representa-
tive of M&I Brokerage Services,
or to any authorized broker or
dealer.
WIRE -First notify MFIS at
LOGO 1-800-236-8554 by 12:00 p.m.
(Central Time) for the MONEY
MARKET FUND and 3:00 p.m.
(Central Time) for the other
Funds.
- Then wire the money to:
M&I Marshall & Ilsley Bank
ABA Number 075000051
Credit to: Boston Financial
Data Services Deposit
Account Number 27480
Further credit to:
[Identify name of Fund]
Re: [Shareholder name and
account number]
- If a new Account, fax to
Marshall Funds Investor Services
at 414-287-8511 and mail a com-
pleted account application to
the Fund at the address above
under "Mail."
SYSTEMATIC You can have money automati-
INVESTMENT cally withdrawn from your
PROGRAM checking account on predeter-
mined dates and invest it in a
Fund at the next Fund share
price determined after MFIS
receives the order. Investors purchasing shares
through the Systematic Investment Program are not
subject to the $1,000 minimum investment require-
ment. Call MFIS at 1-800-236-8554 to apply for this
program.
</TABLE>
ADDITIONAL INFORMATION ABOUT ORDERS BY:
<TABLE>
<S> <C>
CHECK If your check does not clear,
LOGO your purchase will be can-
celed and you will be charged
a $15 fee. Purchase 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.
</TABLE>
<TABLE>
<S> <C>
WIRE Your bank may charge a fee
LOGO 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 12:00 p.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.
</TABLE>
-------------------------------------------------------------
------------------------------------------------------------
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 12:00 p.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 12:00 p.m. (Central Time) for the Money Market
Fund or 3:00 p.m. (Central time) for all Funds 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.
<TABLE>
<S> <C>
PHONE If you have authorized the
1-800-236-8554 telephone redemption privi-
(EXCEPT RETIREMENT lege in your account appli-
ACCOUNTS) cation or by a subsequent
LOGO authorization form, you may
redeem shares by tele-
phone. If you are a Trust customer, or a customer
of M&I Brokerage Services, you must contact your
account officer or account representative. [See
"Telephone Transactions" for more information.]
MAIL Send in your written request
LOGO to the following address,
indicating your name, the
Fund
name, 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.
</TABLE>
<TABLE>
<S> <C>
PERSON Bring in written redemption
LOGO request with the information
described in "Mail" above to
any M&I Bank employing a representative of M&I
Brokerage Services, Marshall Funds Investor Ser-
vices, 1000 N. Water St. (M-F 8-5 Central Time),
or to any authorized broker or dealer.
WIRE/ELECTRONIC Upon written request, re-
TRANSFER demption proceeds can be
LOGO directly deposited by Elec-
tronic 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 12:00 p.m. (Central
time) if you want the proceeds to be wired the same
day.
SYSTEMATIC If you have a Fund account
WITHDRAWAL balance of at least
PROGRAM $10,000, you can have
(EXISTING predetermined amounts of at
ACCOUNTS ONLY) least $100 automatically
redeemed from your Fund ac-
count on predetermined dates on a monthly or
quarterly basis. Contact MFIS or M&I Brokerage
Services to apply for this program.
CHECKWRITING You can redeem shares of
(MONEY MARKET the MONEY MARKET FUND by
FUND ONLY) writing a check in amounts
LOGO of at least $250. You must
have completed the check-
writing section of your account application and the
attached signature card, or have completed a
subsequent application form, which you can obtain
from MFIS. The Fund will then provide 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
available Fund account balance will be returned
marked "insufficient funds." See "Redemption Before
Purchase Instruments Clear" below. Checks cannot be
used to close your Fund account balance.
</TABLE>
-------------------------------------------------------------
------------------------------------------------------------
ADDITIONAL CONDITIONS
SIGNATURE GUARANTEES. In the following instances, you must have a signature
guarantee on written redemption requests:
- when you are requesting a redemption of $50,000 or more;
- when you want a redemption to be sent to an address other than the one
you have on record with the Fund;
- or when you want the redemption payable to someone other than the
shareholder of record.
Notaries do not guarantee signatures. A notary public seal is not an acceptable
replacement for a signature guarantee. Instead, the signatures must be
guaranteed by:
- 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");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
- 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.
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 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 send 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" or
"Subadviser"), 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 the Corporation's
Directors and officers, and the Adviser do not evaluate the investment merits of
TICI's individual security selections, TICI's activities are subject to their
oversight.
Both the Corporation and the Adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Corporation and its
portfolio securities. These codes recognize that such persons owe a fiduciary
duty to the Corporation's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased or
sold, or being considered for purchase or sale, by the Corporation; prohibit
purchasing securities in initial public offering; and prohibit taking profits or
securities held for less than sixty days. Violations of the codes are subject to
review by the Board of Directors, and could result in severe penalties.
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 1,
1995, M&I Investment Management Corp. had approximately $7.25 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 December 1, 1995, TICI had discretionary investment
of approximately $13.7 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 52 years and provide investment
management and advisory services to a worldwide client base, including over 3.0
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 EQUITY INCOME FUND is managed by Bruce P. Hutson,
who has been a Vice President of M&I Investment Management Corp. since 1973 and
has been a member of the Equity Policy Group since January 1990. Mr. Hutson
holds a B.B.A. degree from the University of Wisconsin-Whitewater.
The VALUE EQUITY FUND is managed by Gerry M. Sandel who has been a Vice
President of 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
is a Chartered Financial Analyst and 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 STOCK FUND is managed by Charles L. Mehlhouse. Mr. Mehlhouse has been a Vice
President of M&I Investment Management Corp. since May 1993. Mr. Mehlhouse also
served as Managing Director of Texas Commerce Investment Management Company in
Houston from 1987 to 1993. Mr. Mehlhouse is a Chartered Financial Analyst and
holds an M.A. degree from Michigan State University as well as a B.A. degree
from Macalester College.
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 M.B.A. in Finance from Loyola University.
The INTERNATIONAL STOCK FUND is managed by James E. Chaney, Senior 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 AND INTERMEDIATE BOND FUND, are managed by Mark
Pittman. 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 GOVERNMENT INCOME FUND is managed by Lawrence J. Pavelec. 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 GOVERNMENT INCOME FUND since August 1993. Mr.
Pavelec is a Chartered Financial Analyst and holds a B.S. degree from the
University of Wisconsin-LaCrosse.
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, 1996. 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.
From time to time M&I Trust Company may pay amounts, from its own funds, to
individual or corporate affiliates of M&I Corp., or others for their services
relating to investments made in the Funds. These amounts may include payments to
M&I Brokerage Services, which vary based upon the amount invested and the type
of Fund purchased.
-------------------------------------------------------------
ADMINISTRATION OF THE
FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds. Such services include certain
shareholder servicing, legal and accounting services. Federated Administrative
Services provides these services at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE CORPORATION
- ------------------ -----------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $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 division of M&I Trust Company, 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
approximately 0.02 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 sends 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, INCOME FUNDS and TAX-FREE INCOME FUNDS are
declared daily 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
representing ownership interests in each of the Funds. Shareholders 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 December 4, 1995, 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: 4,345,607 shares (40.40%) of EQUITY INCOME FUND; 6,729,514 shares (39.36%)
of VALUE EQUITY FUND; 13,468,060 shares (61.68%) of STOCK FUND; 4,313,247 shares
(49.75%) of MID-CAP STOCK FUND; 4,344,995 shares (42.96%) of INTERNATIONAL STOCK
FUND; 4,392,447 shares (52.21%) of SHORT-TERM INCOME FUND; 22,356,810 shares
(60.63%) of INTERMEDIATE BOND FUND; 4,142,034 shares (35.60%) of GOVERNMENT
INCOME FUND; and 910,711 shares (44.27%) of SHORT-TERM TAX-FREE 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 December 4, 1995, 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: 4,432,677 shares (41.21%) of EQUITY INCOME FUND; 5,633,714 shares (32.95%)
of VALUE EQUITY FUND; 3,008,454 shares (34.70%) of MID-CAP STOCK FUND; 4,456,069
shares (44.06%) of INTERNATIONAL STOCK FUND; 2,425,957 shares (28.84%) of
SHORT-TERM INCOME FUND; 9,810,659 shares (26.60%) of INTERMEDIATE BOND FUND;
855,432 shares (41.58%) of SHORT-TERM TAX-FREE FUND; 4,015,906 shares (79.83%)
of INTERMEDIATE TAX-FREE 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 December 4, 1995, Maril &
Co., Milwaukee, Wisconsin, acting in various capacities for numerous accounts,
was the owner of record of 723,296 shares (70.13%) of MONEY MARKET FUND-CLASS A
SHARES; 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 December 4, 1995, M & I BSS Appleton, Appleton, Wisconsin,
acting in various capacities for numerous accounts, was the owner of record of
22,894,633 shares (43.29%) of MONEY MARKET FUND-CLASS B SHARES; 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 INCOME
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 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 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 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 secu-
rities 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 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. There
is the risk that when lending portfolio securities, the securities may not be
available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
MORTGAGE-BACKED SECURITIES. All of the Funds except for the MONEY MARKET FUND
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 Adviser or
Subadviser. 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 except for the MONEY MARKET
FUND 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 or
(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 Mortgage-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. 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 net 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.
The Funds, other than the MONEY MARKET FUND, SHORT-TERM INCOME FUND, or
INTERMEDIATE BOND FUND, may invest in futures for bona fide hedging purposes.
Although the Funds have the ability to invest up to 5% of their respective net
assets in futures for other than bona fide hedging purposes, they have no
present intention to do so. The ability to engage in futures transactions is a
fundamental investment policy. 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 one of the two highest
rating categories for short-term obligations by an NRSRO or are of comparable
quality to securities having such ratings.
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
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 SHORT-TERM
INCOME FUND, 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 Fund's 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. The MONEY MARKET FUND
may purchase single rated securities that are rated in the highest rating
category by an NRSRO. Unrated securities may be treated as "First Tier"
securities and are also eligible for purchase by the MONEY MARKET FUND, subject
to a determination of comparability by the Adviser. Acquisition of such unrated
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.
SWAP TRANSACTIONS. As one way of managing its exposure to different types of
investments, each of the Funds (except the MONEY MARKET FUND) may invest up to
5% of their respective net assets in swap transactions, including interest rate
and index-based swaps. See "Investment Objectives and Policies - Swap
Transactions" in the Statement of Additional Information.
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
Mortgage-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.
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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' Adviser or
Subadviser. The Funds' 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 Mortgage-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
Mortgage-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 Mortgage-Backed
Securities, certain factors that affect the rate of prepayments on
Mortgage-Backed Securities also affect the rate of prepayments on Asset-Backed
Securities.
While Mortgage-Backed Securities generally entail less risk of a decline during
periods of rapidly rising interest rates, Mortgage-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 Mortgage-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 Mortgage-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
Mortgage-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 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
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.
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TAX INFORMATION
-------------------------------------------------------------
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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 distri-
butions received. However, shareholders of SHORTTERM 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.
-------------------------------------------------------------
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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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
MARSHALL EQUITY INCOME FUND Federated Investors Tower
MARSHALL VALUE EQUITY FUND Pittsburgh, Pennsylvania 15222-3779
MARSHALL STOCK 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
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
- -----------------------------------------------------------------------------------------------------
</TABLE>
Marshall Funds Investor Services
1000 North Water Street
PO Box 1348
Milwaukee, Wisconsin 53201-1348
414-287-8555 or 800-236-8554
TDD: Speech and Hearing Impaired Services
800-209-3520
Federated Securities Corp.
Distributor
G00714-01 (12/95)
MARSHALL FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1995
EQUITY FUNDS TAX-FREE INCOME FUNDS
o MARSHALL EQUITY INCOME FUND o MARSHALL SHORT-TERM
TAX-FREE FUND
oMARSHALL VALUE EQUITY FUND O MARSHALL INTERMEDIATE TAX-FREE FUND
O MARSHALL STOCK FUND
OMARSHALL MID-CAP STOCK FUND
OMARSHALL INTERNATIONAL STOCK FUND
INCOME FUNDS MONEY MARKET FUND
oMARSHALL SHORT-TERM INCOME FUND O MARSHALL MONEY MARKET FUND
OMARSHALL INTERMEDIATE BOND FUND
OMARSHALL GOVERNMENT INCOME FUND
This Statement of Additional Information should be read with the
prospectus, dated December 31, 1995, for the funds listed above. This
Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge, by writing or calling
Marshall Funds Investor Services at 414-287-8500 or 1-800-326-8560 or 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 1
INVESTMENT LIMITATIONS 10
FUNDAMENTAL LIMITATIONS 10
NON-FUNDAMENTAL LIMITATIONS 12
MARSHALL FUNDS, INC. MANAGEMENT 13
OFFICERS AND DIRECTORS 14
FUND OWNERSHIP 16
DIRECTORS' COMPENSATION 17
INVESTMENT ADVISORY SERVICES 17
ADVISER TO THE FUND 17
ADVISORY FEES 17
SUBADVISER TO INTERNATIONAL STOCK
FUND 18
STATE EXPENSE LIMITATIONS 19
ADMINISTRATIVE SERVICES 19
SHAREHOLDER SERVICING ARRANGEMENTS
19
TRANSFER AGENT, DIVIDEND DISBURSING
AGENT, AND PORTFOLIO ACCOUNTING
SERVICES 20
CUSTODIAN 20
BROKERAGE TRANSACTIONS 20
PURCHASING SHARES WITH SECURITIES21
DISTRIBUTION PLAN 21
DETERMINING MARKET VALUE 22
USE OF THE AMORTIZED COST METHOD22
MARKET VALUES 22
TRADING IN FOREIGN SECURITIES 23
REDEMPTION IN KIND 23
BANKING LAWS 23
TAX STATUS 24
THE FUNDS' TAX STATUS 24
FOREIGN TAXES 24
SHAREHOLDERS' TAX STATUS 24
CAPITAL GAINS 25
TOTAL RETURN 25
YIELD 25
EFFECTIVE YIELD 26
TAX-EQUIVALENT YIELD 26
TAX-EQUIVALENCY TABLE 26
PERFORMANCE COMPARISONS 27
FINANCIAL STATEMENTS 29
APPENDIX 30
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
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.
AVERAGE MATURITY. For purposes of determining the dollar-weighted average
maturity of a 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 a 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.
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.
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 Commodity Futures Trading
Commission ("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.
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 have the right to 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.
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.
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 CFTC Regulation 4.5 and thereby
avoid status as a "commodity pool operator," the Fund will not enter into a
futures contract for other than bona fide hedging purposes, 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 net
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.
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 have the right to 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.
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.
MORTGAGE-BACKED SECURITIES. The following is additional information about
Mortgage-Backed Securities.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS") . 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.
PORTFOLIO TURNOVER. The VALUE EQUITY FUND experienced a higher turnover
rate for the fiscal period ended August 31, 1995. During this period, the
Fund's turnover rate was 78% versus 39% for the prior fiscal period. The
higher rate reflects the August 1994 conversion of the former Valley Bank
Equity Fund into the VALUE EQUITY FUND. Without this conversion, it is
estimated the VALUE EQUITY FUND'S turnover rate would approximate 50%.
The higher portfolio turnover rate for the MID-CAP STOCK FUND for the fiscal
year ended August 31, 1995, was due to general market conditions. Sector
rotation within the market was much quicker than normal as certain sectors and
industries moved in and out of favor on a frequent basis. This volatility
required the Fund to reposition its investments more frequently, thus causing
more turnover. An additional factor contributing to portfolio turnover was the
inordinate number of issues that were moved out of the S&P Mid-Cap 400 Index
and into the S&P 500. The Adviser's discipline requires that stocks be sold as
they move out of our market capitalization range, and with the strong market
appreciation during the past year, a significant number of Mid-Cap turnover
rate issues moved above their target range and out of the S&P Mid-Cap 400.
The higher portfolio turnover rate for the GOVERNMENT INCOME FUND for the
fiscal year ended August 31, 1995, was the result of a significantly stronger
bond market. The bond market reversed the trend to higher rates experienced in
1994. The yield on a 10-year Treasury note fell 154 basis points from December
31, 1994 to the fiscal year end. The portfolio was restructured to better
perform in a falling interest rate environment with faster mortgage
prepayments.
The higher level of turnover in the SHORT-TERM TAX-FREE FUND for the fiscal
year ended 1995 was a result of strategic shifts in strategy during the year.
As it became apparent the Federal Reserve would ease, the Fund's average
maturity of holdings was lengthened by swapping shorter maturity items into
longer maturity items. Also, the Fund's Adviser sought to minimize the Fund's
daily liquidity requirements in order to remain fully invested.
As the INTERMEDIATE TAX-FREE FUND grew in asset size, some consolidation
trades were made to increase the average size of each holdings. Also, an
effort was made to actively sell some shorter maturity holdings in favor of
lengthening. These two tactical shifts resulted in higher levels of turnover
than the prior fiscal year.
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.
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.
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.
SWAP TRANSACTIONS. In a standard swap transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments, which may be adjusted
for an interest factor. The gross returns to be exchanged or "swapped" between
the parties are generally calculated with respect to a "notional amount,"
which is the return on or increase in value of a particular dollar amount
invested at a particular interest rate, or in a "basket" of securities
representing a particular index. For example, a $10 million LIBOR swap would
require one party to pay the equivalent of the London Interbank Offer Rate on
$10 million principal amount in exchange for the right to receive the
equivalent of a fixed rate of interest on $10 million principal amount.
Neither party to the swap would actually advance $10 million to the other.
The Funds expect to enter into swap transactions primarily to hedge against
changes in the price of other portfolio securities. For example, the Funds may
hedge against changes in the market value of a fixed rate note by entering
into a concurrent swap that requires the Funds to pay the same or a lower
fixed rate of interest on a notional principal amount equal to the principal
amount of the note in exchange for a variable rate of interest based on a
market index. Interest accrued on the hedged note would then equal or exceed
the Funds' obligations under the swap, while changes in the market value of
the swap would largely offset any changes in the market value of the note. The
Funds may also enter into swaps and caps to preserve or enhance a return or
spread on a portfolio security. The Funds do not intend to use these
transactions in a speculative manner.
The Funds will usually enter into swaps on a net basis (i.e., the two payment
streams are netted out), with a Fund receiving or paying, as the case may be,
only the net amount of the two payments. The net amount of the excess, if any,
of the Funds' obligations over its entitlements with respect to each interest
rate swap will be accrued on a daily basis, and the Funds will segregate
liquid assets in an aggregate net asset value at least equal to the accrued
excess, if any, on each business day. If a Fund enters into a swap on other
than a net basis, a Fund will segregate liquid assets in the full amount
accrued on a daily basis of a Fund's obligations with respect to the swap. If
there is a default by the other party to such a transaction, the Funds will
have contractual remedies pursuant to the agreements related to the
transaction.
The swap market has grown substantially in recent years with a large number
of banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. The Adviser and Sub-Adviser have
determined that, as a result, the swap market has become relatively liquid.
Interest rate caps and floors are more recent innovations for which
standardized documentation has not yet been developed and, accordingly, they
are less liquid than other swaps. To the extent swaps, caps or floors are
determined by the investment adviser to be illiquid, they will be included in
a Fund's limitation on investments in illiquid securities. To the extent a
Fund sells caps and floors, it will maintain in a segregated account cash
and/or U.S. government securities having an aggregate net asset value at least
equal to the full amount, accrued on a daily basis, of a Fund's obligations
with respect to caps and floors.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser or Sub-Adviser is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of a Fund would diminish compared with what it would
have been if these investment techniques were not utilized. Moreover, even if
the Adviser or Sub-Adviser is correct in its forecasts, there is a risk that
the swap position may correlate imperfectly with the price of the portfolio
security being hedged.
Swap transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
a default on an interest rate swap is limited to the net asset value of the
swap together with the net amount of interest payments owed to a Fund by the
defaulting party. A default on a portfolio security hedged by an interest rate
swap would also expose a Fund to the risk of having to cover its net
obligations under the swap with income from other portfolio securities.
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.
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.
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 (the term "restricted" does not apply to the TAX-FREE
INCOME FUNDS) 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
Except for bona fide hedging purposes, a Fund may not invest more than 5%
of the value of its net assets in the sum of (a) premiums on open option
positions on futures contracts, 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.
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 the prospectus and this 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 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.
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 the prospectus and this Statement of
Additional Information. The Articles of Incorporation of the Corporation
reconcile this inconsistency in terminology, and provide that the 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
October 22, 1930
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
March 27, 1934
Director
Independent Financial Consultant; retired, Senior Vice President of Finance,
In-Sink-Erator Division of Emerson Electric.
Ody J. Fish
547 Progress Drive
Hartland, WI
June 16, 1925
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
September 4, 1917
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
January 9, 1958
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
May 22, 1962
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
September 3, 1959
Secretary
Senior 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 December 4, 1995, the following shareholders of record owned 5% or
more of a Fund's outstanding shares:
EQUITY INCOME FUND
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned
approximately 4,432,677 shares (41.21%); Mitra & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 4,345,607 shares
(40.40%); and Miaz & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 600,180 shares (5.58%).
VALUE EQUITY FUND
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 3,191,562 shares (18.67%); Maril & Co., Marshall & Ilsley Trust
Co., Milwaukee, Wisconsin, owned approximately 5,633,714 shares (32.95%); and
Mitra & Co., Marshall & Ilsley Trust Operations, owned approximately 6,729,514
shares (39.36%).
STOCK FUND
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned
approximately 3,535,073 shares (16.19%); and Mitra & Co., Milwaukee,
Wisconsin, owned approximately 13,468,060 shares (61.68%).
MID-CAP STOCK FUND
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned
approximately 3,008,454 shares (34.70%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 4,313,247 shares
(49.75%).
INTERNATIONAL STOCK FUND
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned
approximately 4,456,069 shares (44.06%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 4,344,995 shares
(42.96%).
SHORT-TERM INCOME FUND
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin , owned
approximately 2,425,957 shares (28.84%); Mitra & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 4,392,447 shares
(52.21%); and Miaz & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 524,437 shares (6.23%).
INTERMEDIATE BOND FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 9,810,659 shares (26.60%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 22,356,810 shares
(60.63%).
GOVERNMENT INCOME FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 4,251,591 shares (36.54%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 4,142,034 shares
(35.60%).
SHORT-TERM TAX-FREE FUND
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 165,013 shares (8.02%); Maril & Co., Marshall & Ilsley Trust
Co., Milwaukee, Wisconsin, owned approximately 855,432 shares (41.58%); and
Mitra & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned
approximately 910,711 shares (44.27%).
INTERMEDIATE TAX-FREE FUND
Maril & Co., Marshall & Ilsley Trust Co., Milwaukee, Wisconsin, owned
approximately 4,015,906 shares (79.83%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 529,254 shares
(10.52%).
MONEY MARKET FUND
Maril & Co., Milwaukee, Wisconsin, owned approximately 723,296,638 of the
Class A Shares of the Fund (70.13%); Miaz & Co., Milwaukee, Wisconsin, owned
approximately 65,231,980 of the Class A Sharesof the Fund (6.33%); M & I BSS
Appleton, Appleton, Wisconsin, owned approximately 25,699,369 of the Class B
Shares of the Fund (48.59%); and Kronseder Farms Inc., Franklin, Wisconsin,
owned approximately 2,864,263 of the Class B Shares of the Fund (5.42%).
DIRECTORS' COMPENSATION
NAME, AGGREGATE
POSITION WITH COMPENSATION
CORPORATION FROM CORPORATION*#
Edward C. Gonzales,
Chairman, Director, and Treasurer
$ -0-
John DeVincentis,
$ 11,000
Director
Ody J. Fish,
$ 11,000
Director
Paul E. Hassett,
$ 11,000
Director
* Information is furnished for the fiscal year ended August 31, 1995. The
Corporation is the only investment company in the Fund Complex.
# The aggregate compensation is provided for the Corporation which is
comprised of eleven portfolios.
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, 1995 and 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 $584,150 and $245,116, respectively, of
which $69,757 and $39,343, respectively, were voluntarily waived. For the
fiscal year ended August 31, 1995 and for the period from October 1, 1993
(date of initial public investment), to August 31, 1994, the Adviser earned
fees fromVALUE EQUITY FUND of $1,592,905 and $310,939, respectively, of which
$0 and $45,477, respectively, were voluntarily waived. For the fiscal year
ended August 31, 1995, 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 $1,813,889, $1,877,194 and $1,572,056, respectively, of
which $17,481 was voluntarily waived for fiscal year ended August 31, 1995.
For the fiscal year ended August 31, 1995 and for the period from October 1,
1993 (date of initial public investment) to August 31, 1994, the Adviser
earned fees from MID-CAP STOCK FUND of $585,271 and $189,976, respectively,
of which $64,161 and $56,834, respectively, were voluntarily waived. For the
period from September 2, 1994 (date of initial public investment), to August
31, 1995, the Adviser earned fees from the INTERNATIONAL STOCK FUND of
$727,503, of which $31,759 was voluntarily waived. For the fiscal years ended
August 31, 1995 and 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 $537,366, $575,101, and $200,259, respectively, of
which $355,637, $361,083, and $152,661, respectively, were voluntarily
waived. For the fiscal years ended August 31, 1995 and 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 $2,046,206,
$1,873,380, and $1,288,544, respectively, of which $272,827, $296,925 and
$135,214, respectively, were voluntarily waived. For the fiscal years ended
August 31, 1995 and 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 $635,592, $436,508, and $267,763, respectively, of
which $216,611, $224,038, and $106,039, respectively, were voluntarily waived.
For the fiscal year ended August 31, 1995 and for the period from February 2,
1994 (date of initial public investment), to August 31, 1994, the Adviser
earned fees from SHORT-TERM TAX-FREE FUND of $115,704 and $49,536,
respectively, of which $109,424 and $49,536, respectively, were voluntarily
waived. For the fiscal year ended August 31, 1995 and for the period from
February 2, 1994 (date of initial public investment), to August 31, 1994, the
Adviser earned fees from INTERMEDIATE TAX-FREE FUND of $243,850 and $95,876,
respectively, of which $176,613 and $77,214, respectively, were voluntarily
waived. For the fiscal years ended August 31, 1995, 1994, and for the period
from September 23, 1992 (start of business), to August 31, 1993, the Adviser
earned fees from MONEY MARKET FUND of $5,435,257, $4,623,880 and $2,775,543,
respectively, of which $2,826,334, $2,639,185 and $1,368,267, respectively
were voluntarily waived.
SUBADVISER TO 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 10% 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.
For the period from September 2, 1994 (date of initial public investment),
to August 31, 1995, TICI earned fees from the INTERNATIONAL STOCK FUND of
$363,752, of which $15,880 was voluntarily waived.
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, 1995 and for the period from October
1, 1993 (date of initial public investment), to August 31, 1994, FAS received
fees from EQUITY INCOME FUND of $70,707 and $45,481, respectively, of which $0
and $10,965, respectively, was voluntarily waived. For the fiscal year ended
August 31, 1995 and for the period from October 1, 1993 (date of initial
public investment), to August 31, 1994, FAS received fees from VALUE EQUITY
FUND of $193,180 and $54,953, respectively, of which $0 and $9,451,
respectively, were voluntarily waived. For the fiscal years ended August 31,
1995 and 1994, and for the period from November 23, 1992 (date of initial
public investment), to August 31, 1993, Federated Administrative Services
("FAS ") received fees from STOCK FUND of $219,917, $241,079, and $215,215,
respectively, of which $0, $0, and $910, respectively, were voluntarily
waived. For the fiscal year ended August 31, 1995 and for the period from
October 1, 1993 (date of initial public investment), to August 31, 1994, FAS
received fees from MID-CAP STOCK FUND of $70,878 and $45,481, respectively,
of which $0 and $12,101, respectively, was voluntarily waived. For the
period from September 2, 1994 (date of initial public investment), to August
31, 1995, FAS received fees from INTERNATIONAL STOCK FUND of $66,944, of which
$0 was voluntarily waived. For the fiscal years ended August 31, 1995 and
1994, and for the period from November 2, 1992 (date of initial public
investment), to August 31, 1993, FAS received fees from SHORT-TERM INCOME FUND
of $81,509, $91,808, and $41,371, respectively, of which $0, $0, and $7,440,
respectively, were voluntarily waived. For the fiscal years ended August 31,
1995 and 1994, and for the period from November 23, 1992 (date of initial
public investment), to August 31, 1993, FAS received fees from INTERMEDIATE
BOND FUND of $310,184, $300,278, and $219,987, respectively, of which $0, $0
and $870, respectively, were voluntarily waived. For the fiscal years ended
August 31, 1995 and 1994, and for the period from December 14, 1992 (date of
initial public investment), to August 31, 1993, FAS received fees from
GOVERNMENT INCOME FUND of $77,015, $55,895 and $36,945, respectively, of which
$0, $0, and $601, respectively, were voluntarily waived. For the fiscal year
ended August 31, 1995 and for the period from February 2, 1994 (date of
initial public investment), to August 31, 1994, FAS received fees from SHORT-
TERM TAX-FREE FUND of $50,000 and $28,767, respectively, of which $28,938 and
$19,393, respectively, were voluntarily waived. For the fiscal year ended
August 31, 1995 and for the period from February 2, 1994 (date of initial
public investment), to August 31, 1994, FAS received fees from INTERMEDIATE
TAX-FREE FUND of $50,000 and $28,767, respectively, of which $13,052 and
$13,646, respectively, were voluntarily waived. For the fiscal years ended
August 31, 1995 and 1994, and for the period from September 23, 1992 (start of
business), to August 31, 1993, FAS received fees from MONEY MARKET FUND of
$988,602, $887,132, and $571,068, respectively, of which $0, $0, and $2,010,
respectively, were voluntarily waived.
SHAREHOLDER SERVICING ARRANGEMENTS
For the fiscal years ended August 31, 1995 and 1994 and for the period from
November 23, 1992 (date of initial public investment) to August 31, 1993,
Marshall Funds Investors Services ("MFIS") earned shareholder servicing fees
of $43,568, $37,544, and $31,441, respectively from STOCK FUND, of which $0,
$0, and $31,441, respectively, were voluntarily waived; $61,234, $46,835, and
$32,214, respectively, from INTERMEDIATE BOND FUND, of which $0, $0, and
$32,214, respectively, were voluntarily waived. For the fiscal years ended
August 31, 1995 and 1994 and for the period from November 2, 1992 (date of
initial public investment), to August 31, 1993, MFIS earned shareholder
servicing fees of $15,860, $14,377, and $5,006, respectively, from SHORT-TERM
INCOME FUND, of which, $0, $0, and $5,006, respectively, were voluntarily
waived. For the fiscal years ended August 31, 1995 and 1994 and for the
period from September 23, 1992 (start of business), to August 31, 1993, MFIS
earned shareholder servicing fees of $194,970, $138,716 and $83,266,
respectively, from MONEY MARKET FUND, of which $0, $0, and $83,266,
respectively, were voluntarily waived. For the fiscal years ended August 31,
1995 and 1994 and for the period from December 14, 1992 (date of initial
public investment), to August 31, 1993, MFIS earned shareholder servicing fees
of $15,385, $8,730, and $5,355, respectively, for GOVERNMENT INCOME FUND, of
which $0, $0, and $5,355, respectively, were voluntarily waived. For the
fiscal year ended August 31, 1995 and for the period from October 1, 1993
(date of initial public investment), to August 31, 1994, MFIS earned
shareholder servicing fees of $14,413 and $4,902, respectively, for EQUITY
INCOME FUND; $38,070 and $6,219, respectively, for VALUE EQUITY FUND; and
$14,323 and $3,800, respectively, for MID-CAP STOCK FUND. For the fiscal year
ended August 31, 1995 and for the period from February 2, 1994 (date of
initial public investment) to August 31, 1994, MFIS earned shareholder
servicing fees of $4,092 and $1,486, respectively, from SHORT-TERM TAX-FREE
FUND and $7,339 and $2,397, respectively, from INTERMEDIATE TAX-FREE FUND.
For the period from September 2, 1994 (date of initial public investment), to
August 31, 1995, MFIS earned shareholder servicing fees of $13,349 from
INTERNATIONAL STOCK 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. 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 fiscal year ended August 31, 1995 and for the period from October
1, 1993 (date of the initial public investment), to August 31, 1994, the
EQUITY INCOME FUND paid $137,799 and $37,398 in brokerage commissions on
brokerage transactions. For the fiscal year ended August 31, 1995 and for the
period from October 1, 1993 (date of the initial public investment), to August
31, 1994, the VALUE EQUITY FUND paid $549,637 and $236,601, respectively, in
brokerage commissions on brokerage transactions. For the fiscal years ended
August 31, 1995 and 1994, and for the period from November 23, 1992 (date of
initial public investment), to August 31, 1993, the STOCK FUND paid $369,668,
$596,430 and $669,571, respectively, in brokerage commissions on brokerage
transactions. For the fiscal year ended August 31, 1995 and for the period
from October 1, 1993 (date of the initial public investment), to August 31,
1994, the MID-CAP STOCK FUND paid $248,008 and $109,864 in brokerage
commissions on brokerage transactions. For the period from September 2, 1994
(date of initial public investment), to August 31, 1995, the INTERNATIONAL
STOCK FUND paid $276,073 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 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
Plan Shares; 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, 1995, the MONEY MARKET FUND paid $63,394 to the distributor
on behalf of the Class B 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 MONEY MARKET 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 domestic equity securities and foreign securities, according to the
last reported sales price on a recognized securities exchange, if
available;
o in the absence of recorded sales for domestic equity securities,
according to the mean between the last closing bid and asked prices;
o in the absence of reported sales prices for foreign securities or if the
foreign security is traded over-the-counter, according to the last
reported bid price;
o for domestic bonds and other fixed income securities, at the last sales
price on a national securities exchange if available, otherwise as
determined by an independent pricing service;
o for domestic 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.
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. 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
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 services
described in the prospectus 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 invest 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 FUNDS if the
EQUITY FUNDS were a regular corporation, and to the extent designated by the
EQUITY FUNDS 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.
STOCK FUND'S average annual total return for the one-year period ended
August 31, 1995 and for the period from November 23, 1992 (date of initial
public investment), to August 31, 1995 were 16.85% and 19.32%, respectively.
VALUE EQUITY FUND'S average annual total return for the one-year period ended
August 31, 1995 and for the period from September 30, 1993 (date of initial
public investment), to August 31, 1995 were 13.57% and 25.60%, respectively.
EQUITY INCOME FUND'S average annual total return for the one-year period ended
August 31, 1995 and for the period from October 1, 1993 (date of initial
public investment), to August 31, 1995 were 16.40% and 18.75%, respectively.
MID-CAP STOCK FUND'S average annual total return for the one-year period ended
August 31, 1995 and for the period from October 1, 1993 (date of initial
public investment), to August 31, 1995 were 27.06% and 23.57%, respectively.
INTERNATIONAL STOCK FUND'S average annual total return for the period from
September 2, 1994 (date of initial public investment), to August 31, 1995 was
2.11%. SHORT-TERM INCOME FUND'S average annual total return for the one-year
period ended August 31, 1995 and for the period from November 2, 1993 (date of
initial public investment) to August 31, 1995 were 6.47% and 12.52%,
respectively.INTERMEDIATE BOND FUND's average annual total return for the one-
year period ended August 31, 1995, and for the period from November 23, 1992
(date of initial public investment), to August 31, 1995 were 8.58% and 14.89%,
respectively. GOVERNMENT INCOME FUND's average annual total return for the
fiscal year ended August 31, 1995, and for the period from December 14, 1992
(date of initial public investment) to August 31, 1995 were 9.78% and 15.24%,
respectively. SHORT-TERM TAX FREE FUND'S average annual total return for the
one-year period ended August 31, 1995 and for the period from February 2, 1994
(date of initial public investment), to August 31, 1995 were 5.41% and 6.44%,
respectively. INTERMEDIATE-TAX-FREE FUND's average annual total return for
the one-year period ended August 31, 1995 and for the period from February 2,
1994 (date of initial public investment), to August 31, 1995 were 6.58% and
5.58%, respectively.
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 for the seven-day period
ended August 31, 1995, was 5.55%. The Fund's yield for Class B Shares was
5.25% 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. EQUITY INCOME
FUND's yield for the 30-day period ended August 31, 1995, was 3.05%. VALUE
EQUITY INCOME FUND's yield for the 30-day period ended August 31, 1995, was
1.65%. STOCK FUND's yield for the 30-day period ended August 31, 1995, was
..88%. MID-CAP STOCK FUND's yield for the 30-day period ended August 31, 1995,
was (.40%). SHORT-TERM INCOME FUND's yield for the 30-day period ended August
31, 1995, was 5.99%. INTERMEDIATE BOND FUND's yield for the 30-day period
ended August 31, 1995, was 5.80%. GOVERNMENT INCOME FUND's yield for the 30-
day period ended August 31, 1995, was 6.23%. SHORT-TERM TAX-FREE FUND's yield
for the 30-day period ended August 31, 1995, was 3.88%. INTERMEDIATE TAX-FREE
FUND's yield for the 30-day period ended August 31, 1995, was 4.30%.
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
for the seven-day period ended August 31, 1995, was 5.70%. The MONEY MARKET
FUND's effective yield for Class B Shares was 5.38% 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, 1995, was 6.42%. The tax-equivalent
yield for INTERMEDIATE TAX-FREE FUND was 7.12% 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 on the next page
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1995
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $39,001- $94,251- $143,601- OVER
RETURN 39,000 94,250 143,600 256,500 256,500
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
Tax-Exempt
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%
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.
*Some portion of the Tax-Free Funds' income may be subject to the federal
alternative minimum tax and state and local income 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 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 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 LEHMAN BROTHERS 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 Lehman Brothers, Inc., the
index calculates total return for one-month, three-month, twelve-month,
and ten-year periods and year-to-date.
o LEHMAN BROTHERS 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 LEHMAN BROTHERS 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 LEHMAN BROTHERS 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 LEHMAN BROTHERS 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, 1995, are
incorporated herein by reference from the Funds' Annual Reports dated August
31, 1995 (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.
G00714-02 (12/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (1-11) The Financial Statements for the
fiscal period ended August 31, 1995, are incorporated herein
by reference from the Funds' Annual Report dated August 31,
1995.
(b) Exhibits:
(1) Conformed copy of Articles of Incorporation of the
Registrant (8.);
(i)Conformed copy of Amendment No. 1 to the Articles
of Incorporation (8.);
(ii)Conformed copy of Amendment No. 2 to the Articles
of Incorporation (8.);
(iii)Conformed copy of Amendment No. 3 to the Articles
of Incorporation (8.);
(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 (8.);
(2) Copy of By-Laws of the Registrant (8.);
(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.);
+ 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).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment N0. 11 on Form N-1A filed October 21, 1994. (File Nos. 33-
48907 and 811-7047).
(v) Conformed copy of Exhibit K of the Investment
Advisory Contract (7.);....
(vi) Conformed copy of Exhibit L of the Investment
Advisory Contract (7.);
(vii)Form of Exhibit M of the Investment Advisory
Contract; +
(viii) Conformed copy of Federated Management Sub-
Advisory Agreement with the Registrant (7.);
(ix)Conformed copy of Templeton Investment Counsel,
Inc., Sub-Advisory Agreement with the M & I
Investment Management, Inc.(9.);
(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)Conformed copy of Exhibit J of the Distributor's
Contract (9.);
(iv) Conformed copy of Exhibit A of the Distributor's
Contract (10.);
(v) Conformed copy of Exhibit B of the Distributor's
Contract (10.);
(7) Not applicable;
(8) (i) Conformed copy of Custodian Contract of the
Registrant (7.);
(ii) Conformed copy of Sub-Transfer Agency and
Services Agreement (10.);
(9) (i) Conformed copy of Fund Accounting and Shareholder
Recordkeeping Agreement of the Registrant; +
(ii)Conformed copy of Administrative Services Agreement
(7.);
+ 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).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33-
48907 and 811-7047).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907
and 811-7047).
(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 to Schedule A of the
Shareholder Services Agreement; +
(vii) Form of Amendment No. 1 to Schedule B of the
Shareholder Services Agreement; +
(viii) Conformed copy of Marshall Funds, Inc. Multiple
Class Plan (Marshall Money Market Fund Class A
Shares and Class B Shares); +
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered (4.);
(11) Conformed copy of the Consent of Independent Public
Accountants; +
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding;+
(14) Not applicable;
(15) (i)Conformed copy of Distribution Plan (4.);
(ii)Conformed copy of Exhibit B of Distribution Plan
(9.);
(iii) Conformed copy of Exhibit A of Distribution Plan;
+
(iv) Form of 12b-1 Agreement through and including
Exhibit B; +
(16) (i) Conformed copy of Schedule for Computation of Fund
Performance Data (6.);
(ii) Copy of Schedule for Computation of Fund
Performance Data for Marshall
International Stock Fund (10.);
+ All Exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 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).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33-
48907 and 811-7047.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907
and 811-7047).
(17) Copy of Financial Data Schedules; +
(18) Not Applicable;
(19) (i) Conformed copy of Power of Attorney; +
(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
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of December 4, 1995
-----
Shares of capital stock
Marshall Intermediate Bond Fund 347
Marshall Government Income Fund 2,085
Marshall Money Market Fund
Class A Shares 2,588
Marshall Money Market Fund
Class B Shares 1,435
Marshall Short-Term Income Fund 200
Marshall Stock Fund 3,348
Marshall Equity Income Fund 241
Marshall Mid-Cap Stock Fund 306
Marshall Value Equity Fund 339
Marshall Intermediate Tax-Free Fund 23
Marshall Short-Term Tax-Free Fund 21
Marshall International Stock Fund 143
Item 27. Indemnification: (5.)
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).
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 4, 1995, M&I Investment
Management Corp. had approximately $7.25 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 December 1,
1995, TICI had discretionary investment management of $13.7
billion of assets.
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, 1994, 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: American Leaders Fund,
Inc.; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; The Biltmore Funds; The
Biltmore Municipal Funds; Blanchard Funds; Blanchard Precious
Metals, Inc.; Cash Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Equity Funds; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government
Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series,
Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 3-5 Years;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; Insurance Management
Series; Intermediate Municipal Trust; International Series
Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund, Inc.;
Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; The Monitor Funds; Municipal Securities
Income Trust; Newpoint Funds; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; RIMCO Monument Funds; The Shawmut
Funds; 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; The Virtus Funds; Vision Fiduciary Funds, Inc.;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty Term
Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.Treasurer,
Federated Securities Corp.
Edward C. Gonzales Director and Executive Vice Chairman,
Federated Investors Tower President, Federated Director, and
Pittsburgh, PA 15222-3779 Securities Corp. Treasurer
John W. McGonigle Director, Federated --
Federated Investors Tower Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
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
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated 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
Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Craig S. Gonzales Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy 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
Stephen A. LaVersa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Assistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779Federated Securities Corp.
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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:
Marshall Funds, Inc...... Federated Investors Tower
......................... Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent, and Portfolio
Accounting Services")
Federated Administrative Services Federated Investors Tower
("Administrator")........ Pittsburgh, PA 15222-3779
M & I Investment Management Corp. 1000 North Water Street
("Adviser").............. Milwaukee, WI 53202
Marshall & Ilsley Trust Company 1000 North Water Street
("Custodian")............ Milwaukee, WI 53202
Templeton Investment Counsel, Inc. 500 East Broward Blvd.
("Sub-Adviser").......... Suite 2100
......................... Ft. Lauderdale, FL 33394-3091
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MARSHALL FUNDS, INC.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485 (b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on
the 22nd day of December, 1995.
MARSHALL FUNDS, INC.
BY: /s/ Peter J. Germain
Peter J. Germain, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
December 22, 1995
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/Peter J. Germain
Peter J. Germain Attorney In Fact December 22, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales Chairman, Director, and December 22, 1995
Treasurer (Principal
Financial and Accounting
Officer)
James F. Duca, II President
John DeVincentis Director
Ody J. Fish Director
Paul E. Hassett Director
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in Post-Effective Amendment No. 14 to Form N-1A Registration Statement
of Marshall Funds, Inc. of our report dated October 13, 1995, on the financial
statements of Marshall Equity Income Fund, Marshall Value Equity Fund, Marshall
Stock 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 and Marshall Money Market Fund (all of the portfolios comprising
the Marshall Funds, Inc.), included in or made a part of this registration
statement.
/s/ Arthur Anderson LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
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:
Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FUND ACCOUNTING
AND
SHAREHOLDER RECORDKEEPING AGREEMENT
AGREEMENT made as of the 14th day of September, 1992, by and between
MARSHALL FUNDS, INC. a Wisconsin corporation, having its principal office
and place of business at Federated Investors Tower, Pittsburgh, PA 15222-
3779 (the "Corporation"), on behalf of the portfolios (individually referred
to herein as a "Fund" and collectively as "Funds") of the Corporation, and
FEDERATED SERVICES COMPANY, a Delaware business trust having its principal
office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 ("Services").
WHEREAS, the Corporation 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 common stock ("Shares");
and
WHEREAS, the Corporation wishes to retain Services to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes"), and Services
is willing to furnish such services; and
WHEREAS, the Corporation desires to appoint Services as its transfer
agent, dividend disbursing agent, and agent in connection with certain other
activities, and Services desires to accept such appointment;
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
SECTION ONE: FUND ACCOUNTING.
Article 1. Appointment.
The Corporation hereby appoints Services to provide certain pricing and
accounting services to the Funds for the period and on the terms set forth
in this Agreement. Services 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. Services and Duties.
Subject to the supervision and control of the Corporation's Board of
Directors ("Board"), Services will assist the Corporation with regard to
portfolio accounting for the Corporation and the Funds, and/or the Classes,
and in connection therewith undertakes to do the following specific
services;
A. Valuing the assets of the Funds and determining the net asset value
per share of the outstanding Shares of the Funds and the Classes, at the
time and in the manner from time to time determined by the Board of the
Corporation and as set forth in the prospectus;
B. Calculating the net income of the Funds, if any;
C. Calculating capital gains or losses for the Funds from sale or
disposition of assets, if any;
2
D. Maintaining the general ledger and other accounts, books and
financial records of the Corporation, including for each Fund and Class, as
required under Section 31(a) of the 1940 Act and the Rules thereunder in
connection with the services provided by Services;
E. Preserving for the periods prescribed by Rule 31a-2 under the 1940
Act the records to be maintained by Rule 31a-1 under said Act in connection
with the services provided by Services. Services further agrees that all
such records which it maintains for the Corporation are the property of the
Corporation and further agrees to surrender promptly to the Corporation such
records upon the Corporation's request.
F. At the request of the Corporation, drafting 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
Corporation.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate Services for its services rendered
pursuant to Section One of this Agreement in accordance with the fees set
forth on Fee Schedule A, annexed hereto and incorporated herein. Such fees
do not include out-of-pocket disbursements of Services for which Services
shall be entitled to bill separately. Out-of-pocket disbursements shall
include, but shall not be limited to, the items specified in Schedule B,
annexed hereto and incorporated herein, which Schedule may be modified by
3
Services upon not less than thirty days' prior written notice to the
Corporation.
B. Services shall not be required to pay any of the following expenses
incurred by the Corporation, the Funds, or the Classes: 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 Directors of the Corporation; outside auditing expenses;
outside legal expenses; or other expenses not specified in this Article 3
which may be properly payable by the Corporation.
C. Services will invoice the Funds as soon as practicable after the
end of each calendar month, and said invoices will be detailed in accordance
with Schedule A and Schedule B. The Corporation will promptly pay to
Services the amount of such invoice.
D. Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule A a revised Schedule A dated and signed by a
duly authorized officer of the Corporation and a duly authorized officer of
Services.
E. The fee for the period from the effective date of application 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
4
proportion which such period bears to the full month period. For purposes
of determining fees payable to Services, 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. Services in its sole discretion may from time to time employ or
associate with itself such person or persons as Services may reasonably
believe to be particularly suited to assist it in performing services under
this Agreement. Such person or persons may be officers and employees who
are employed by both Services and the Corporation. The compensation of such
person or persons shall be paid by Services and no obligation shall be
incurred on behalf of the Corporation, the Funds, or the Classes in such
respect. Services and such person or persons employed by Services, agree to
keep confidential all proprietary information, including without limitation
information concerning the Corporation's shareholders, relating in any
manner to the Corporation.
SECTION TWO: SHAREHOLDER RECORDKEEPING.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby employs and appoints Services to act as, and Services
agrees to act as, transfer agent for each Fund's Shares, dividend disbursing
agent, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund ("Shareholders"),
including without limitation any periodic investment plan or periodic
withdrawal program.
5
Proper Instructions as used throughout Section Two of this Agreement
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 considered Proper Instructions if Services 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. The Corporation and Services shall cause all oral instructions to
be confirmed in writing. Proper Instructions may include communications
effected directly between electro-mechanical or electronic devices provided
that the Corporation and Services are satisfied that such procedures afford
adequate safeguards for a Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of Services.
Services agrees that it will perform the following services in
accordance with Proper Instructions as may be provided from time to time by
the Corporation as to any Fund:
A. Purchases
(1) Services shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the safekeeping custodian of the relevant Fund (the
"Custodian"). Services shall promptly notify the Corporation and
the Custodian on a daily basis of the total amount of orders and
payments so delivered.
6
(2) Pursuant to purchase orders and in accordance with the Fund's
current prospectus, Services shall compute and issue the
appropriate number of shares and hold such shares in the
appropriate Shareholder accounts.
(3) If a Shareholder or its agent requests a certificate,
Services, as Transfer Agent, shall countersign and mail by first
class mail, a certificate to the Shareholder at his address as
set forth on the transfer books of the Fund, 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 is returned unpaid for any reason, Services
shall debit the Share account of the Shareholder by the number of
Shares that had been credited to his account upon receipt of the
check or other order, promptly mail a debit advice to the
Shareholder, and notify the Corporation 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, Services will receive
reimbursement of such excess from the Fund or its distributor.
B. Distribution
(1) Upon notification by the Corporation of the declaration of any
distribution to shareholders, Services shall act as Dividend
Disbursing Agent for the Fund in accordance with the provisions
of its governing document and the then current prospectus of the
7
Fund and as such shall prepare and mail or credit income, capital
gain, or any other payments to Shareholders. As the Dividend
Disbursing Agent, Services 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. Services
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 and certificates delivered where
requested; and
(2) Services shall maintain records of account for each Fund and
advise the Corporation and its Shareholders as to the
foregoing.
C. Redemptions and Transfers
(1) Services 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 therefore to the Custodian.
(2) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, Services
shall pay over or cause to be paid over in the appropriate manner
8
such monies as instructed by the redeeming Shareholders, pursuant
to procedures described in the then current prospectus of the
Fund.
(3) If any such certificate or request for redemption does not
comply with the procedures for redemption approved by the
Corporation, Services shall promptly notify the Shareholder and
the Corporation 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) Services shall effect transfers of Shares by the registered
owners thereof.
(5) Services shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Corporation.
D. Recordkeeping
(1) Services shall record the issuance of shares of the Fund and
maintain pursuant to applicable rules of the Securities and
Exchange Commission ("SEC") a record of the total number of
shares of the Fund which are authorized, based upon data provided
to it by the Corporation, and issued and outstanding. Services
shall also provide the Corporation 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
9
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 Corporation or its duly authorized agents.
(2) Services 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
Corporation to include a record for each Shareholder's account of
the following:
(a) Name, address and tax identifying 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 withholdings 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;
10
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for Services to perform
the calculations contemplated or required by this Agreement.
(3) Services 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 Fund, and such
records may be inspected by the Corporation at reasonable times.
Services may, at its option at any time, and shall forthwith upon
the Corporation's demand, turn over to the Corporation and cease
to retain in Services's files, records and documents created and
maintained by Services pursuant to this Agreement, which are no
longer needed by Services in performance of its services or for
its protection. If not so turned over to the Corporation, such
records and documents will be retained by Services 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 Corporation or destroyed in accordance with written
instructions from the Corporation.
E. Confirmations/Reports
(1) Services shall furnish to the Corporation periodically the
following information:
11
(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
Corporation to Services;
(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) Services 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, Services shall:
12
(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, preparing Shareholder
meeting lists, mailing proxies, receiving and tabulating
proxies, 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 Corporation to
monitor the total number of Shares of each Fund sold in each
state ("blue sky reporting"). The Corporation or its
distributor shall by Proper Instructions (i) identify to
Services 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
13
daily activity for each state. The responsibility of
Services for each Fund'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 Corporation as provided above.
F. Other Duties
(1) Services shall answer correspondence from Shareholders
relating
to their Share accounts and such other correspondence as may
from time to time be addressed to Services;
(2) Services shall mail proxy cards and other material supplied to
it by the Corporation in connection with Shareholder Meetings
of each Fund; receive, examine and tabulate returned proxies;
and certify the vote of the Shareholders;
(3) Services 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 Corporation.
A. Compliance
14
Under this Agreement and vis-a-vis Services, the Corporation
assumes full responsibility for the preparation, contents and
distribution of each prospectus of the Fund and for complying with
all applicable requirements of the Securities Act of 1933, as
amended, the 1940 Act and any laws, rules and regulations of
government authorities having jurisdiction.
B. Share Certificates
The Corporation shall supply Services with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of Services. Such blank Share certificates shall
be properly signed, manually or by facsimile, if authorized by the
Corporation and shall bear the seal of the Corporation or facsimile
thereof; and notwithstanding the death, resignation or removal of any
officer of the Corporation authorized to sign certificates, Services
may continue to countersign certificates which bear the manual or
facsimile signature of such officer until otherwise directed by the
Corporation.
C. Distributions
The Corporation shall promptly inform Services of the declaration
of any dividend or distribution on account of any Fund's shares.
Article 7. Fees and Expenses.
A. Annual Fee
15
For performance by Services pursuant to Section Two of this
Agreement, the Corporation agrees to pay Services an annual
maintenance fee for each Shareholder account as set out in the fee
schedule, Schedule C attached hereto. Such fees may be changed from
time to time subject to mutual written agreement between the
Corporation and Services. Pursuant to information in the Corporation
prospectus or other information or instructions from the Corporation,
Services may sub-divide any Fund into Classes or other sub-components
for recordkeeping purposes. Services 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 Corporation
agrees to reimburse Services for out-of-pocket expenses or advances
incurred by Services for the items set out in Schedule D, attached
hereto. In addition, any other expenses incurred by Services at the
request or with the consent of the Corporation, will be reimbursed by
the appropriate Fund.
C. Payment
Services shall issue billing notices with respect to fees and
reimbursable expenses on a timely basis, generally within 15 days
following the end of the month in which the fees and expenses have
been incurred. The Corporation agrees to pay all fees and
reimbursable expenses within 30 days following the receipt of the
respective billing notices.
16
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, neither this Agreement nor any rights or
obligations hereunder 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) Services may without further consent on the part of the
Corporation subcontract for the performance hereof with
(A) 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, 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; provided, however,
that Services shall be as fully responsible to the Corporation
for the acts and omissions of any subcontractor as it is for its
own acts and omissions.
SECTION THREE: GENERAL PROVISIONS.
Article 9. Documents.
17
A. In connection with the appointment of Services under this
Agreement, the Corporation shall file with Services the following documents:
(1) A copy of the Articles of Incorporation and By-Laws of the
Corporation and all amendments thereto;
(2) A copy of the resolution of the Board of the Corporation
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Funds in the forms approved by the Board of the Corporation
with a certificate of the Secretary of the Corporation 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 Corporation will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Corporation authorizing
the original issuance of each Fund'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;
18
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Corporation;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Transfer Agent;
(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 Services
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the prospectus of any Fund.
Article 10. Representations and Warranties.
A. Representations and Warranties of Services
Services represents and warrants to the Corporation 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.
19
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform 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 Corporation
The Corporation represents and warrants to Services that:
(1) It is a corporation duly organized and existing and in good
standing under the laws of the State of Wisconsin.
(2) It is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement.
(3) All corporate proceedings required by said Articles of
Incorporation and By-Laws have been taken to authorize it to
enter into and perform this Agreement.
(4) The Corporation is an open-end investment company registered
under the 1940 Act.
20
(5) A registration statement under the Securities Act of 1933 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 11. Standard of Care/Indemnification.
A. Standard of Care
Services shall be held to a standard of reasonable care in carrying
out the provisions of this Agreement; provided, however that Services
shall be held to any higher standard of care which would be imposed
upon Services by any applicable law or regulation even though such
stated standard of care was not part of this Agreement.
B. Indemnification by Corporation
Services shall not be responsible for and the Corporation shall
indemnify and hold Services harmless against any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(1) The Corporation's refusal or failure to comply with the terms
of this Agreement, or which arise out of the Corporation's lack
of good faith, negligence or willful misconduct or which arise
out of the breach of any representation or warranty of the
Corporation hereunder.
21
(2) The reliance on or use by Services or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by Services or its agents or subcontractors
and furnished to it by or on behalf of the Corporation, 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 Corporation
or its affiliates or any other person or firm on behalf of
the Corporation.
(3) The reliance on, or the carrying out by Services or its agents
or subcontractors of, Proper Instructions of the Corporation.
(4) 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 Services shall not be protected by this
Article 11.B. from liability for any act or omission resulting from
Services's lack of good faith, negligence, willful misconduct, or
failure to meet the standard of care set forth in Article 11.A.,
above.
22
C. Indemnification by Services
Services shall indemnify and hold 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 Services as a result of
Services's lack of good faith, negligence, willful misconduct, or
failure to meet the standard of care set forth in Article 11.A above.
D. Reliance
At any time Services may apply to any officer of the Corporation
for written instructions, and may consult with legal counsel
acceptable to the Board of Directors of the Corporation with respect
to any matter arising in connection with the services to be performed
by Services under this Agreement, and Services and its agents or
subcontractors shall not be liable and shall be indemnified by the
appropriate Fund for any action reasonably taken or omitted by it in
reliance upon such written instructions or upon the opinion of such
counsel provided such action is not in violation of applicable
Federal or state laws or regulations. Services, 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 officer of the Corporation, and
the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
E. Notification
23
In order that the indemnification provisions contained in this
Article 11 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 12. Termination of Agreement.
This Agreement may be terminated at any time without payment of any
penalty by either party upon one hundred twenty (120) days written notice to
the other. Should the Corporation exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the appropriate Fund. Additionally, Services reserves the
right to charge for any other reasonable expenses associated with
termination by the Corporation.
Article 13. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 14. Interpretive and Additional Provisions.
24
In connection with the operation of this Agreement, Services and the
Corporation 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 Articles of Incorporation or By-Laws of
the Corporation. No interpretive or additional provisions made as provided
in the preceding sentence shall be deemed to be an amendment of this
Agreement.
Article 15. Governing Law. Wisconsin Law to Apply
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Wisconsin.
Article 16. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Corporation at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to Services at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Corporation or Services may hereafter specify, shall be
deemed to have been properly delivered or given hereunder to the respective
address.
Article 17. Counterparts.
25
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 18. Proprietary and Confidential Information.
Services agrees on behalf of itself and its directors, officers,
employees and agents to treat confidentially and as proprietary information
of the Corporation all records and other information relative to the
Corporation and prior, present, or potential Shareholders, and not to use
such records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Corporation which approval may not be
withheld where Services may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Corporation.
Article 19. Limitations of Liability of Trustees and Shareholders
of Services.
The execution and delivery of this Agreement have been authorized by
the Trustees of Services and signed by an authorized officer of Services,
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 Services, but bind only the property of
the Corporation as provided in the Articles of Incorporation.
26
Article 20. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to a Fund by either of the parties hereto except by
the specific written consent of the other party.
Article 21. 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.
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: MARSHALL FUNDS, INC.
/s/ James Edward Banks By:/s/ Joseph S. Machi
Assistant Secretary Vice President
27
ATTEST: FEDERATED SERVICES COMPANY
/s/ Joseph M. Huber By:/s/ Ronald L. Cavanagh
Assistant Secretary Vice President
SCHEDULE A
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT
Compensation for Fund Accounting
Annual Fees per Fund
$30,000
plus 2.0 basis points on average net assets of the Fund from $100
million but less than $250 million.
plus 1.5 basis points on average net assets of the Fund from $250
million but less than $500 million.
28
plus 1.0 basis point on average net assets of the Fund from and over
$500 million.
plus $1,000.00 per month for each Class beyond the first Class.
The monthly fee will be $ 1,000.00 per Class with no asset charge
for those months where Federated is the only shareholder in that
Class, due to its seeding of the fund. In this regard, the fund
will be charged for the entire month, without proration, based on
its status at the end of the month.
SCHEDULE B
Out-of-Pocket Expenses
Fund Accounting
I. Out-of-pocket expense include, but are not limited to, the following:
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
29
- Telephones
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific System Enhancements
- Access to the Shareholder Recordkeeping System
- Security Pricing Services
SCHEDULE D
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT
between
FEDERATED SERVICES COMPANY
and
MARSHALL FUNDS, INC.
30
Out-of-Pocket Expenses Schedule
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telephones
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific System Enhancements
- Access to the Shareholder Recordkeeping System
SCHEDULE C
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT
between
FEDERATED SERVICES COMPANY
31
and
MARSHALL FUNDS, INC.
Fee Schedule
DAILY DIVIDEND ACCRUAL FUND
DECLARED DIVIDEND FUND
Annual Fee Per Shareholder
Fee Per Shareholder
Account
Account
BASE TRANSFER AGENCY SERVICES
- - System Access, Funds Control & $16.65 per Account plus
$8.75 per Account plus
Reconcilement, Statement Processing Out-of-Pocket Expenses
Out-of-Pocket Expenses
and Correspondence
TAXPAYER IDENTIFICATION PROCESSING (TIN) - Maintenance and certification -
maintenance $.25 per item,
certification $.10 per item.
The ACCOUNT FEE is an annualized amount, prorated on a monthly basis for
billing purposes.
32
MINIMUM TRANSFER AGENT FEE - $1,000/month per Fund, Class or other sub-
division, no introductory
waiver period.
CLOSED ACCOUNT FEE - $.10 a month per closed account.
OUT OF POCKET EXPENSES - Include but not limited to: postage, forms,
telephone, microfilm,
microfiche, and expenses incurred at the specific direction of the fund.
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:
EXHIBIT 9(VII) UNDER FORM N-1A
EXHIBIT 10 UNDER ITEM 601/REG. S-K
Amendment #1
Dated February 1, 1995
to Schedule B
Shareholder Services Agreement
between
MARSHALL FUNDS, INC.
and
MARSHALL & ILSLEY TRUST COMPANY
Compensation for Shareholder Services
For the services described in this Agreement, each Fund or class shall pay the
Trust Company an annual fee of .02 of 1% of its average daily net assets. The
Trust Company may voluntarily waive all or a portion of its fee at any time
Exhibit 9(viii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
MULTIPLE CLASS PLAN
Marshall Money Market Fund
Class A Shares
Class B Shares
This Multiple Class Plan ("Plan") is adopted by the MARSHALL FUNDS, INC.
(the "Corporation"), a Wisconsin corporation, with respect to the
classes of shares ("Classes") of the portfolio of the Corporation (the
"Fund") set forth above.
1. PURPOSE
This Plan is adopted pursuant to Rule 18f-3 (the "Rule") under the
Investment Company Act of 1940, as amended (the "Act"), in connection
with the issuance by the Corporation of more than one class of shares of
the Fund in reliance on the Rule.
2. SEPARATE ARRANGEMENTS / CLASS DIFFERENCES
The Fund offers two classes of shares, Class A Shares and Class B
Shares. The only expenses allocated to the shares as a class are
expenses that may be incurred under the Corporation's distribution plan
adopted pursuant to Rule 12b-1 under the Act. Under the 12b-1 Plan, the
Fund may 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, in order to finance sales and/or administrative
services for the shares.
Class A Shares of the Fund are available to customers of Marshall &
Ilsley 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 Funds.
Class B Shares of the Fund are sold through institutions and other
entities that have entered into marketing arrangements to make 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.
3. EXPENSE ALLOCATIONS
Each Fund pays all of its own expenses and its allocable share of the
Corporation's expenses. The expenses incurred pursuant to the Rule 12b-
1 Plan with respect to Class B Shares will be borne solely by the Class
B shareholders of the Fund, and constitute the only expenses allocated
to one class and not the other.
4. EXCHANGE FEATURES
A shareholder may exchange shares of the Fund for the appropriate class
of shares of any other fund of the Corporation at net asset value
without a sales charge, provided any applicable investment minimum for
the fund is met.
5. EFFECTIVENESS
This Plan shall become effective with respect to each Class, (i) to the
extent required by the Act, after approval by a majority vote of: (a)
the Corporation's Board of Directors; (b) the members of the Board of
the Corporation who are not interested persons of the Corporation and
have no direct or indirect financial interest in the operation of the
Corporation's Plan , and (ii) upon execution of this Plan with respect
to such Class.
6. AMENDMENT
This Plan may be amended at any time, with respect to any Class, by a
majority vote of: (a) the Corporation's Board of Directors; and (b) the
members of the Board of the Corporation who are not interested persons
of the Corporation and have no direct or indirect financial interest in
the operation of the Plan.
Witness the due execution hereof this 24th day of July, 1995.
MARSHALL FUNDS, INC.
By:/s/ Joseph S. Machi
Title Vice President
Exhibit 13 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FEDERATED ADMINISTRATIVE SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(412) 288-1900
September 23, 1992
Marshall Funds, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Federated Administrative Services agrees to purchase 100,000 shares of
Marshall Money Market Fund (a portfolio of Marshall Funds, Inc.) at the cost
of $1.00 each. Federated Administrative Services also agrees to purchase 100
shares of Marshall Stock Fund at the cost of $10.00 each and 100 shares of
Marshall Government Income Fund at the cost of $10.00 each. These shares are
purchased for investment purposes and Federated Administrative Services has no
present intention of redeeming these shares.
Very truly yours,
/s/ John W. McGonigle
John W. McGonigle
Executive Vice President
Exhibit 15 (iii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit A
to the
Plan
MARSHALL FUNDS, INC.
MARSHALL MONEY MARKET FUND
CLASS B SHARES
(FORMERLY INVESTMENT SHARES)
This Plan is adopted by Marshall Funds, Inc. with respect to the
Class of Shares of the portfolio(s) 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 .30 OF 1%
of the average aggregate net asset value of the CLASS B SHARES OF THE
MARSHALL MONEY MARKET FUND, A PORTFOLIO OF MARSHALL FUNDS, INC., held
during the month.
Witness the due execution hereof this 31st day of December, 1994.
(Originally executed on October 1, 1992.)
MARSHALL FUNDS, INC.
By:/s/ Joseph S. Machi
Vice President
EXHIBIT 15(IV) UNDER FORM N-1A
EXHIBIT 1 UNDER ITEM 601/REG. S-K
RULE 12B-1 AGREEMENT
This Agreement is made between the Institution executing this Agreement
("Administrator") and Federated Securities Corp. ("FSC") for the mutual funds
(referred to individually as the "Fund" and collectively as the "Funds") for
which FSC serves as Distributor of shares of beneficial interest or capital
stock ("Shares") and which have adopted a Rule 12b-1 Plan ("Plan") and
approved this form of agreement pursuant to Rule 12b-1 under the Investment
Company Act of 1940. In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:
1. FSC hereby appoints Administrator to render or cause to be rendered
sales and/or administrative support services to the Funds and their
shareholders.
2. The services to be provided under Paragraph 1 may include, but are not
limited to, the following:
(a) communicating account openings through computer terminals
located on the Administrator's premises ("computer terminals"), through
a toll-free telephone number or otherwise;
(b) communicating account closings via the computer terminals,
through a toll-free telephone number or otherwise;
(c) entering purchase transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(d) entering redemption transactions through the computer terminals,
through a toll-free telephone number or otherwise;
(e) electronically transferring and receiving funds for Fund Share
purchases and redemptions, and confirming and reconciling all such
transactions;
(f) reviewing the activity in Fund accounts;
(g) providing training and supervision of its personnel;
(h) maintaining and distributing current copies of prospectuses and
shareholder reports;
(i) advertising the availability of its services and products;
(j) providing assistance and review in designing materials to send to
customers and potential customers and developing methods of making such
materials accessible to customers and potential customers; and
(k) responding to customers' and potential customers' questions about
the Funds.
The services listed above are illustrative. The Administrator is not required
to perform each service and may at any time perform either more or fewer
services than described above.
3. During the term of this Agreement, FSC will pay the Administrator fees
for each Fund as set forth in a written schedule delivered to the
2
Administrator pursuant to this Agreement. FSC's fee schedule for
Administrator may be changed by FSC sending a new fee schedule to
Administrator pursuant to Paragraph 12 of this Agreement. For the payment
period in which this Agreement becomes effective or terminates, there shall be
an appropriate proration of the fee on the basis of the number of days that
the Rule 12b-1 Agreement is in effect during the quarter.
4. The Administrator will not perform or provide any duties which would
cause it to be a fiduciary under Section 4975 of the Internal Revenue Code, as
amended. For purposes of that Section, the Administrator understands that any
person who exercises any discretionary authority or discretionary control with
respect to any individual retirement account or its assets, or who renders
investment advice for a fee, or has any authority or responsibility to do so,
or has any discretionary authority or discretionary responsibility in the
administration of such an account, is a fiduciary.
5. The Administrator understands that the Department of Labor views ERISA
as prohibiting fiduciaries of discretionary ERISA assets from receiving
administrative service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To date, the Department
of Labor has not issued any exemptive order or advisory opinion that would
exempt fiduciaries from this interpretation. Without specific authorization
from the Department of Labor, fiduciaries should carefully avoid investing
discretionary assets in any fund pursuant to an arrangement where the
fiduciary is to be compensated by the fund for such investment. Receipt of
such compensation could violate ERISA provisions against fiduciary self-
dealing and conflict of interest and could subject the fiduciary to
substantial penalties.
3
6. The Administrator agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of any or all of the Funds in opposition to proxies solicited by
management of the Fund or Funds, unless a court of competent jurisdiction
shall have determined that the conduct of a majority of the Board of Directors
of the Fund or Funds constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. This paragraph 6 will
survive the term of this Agreement.
7. With respect to each Fund, this Agreement shall continue in effect for
one year from the date of its execution, and thereafter for successive periods
of one year if the form of this Agreement is approved at least annually by the
Directors of the Fund, including a majority of the members of the Board of
Directors of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Fund's Plan or
in any related documents to the Plan ("Disinterested Directors ") cast in
person at a meeting called for that purpose.
8. Notwithstanding paragraph 7, this Agreement may be terminated as
follows:
(a) at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund as defined in
the Investment Company Act of 1940 on not more than sixty (60) days'
written notice to the parties to this Agreement;
(b) automatically in the event of the Agreement's assignment as
defined in the Investment Company Act of 1940 or upon the termination
4
of the "Administrative Support and Distributor's Contract" or
"Distributor's Contract" between the Fund and FSC; and
(c) by either party to the Agreement without cause by giving the
other party at least sixty (60) days' written notice of its intention
to terminate.
9. The termination of this Agreement with respect to any one Fund will
not cause the Agreement's termination with respect to any other Fund.
10. The Administrator agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide FSC or
its designee with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation of
any required backup withholding.
11. This Agreement supersedes any prior service agreements between the
parties for the Funds.
12. This Agreement may be amended by FSC from time to time by the
following procedure. FSC will mail a copy of the amendment to the
Administrator's address, as shown below. If the Administrator does not object
to the amendment within thirty (30) days after its receipt, the amendment will
become part of the Agreement. The Administrator's objection must be in
writing and be received by FSC within such thirty days.
13. This Agreement shall be construed in accordance with the Laws of the
Commonwealth of Pennsylvania.
5
[ADMINISTRATOR]
Address
City State Zip Code
Dated: By:
----------------------- ------------------------------
Authorized Signature
Title
Print Name of Authorized Signature
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
---------------------------------
Richard B. Fisher, President
6
MARSHALL FUNDS, INC.
EXHIBIT A to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay Administrator fees for the following portfolios (the
"Funds") effective as of the dates set forth below:
Name Date
MARSHALL MONEY MARKET FUND OCTOBER 1, 1992
INVESTMENT SHARES
Administrative Fees
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of each Fund. This fee will be computed at the
annual rate of .30% of the average net asset value of Shares held during the
quarter in accounts for which the Administrator provides services under this
Agreement, so long as the average net asset value of Shares in each Fund
during the quarter equals or exceeds such minimum amount as FSC shall from
time to time determine and communicate in writing to the Administrator.
7
2. For the quarterly period in which the 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
quarter.
MARSHALL FUNDS, INC.
EXHIBIT B to 12b-1 Agreement with
Federated Securities Corp. ("FSC")
Portfolios
FSC will pay Administrator fees for the following portfolio (the "Fund")
effective as of the dates set forth below:
Name Date
MARSHALL INTERNATIONAL STOCK FUND AUGUST 1, 1994
Administrative Fees
8
1. During the term of this Agreement, FSC will pay Administrator a
quarterly fee in respect of the Fund. This fee will be computed at the annual
rate of .25% of the average net asset value of Shares held during the quarter
in accounts for which the Administrator provides services under this
Agreement, so long as the average net asset value of Shares in the Fund during
the quarter equals or exceeds such minimum amount as FSC shall from time to
time determine and communicate in writing to the Administrator.
2. For the quarterly period in which the 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
quarter.
EXHIBIT 19(I) UNDER FORM N-1A
EXHIBIT 24 UNDER ITEM 601/REG. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of MARSHALL FUNDS, INC. and the
Assistant General Counsel of Federated Investors, and each of them, their true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
Securities and Exchange Commission's electronic disclosure system known as
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
SIGNATURES TITLE DATE
/s/ EDWARD C. GONZALES Chairman, TreasurerDecember 1, 1995
Edward C. Gonzales and Director
(Chief Executive Officer,
Principal Financial and
Accounting Officer)
/s/ JAMES F. DUCA, II President December 1, 1995
James F. Duca, II
/s/ ODY J. FISH Director December 1, 1995
Ody J. Fish
/s/ JOHN DEVINCENTIS Director December 1, 1995
John DeVincentis
/s/ PAUL E. HASSETT Director December 1, 1995
Paul E. Hassett
Sworn to and subscribed before me this 1st day of December, 1995
/s/ MARIE M. HAMM
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> Marshall Funds, Inc.
Marshall Equity Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 96,042,640
<INVESTMENTS-AT-VALUE> 107,095,202
<RECEIVABLES> 512,552
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 18,051
<TOTAL-ASSETS> 107,625,805
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127,127
<TOTAL-LIABILITIES> 127,127
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,581,183
<SHARES-COMMON-STOCK> 9,585,200
<SHARES-COMMON-PRIOR> 4,959,920
<ACCUMULATED-NII-CURRENT> 459,871
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 405,062
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,052,562
<NET-ASSETS> 107,498,678
<DIVIDEND-INCOME> 2,727,183
<INTEREST-INCOME> 746,643
<OTHER-INCOME> 0
<EXPENSES-NET> 784,433
<NET-INVESTMENT-INCOME> 2,689,393
<REALIZED-GAINS-CURRENT> 797,876
<APPREC-INCREASE-CURRENT> 10,665,976
<NET-CHANGE-FROM-OPS> 14,153,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,460,822
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,087,265
<NUMBER-OF-SHARES-REDEEMED> 2,580,728
<SHARES-REINVESTED> 118,744
<NET-CHANGE-IN-ASSETS> 58,103,121
<ACCUMULATED-NII-PRIOR> 231,300
<ACCUMULATED-GAINS-PRIOR> (392,814)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 584,150
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 854,190
<AVERAGE-NET-ASSETS> 77,806,724
<PER-SHARE-NAV-BEGIN> 9.960
<PER-SHARE-NII> 0.330
<PER-SHARE-GAIN-APPREC> 1.260
<PER-SHARE-DIVIDEND> 0.330
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.220
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Marshall Funds, Inc.
Marshall Government Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 120,346,469
<INVESTMENTS-AT-VALUE> 120,854,579
<RECEIVABLES> 10,384,751
<ASSETS-OTHER> 22,419
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 131,261,749
<PAYABLE-FOR-SECURITIES> 27,244,060
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 310,113
<TOTAL-LIABILITIES> 27,554,173
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 105,524,078
<SHARES-COMMON-STOCK> 10,908,777
<SHARES-COMMON-PRIOR> 7,001,696
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,324,612)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 508,110
<NET-ASSETS> 103,707,576
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,265,818
<OTHER-INCOME> 0
<EXPENSES-NET> 726,536
<NET-INVESTMENT-INCOME> 5,539,282
<REALIZED-GAINS-CURRENT> 838,530
<APPREC-INCREASE-CURRENT> 2,289,136
<NET-CHANGE-FROM-OPS> 8,666,948
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,651,424
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,182,308
<NUMBER-OF-SHARES-REDEEMED> 3,668,777
<SHARES-REINVESTED> 393,550
<NET-CHANGE-IN-ASSETS> 38,884,530
<ACCUMULATED-NII-PRIOR> 112,142
<ACCUMULATED-GAINS-PRIOR> (3,163,142)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 635,592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 743,147
<AVERAGE-NET-ASSETS> 84,454,649
<PER-SHARE-NAV-BEGIN> 9.260
<PER-SHARE-NII> 0.600
<PER-SHARE-GAIN-APPREC> 0.260
<PER-SHARE-DIVIDEND> 0.620
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<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.510
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Marshall Funds, Inc.
Marshall Intermediate Bond Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 387,552,714
<INVESTMENTS-AT-VALUE> 454,353,099
<RECEIVABLES> 9,962,080
<ASSETS-OTHER> 97,741,723
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 501,845,937
<PAYABLE-FOR-SECURITIES> 58,883,570
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98,891,685
<TOTAL-LIABILITIES> 157,775,255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 362,599,900
<SHARES-COMMON-STOCK> 36,198,112
<SHARES-COMMON-PRIOR> 38,203,257
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (25,118,638)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,589,420
<NET-ASSETS> 344,070,682
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 24,564,665
<OTHER-INCOME> 0
<EXPENSES-NET> 2,412,738
<NET-INVESTMENT-INCOME> 22,151,927
<REALIZED-GAINS-CURRENT> (10,004,792)
<APPREC-INCREASE-CURRENT> 15,428,567
<NET-CHANGE-FROM-OPS> 27,575,702
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,676,934
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,646,570
<NUMBER-OF-SHARES-REDEEMED> 19,146,997
<SHARES-REINVESTED> 1,495,282
<NET-CHANGE-IN-ASSETS> (13,668,991)
<ACCUMULATED-NII-PRIOR> 525,375
<ACCUMULATED-GAINS-PRIOR> (15,114,213)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,046,206
<INTEREST-EXPENSE> 39,312
<GROSS-EXPENSE> 2,685,565
<AVERAGE-NET-ASSETS> 340,901,049
<PER-SHARE-NAV-BEGIN> 9.360
<PER-SHARE-NII> 0.610
<PER-SHARE-GAIN-APPREC> 0.160
<PER-SHARE-DIVIDEND> 0.620
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.510
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> Marshall Funds, Inc.
Marshall International Stock Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 91,170,986
<INVESTMENTS-AT-VALUE> 93,846,831
<RECEIVABLES> 556,751
<ASSETS-OTHER> 77,536
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 94,481,118
<PAYABLE-FOR-SECURITIES> 81,593
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351,971
<TOTAL-LIABILITIES> 433,564
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 90,201,432
<SHARES-COMMON-STOCK> 9,257,933
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,777,487
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (598,495)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,667,130
<NET-ASSETS> 94,047,554
<DIVIDEND-INCOME> 2,173,628
<INTEREST-INCOME> 704,470
<OTHER-INCOME> 0
<EXPENSES-NET> 1,120,086
<NET-INVESTMENT-INCOME> 1,758,012
<REALIZED-GAINS-CURRENT> (650,874)
<APPREC-INCREASE-CURRENT> 2,667,130
<NET-CHANGE-FROM-OPS> 3,774,268
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 354,783
<DISTRIBUTIONS-OF-GAINS> 8,672
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,379,463
<NUMBER-OF-SHARES-REDEEMED> 4,144,903
<SHARES-REINVESTED> 23,373
<NET-CHANGE-IN-ASSETS> 94,047,554
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 727,503
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,151,845
<AVERAGE-NET-ASSETS> 70,585,605
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> 0.200
<PER-SHARE-GAIN-APPREC> 0.010
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.160
<EXPENSE-RATIO> 1.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> Marshall Funds, Inc.
Marshall Intermediate Tax-Free Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 45,931,276
<INVESTMENTS-AT-VALUE> 46,876,033
<RECEIVABLES> 1,387,889
<ASSETS-OTHER> 17,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,281,588
<PAYABLE-FOR-SECURITIES> 2,034,028
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 196,751
<TOTAL-LIABILITIES> 2,230,779
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,756,581
<SHARES-COMMON-STOCK> 4,646,887
<SHARES-COMMON-PRIOR> 3,626,914
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (650,529)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 944,757
<NET-ASSETS> 46,050,809
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,015,559
<OTHER-INCOME> 0
<EXPENSES-NET> 246,752
<NET-INVESTMENT-INCOME> 1,768,807
<REALIZED-GAINS-CURRENT> (440,633)
<APPREC-INCREASE-CURRENT> 1,354,952
<NET-CHANGE-FROM-OPS> 2,683,126
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,768,807
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,185,693
<NUMBER-OF-SHARES-REDEEMED> 1,180,355
<SHARES-REINVESTED> 14,635
<NET-CHANGE-IN-ASSETS> 10,838,871
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (209,896)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 243,850
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 436,417
<AVERAGE-NET-ASSETS> 40,369,469
<PER-SHARE-NAV-BEGIN> 9.710
<PER-SHARE-NII> 0.420
<PER-SHARE-GAIN-APPREC> 0.200
<PER-SHARE-DIVIDEND> 0.420
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.910
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> Marshall Funds, Inc.
Marshall Mid-Cap Stock Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 91,723,078
<INVESTMENTS-AT-VALUE> 109,008,885
<RECEIVABLES> 83,417
<ASSETS-OTHER> 19,879
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 109,112,181
<PAYABLE-FOR-SECURITIES> 728,701
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127,415
<TOTAL-LIABILITIES> 856,116
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,443,186
<SHARES-COMMON-STOCK> 8,804,452
<SHARES-COMMON-PRIOR> 5,536,038
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,281,074
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,531,805
<NET-ASSETS> 108,256,065
<DIVIDEND-INCOME> 428,215
<INTEREST-INCOME> 255,028
<OTHER-INCOME> 0
<EXPENSES-NET> 785,964
<NET-INVESTMENT-INCOME> (102,721)
<REALIZED-GAINS-CURRENT> 5,757,618
<APPREC-INCREASE-CURRENT> 16,659,161
<NET-CHANGE-FROM-OPS> 22,460,145
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 43,289
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 21,475
<NUMBER-OF-SHARES-SOLD> 6,886,800
<NUMBER-OF-SHARES-REDEEMED> 3,622,137
<SHARES-REINVESTED> 3,751
<NET-CHANGE-IN-ASSETS> 54,614,140
<ACCUMULATED-NII-PRIOR> 43,289
<ACCUMULATED-GAINS-PRIOR> (1,498,435)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 585,271
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 850,125
<AVERAGE-NET-ASSETS> 78,266,006
<PER-SHARE-NAV-BEGIN> 9.690
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 2.610
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.300
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Marshall Funds, Inc.
Marshall Money Market Fund
Class B shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 1,161,725,782
<INVESTMENTS-AT-VALUE> 1,161,725,782
<RECEIVABLES> 2,681,987
<ASSETS-OTHER> 317,404
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,164,725,173
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,771,704
<TOTAL-LIABILITIES> 5,771,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,158,953,469
<SHARES-COMMON-STOCK> 30,330,633
<SHARES-COMMON-PRIOR> 11,928,949
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 30,330,633
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 63,587,190
<OTHER-INCOME> 0
<EXPENSES-NET> 4,494,400
<NET-INVESTMENT-INCOME> 59,092,790
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 59,092,790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,100,798
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 137,397,292
<NUMBER-OF-SHARES-REDEEMED> 119,990,263
<SHARES-REINVESTED> 994,655
<NET-CHANGE-IN-ASSETS> 179,036,816
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,435,257
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,320,734
<AVERAGE-NET-ASSETS> 20,663,936
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Marshall Funds, Inc.
Marshall Money Market Fund
Class A shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 1,161,725,782
<INVESTMENTS-AT-VALUE> 1,161,725,782
<RECEIVABLES> 2,681,987
<ASSETS-OTHER> 317,404
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,164,725,173
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,771,704
<TOTAL-LIABILITIES> 5,771,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,158,953,469
<SHARES-COMMON-STOCK> 1,128,622,836
<SHARES-COMMON-PRIOR> 967,987,704
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,128,622,836
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 63,587,190
<OTHER-INCOME> 0
<EXPENSES-NET> 4,494,400
<NET-INVESTMENT-INCOME> 59,092,790
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 59,092,790
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 57,991,992
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,007,907,156
<NUMBER-OF-SHARES-REDEEMED> 2,853,976,863
<SHARES-REINVESTED> 6,704,839
<NET-CHANGE-IN-ASSETS> 179,036,816
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,435,257
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,320,734
<AVERAGE-NET-ASSETS> 1,183,304,761
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Marshall Funds, Inc.
Marshall Stock Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 221,969,083
<INVESTMENTS-AT-VALUE> 254,057,908
<RECEIVABLES> 5,131,618
<ASSETS-OTHER> 46,725
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 259,236,251
<PAYABLE-FOR-SECURITIES> 1,021,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,194,962
<TOTAL-LIABILITIES> 2,216,812
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214,012,086
<SHARES-COMMON-STOCK> 22,080,353
<SHARES-COMMON-PRIOR> 24,897,891
<ACCUMULATED-NII-CURRENT> 339,963
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,578,565
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,088,825
<NET-ASSETS> 257,019,439
<DIVIDEND-INCOME> 3,622,056
<INTEREST-INCOME> 862,379
<OTHER-INCOME> 0
<EXPENSES-NET> 2,364,959
<NET-INVESTMENT-INCOME> 2,119,476
<REALIZED-GAINS-CURRENT> 14,035,870
<APPREC-INCREASE-CURRENT> 22,181,832
<NET-CHANGE-FROM-OPS> 38,337,178
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,156,613
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,136,287
<NUMBER-OF-SHARES-REDEEMED> 11,113,456
<SHARES-REINVESTED> 159,631
<NET-CHANGE-IN-ASSETS> 6,864,503
<ACCUMULATED-NII-PRIOR> 377,100
<ACCUMULATED-GAINS-PRIOR> (3,457,305)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,813,889
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,382,440
<AVERAGE-NET-ASSETS> 242,975,861
<PER-SHARE-NAV-BEGIN> 10.050
<PER-SHARE-NII> 0.090
<PER-SHARE-GAIN-APPREC> 1.590
<PER-SHARE-DIVIDEND> 0.090
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.640
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> Marshall Funds, Inc.
Marshall Short-Term Tax-Free Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1995
<PERIOD-END> Aug-31-1995
<INVESTMENTS-AT-COST> 20,907,091
<INVESTMENTS-AT-VALUE> 21,146,476
<RECEIVABLES> 365,821
<ASSETS-OTHER> 12,471
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,524,768
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,940
<TOTAL-LIABILITIES> 102,940
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,254,372
<SHARES-COMMON-STOCK> 2,130,667
<SHARES-COMMON-PRIOR> 2,510,903
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (71,929)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 239,385
<NET-ASSETS> 21,421,828
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,031,943
<OTHER-INCOME> 0
<EXPENSES-NET> 117,401
<NET-INVESTMENT-INCOME> 914,542
<REALIZED-GAINS-CURRENT> (60,957)
<APPREC-INCREASE-CURRENT> 320,938
<NET-CHANGE-FROM-OPS> 1,174,523
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 914,542
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 826,416
<NUMBER-OF-SHARES-REDEEMED> 1,249,332
<SHARES-REINVESTED> 42,680
<NET-CHANGE-IN-ASSETS> (3,481,195)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (10,972)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 115,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 296,763
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<TABLE> <S> <C>
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<NUMBER> 04
<NAME> Marshall Funds, Inc.
Marshall Short-Term Income Fund
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<TABLE> <S> <C>
<S> <C>
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<SERIES>
<NUMBER> 08
<NAME> Marshall Funds, Inc.
Marshall Value Equity Fund
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