MARSHALL FUNDS INC, 485BPOS, 1996-12-18

MARSHALL FUNDS INC
485BPOS, 1996-12-18

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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. 19 .......... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 19 ........................ 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, 1996 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, 1996; or
intends to file the Notice required by that Rule on or about
-
October 15, 1996; 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 twelve portfolios including: (1)Marshall Equity Income
Fund; (2) Marshall Government Income Fund; (3) Marshall Intermediate Bond
Fund; (4) Marshall Intermediate Tax-Free Fund; (5) Marshall Mid-Cap Stock
Fund; (6) Marshall Money Market Fund, (a) Class A Shares; (b) Class B
Shares; (7) Marshall Short-Term Income Fund; (8) Marshall Stock Fund; (9)
Marshall Value Equity Fund; (10) Marshall International Stock Fund; and
(11) Marshall Small-Cap 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.............(1-10) 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; (1-11) Administrative
Services; (1-11) Shareholder Servicing
Arrangements; (1-11) Brokerage
Transactions; (6,10,11) Distribution
Plan; (1-11) Administration of the
Fund(s); (1-11) Expenses of the Fund(s).
Item 6. Capital Stock and Other
Securities..............(1-11) Dividends and Capital Gains;
Certificates and Confirmations; (1-11)
Shareholder Information; (1-11) Common
Stock and Voting Rights; (1-11) Effect
of Banking Laws; (1-11) Tax Information;
(1-11) Federal Income Tax; (1-11) State
and Local Taxes.
Item 7. Purchase of Securities Being
Offered.................(1-11) Net Asset Value; (1-11) How to
Buy Fund Shares; (1-11) How to Buy Fund
Shares; (1-11) Minimum Investments; 1-
11) Exchange Privilege; Telephone
Transactions.
Item 8. Redemption or Repurchase.(1-11) How to Redeem 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.................(1-11) Banking Laws.
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;
Directors' Compensation.
Item 15. Control Persons and
Principal Holders of
Securities..............Not applicable.
Item 16. Investment Advisory and
Other Services..........(1-11) Investment Advisory Services; (1-
11) Administrative Services; (1-11)
Other 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, 10, 11) Distribution
Plan; (1-11) Determining Market Value;
Redemption in Kind.
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, 7-12) Total Return; (6) Effective
Yield; (4) Tax-Equivalent Yield.
Item 23. Financial Statements.....(1-10) The Financial Statements for the
fiscal year ended August 31, 1996, are
hereby incorporated by reference from
the Funds' Annual Report dated August
31, 1996. (11) Filed in Part A.
LOGO

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 FUND
- MARSHALL EQUITY INCOME FUND - MARSHALL
INTERMEDIATE TAX-FREE FUND
- MARSHALL VALUE EQUITY FUND
- MARSHALL STOCK FUND
- MARSHALL MID-CAP STOCK FUND
- MARSHALL INTERNATIONAL STOCK FUND
- MARSHALL SMALL-CAP 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 CORPORATION 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, 1996, with the Securities and Exchange Commission ("SEC"). 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 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 1-414-287-8555 or 1-800-236-FUND (3863), or you can visit the
Marshall Funds' Internet site on the World Wide Web at
(http://www.marshallfunds.com). The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Funds is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).

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

Prospectus

December 31, 1996

- --------------------------------------------------------------------------------
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
What About Investment Risks?.................................................................. 3
How to Buy and Sell Shares.................................................................... 4
Summary of Fund Expenses........................................................................... 5
Financial Highlights............................................................................... 8
Fund Objective and Policies........................................................................ 10
The EQUITY FUNDS.............................................................................. 10
The INCOME FUNDS.............................................................................. 12
The INTERMEDIATE TAX-FREE FUND................................................................ 12
The MONEY MARKET FUND......................................................................... 13
How to Buy Fund Shares............................................................................. 14
Net Asset Value............................................................................... 15
How to Redeem Fund Shares.......................................................................... 16
Additional Conditions......................................................................... 17
Exchange Privilege................................................................................. 17
Telephone Transactions............................................................................. 17
Marshall Funds, Inc. Information................................................................... 18
Organization and History...................................................................... 18
Management.................................................................................... 18
Distribution of Fund Shares................................................................... 20
Administration of the Funds........................................................................ 22
Brokerage Transactions........................................................................ 22
Expenses of the Funds......................................................................... 22
Shareholder Information............................................................................ 23
Certificates and Confirmations................................................................ 23
Dividends and Capital Gains................................................................... 23
Common Stock and Voting Rights................................................................ 23
Performance Information............................................................................ 24
Portfolio Investments and Strategies............................................................... 25
Additional Investment Risks................................................................... 32
Tax Information.................................................................................... 34
Federal Income Tax............................................................................ 34
State and Local Taxes......................................................................... 35
Effect of Banking Laws............................................................................. 35
Standard & Poor's Corporation...................................................................... 35
Portfolio of Investments--Marshall Small-Cap Stock Fund............................................ 36
Notes to Portfolio of Investments.................................................................. 37
Marshall Small-Cap Stock Fund
Statement of Assets and Liabilities........................................................... 38
Statement of Operations....................................................................... 39
Statement of Changes in Net Assets............................................................ 40
Financial Highlights.......................................................................... 41
Notes to Financial Statements...................................................................... 42
Organization.................................................................................. 42
Significant Accounting Policies............................................................... 42
Capital Stock................................................................................. 43
Investment Advisory Fee and Other Transactions With Affiliates................................ 43
Investment Transactions....................................................................... 43
Addresses...................................................................................... Back Cover
</TABLE>

- --------------------------------------------------------------------------------
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 and wish to take little
investment risk to those with long-term goals willing to bear the risks of the
stock market for potentially greater rewards. The Marshall Funds currently offer
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 stocks 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 stocks and debt
obligations of companies and governments outside the United States;

- MARSHALL SMALL-CAP STOCK FUND ("SMALL-CAP STOCK FUND")--seeks
appreciation of capital by investing primarily in common and preferred
stocks issued by small-sized companies whose market capitalizations are
under $1 billion;

- 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 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 Corporation ("M&I Corp.")
of Milwaukee, Wisconsin. Templeton Investment Counsel, Inc. of Ft. Lauderdale,
Florida serves as subadviser (the "Subadviser") to the INTERNATIONAL STOCK FUND.

- --------------------------------------------------------------------------------
WHAT ABOUT INVESTMENT RISKS?
- --------------------------------------------------------------------------------

All mutual funds, including the MARSHALL 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 SMALL-CAP STOCK
FUND involves special risks since it invests primarily in stocks of
smaller-capitalized companies, which have historically been more volatile than
stocks of larger companies. 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 and money market instruments, which have a lower
amount of risk and return. As with any investment, however, past performance
does not predict future performance. Your investment return will vary, and the
redemption value of your mutual fund shares may be lower than their original
purchase price.

HIGHER POTENTIAL RETURN AND RISK

Equity Funds

Marshall Small-Cap Stock Fund

Marshall International Stock Fund
Marshall Mid-Cap Stock Fund
Marshall Stock Fund
Marshall Value Equity Fund
Marshall Equity Income Fund
Income Funds LOGO

Marshall Government Income Fund

Marshall Intermediate Tax-Free Fund
Marshall Intermediate Bond Fund

Marshall Short-Term Income Fund

Money Market Funds

Marshall Money Market Fund

LOWER POTENTIAL RETURN AND RISK

- --------------------------------------------------------------------------------
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."

- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EQUITY VALUE MID-CAP INTERNATIONAL SMALL-CAP
INCOME EQUITY STOCK STOCK STOCK STOCK
FUND FUND FUND FUND FUND FUND
------------ ------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <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....... 0.75% 0.75% 0.75% 0.75% 1.00% 1.00%
12b-1 Fees
(2)....... None None None None 0.00% 0.00%
Total Other
Expenses... 0.47% 0.48% 0.48% 0.49% 0.59% 0.70%
Shareholder Servicing
Fee... 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Total
Annual
Fund
Operating
Expenses
(4)... 1.22% 1.23% 1.23% 1.24% 1.59% 1.70%
</TABLE>

<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE GOVERNMENT INTERMEDIATE MONEY MARKET FUND
INCOME BOND INCOME TAX-FREE CLASS A CLASS B
FUND FUND FUND FUND SHARES SHARES
------------ ------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <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)... 0.20% 0.51% 0.56% 0.23% 0.24% 0.24%
12b-1
Fees...... None None None None None 0.30%
Total Other
Expenses... 0.31% 0.21% 0.30% 0.38% 0.17% 0.17%
Shareholder Servicing Fee
(after
waiver)(3)... 0.02% 0.02% 0.02% 0.02% 0.02% 0.02%
Total
Annual
Fund
Operating
Expenses(5)... 0.51% 0.72% 0.86% 0.61% 0.41% 0.71%
</TABLE>

* The expenses for the Small-Cap Stock Fund are based on projected average net
assets for the fiscal year ended August 31, 1997.

(1) The management fee has been reduced to reflect the voluntary waiver by the
investment advisor. The advisor may terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.75% for the Government
Income Fund, 0.60% for the Short-Term Income Fund, Intermediate Bond Fund and
Intermediate Tax-Free Fund; and 0.50% for the Money Market Fund--Class A and
Class B Shares.

(2) The International Stock Fund and Small-Cap Stock Fund have no present
intention of paying or accruing 12b-1 fees during the fiscal year ending August
31, 1997. If the International Stock Fund or Small-Cap Stock Fund were paying or
accruing 12b-1 fees, the International Stock Fund and Small-Cap Stock Fund would
be able to pay up to 0.25% of their average daily net assets for 12b-1 fees. See
"Marshall Funds, Inc. Information."

(3) The Shareholder Servicing Fee for Short-Term Income Fund, Intermediate Bond
Fund, Government Income Fund, and Intermediate Tax-Free Fund has been reduced to
reflect a voluntary waiver by the shareholder servicing agent. The shareholder
servicing agent may terminate this waiver at any time at its sole discretion.
The maximum Shareholder Servicing Fee is 0.25% for all funds except Money Market
Fund--Class A and Class B, which has a 0.02% maximum for each class.

(4) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending August 31, 1997 which reflects a change
in the shareholder servicing fee effective on September 6, 1996. Total Fund
Operating Expenses were 0.98% for the Equity Income Fund, 0.98% for the Value
Equity Fund, 0.97% for the Stock Fund, 1.01% for the Mid-Cap Stock Fund and
1.35% for the International Stock Fund for the fiscal year ending August 31,
1996. Total Fund Operating Expenses for the Small-Cap Fund Stock are estimated
based on average expenses expected to be incurred during the fiscal year ending
August 31, 1997. During the course of this period expenses may be more or less
than the average amount shown. Actual total Fund Operating Expenses for the
Small-Cap Stock Fund were 1.65% for the period from September 4, 1996 (date of
initial public investment) to October 31, 1996.

(5) Total Fund Operating Expenses were 1.14% for the Short-Term Income Fund,
1.04% for the Intermediate Bond Fund, 1.28% for the Government Income Fund,
1.21% for the Intermediate Tax-Free Fund, 0.67% for the Marshall Money
Market--Class A Shares, and 0.97% for the Marshall Money Market--Class B Shares,
absent the voluntary waivers described 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. Long-term shareholders invested in the Money
Market Fund--Class B Shares may pay more than the economic equivalent to the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc. ("NASD"). However, in order for a Class
B Shareholder to exceed the NASD's maximum front-end sales charge of 6.25%, a
continuous investment in the Class B Shares for 89.3 years would be required.

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 SMALL-CAP
INCOME EQUITY STOCK STOCK STOCK STOCK
FUND FUND FUND FUND FUND FUND
------------ ------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Year.......................... $12 $13 $13 $13 $16 $17
3 Years......................... $39 $39 $39 $39 $50 $54
5 Years......................... $67 $68 $68 $68 $87 $92
10 Years........................ $148 $149 $149 $150 $189 $201
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE EXAMPLE
FOR SMALL-CAP STOCK FUND IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR
ENDING AUGUST 31, 1997.

[THIS PAGE INTENTIONALLY LEFT BLANK]

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following table has been audited by Arthur Andersen LLP, the Funds'
independent public accountants. Their report dated October 10, 1996 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, 1996 which may be obtained free of charge.

(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED
GAIN/(LOSS)
ON INVESTMENTS, DIVIDENDS TO
NET ASSET NET COLLATERAL, SHAREHOLDERS
VALUE, INVESTMENT FUTURES TOTAL FROM FROM NET
BEGINNING INCOME/ CONTRACTS, AND INVESTMENT INVESTMENT
PERIOD ENDED AUGUST 31, OF PERIOD (LOSS) FOREIGN CURRENCY 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)
1996................................ $11.22 0.34 2.00 2.34 (0.35)
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)
1996................................ $12.08 0.21 0.78 0.99 (0.21)
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)
1996................................ $11.64 0.16 1.17 1.33 (0.15)
MID-CAP STOCK FUND
1994(b)............................. $10.00 0.02 (0.29) (0.27) (0.01)
1995................................ $ 9.69 (0.00) 2.62 2.62 (0.01)
1996................................ $12.30 (0.06) 2.24 2.18 --
INTERNATIONAL STOCK FUND
1995(g)............................. $10.00 0.20 0.01 0.21 (0.05)
1996................................ $10.16 0.21 0.96 1.17 (0.22)
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)
1996................................ $ 9.74 0.62 (0.15) 0.47 (0.62)
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)
1996................................ $ 9.51 0.58 (0.25) 0.33 (0.58)
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)
1996................................ $ 9.51 0.62 (0.24) 0.38 (0.62)
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)
1996................................ $ 9.91 0.43 (0.08) 0.35 (0.43)
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)
1996................................ $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)
1996................................ $1.00 0.05 -- 0.05 (0.05)

<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET REALIZED GAIN
ON INVESTMENT
TRANSACTIONS, DISTRIBUTIONS TO
FUTURES CONTRACTS, SHAREHOLDERS IN
AND FOREIGN EXCESS OF
CURRENCY NET INVESTMENT
PERIOD ENDED AUGUST 31, TRANSACTIONS INCOME
- ------------------------------------- ------------------- -------------------
<S> <C<C> <C>
EQUITY INCOME FUND
1994(b)............................. -- --
1995................................ -- --
1996................................ (0.21) --
VALUE EQUITY FUND
1994(b)............................. -- --
1995................................ (0.11) --
1996................................ (0.88) --
STOCK FUND
1993(a)............................. -- --
1994................................ -- --
1995................................ -- --
1996................................ (0.66) --
MID-CAP STOCK FUND
1994(b)............................. (0.03) --
1995................................ -- (0.00)
1996................................ (0.92) --
INTERNATIONAL STOCK FUND
1995(g)............................. (0.00) --
1996................................ (0.03) --
SHORT-TERM INCOME FUND
1993(c)............................. -- --
1994................................ -- --
1995................................ -- --
1996................................ -- --
INTERMEDIATE BOND FUND
1993(a)............................. -- --
1994................................ (0.17) --
1995................................ -- --
1996................................ -- --
GOVERNMENT INCOME FUND
1993(d)............................. -- --
1994................................ (0.14) --
1995................................ -- --
1996................................ -- --
INTERMEDIATE TAX-FREE FUND
1994(e)............................. -- --
1995................................ -- --
1996................................ -- --
MONEY MARKET FUND--CLASS A SHARES
1993(a)............................. -- --
1994................................ -- --
1995................................ -- --
1996................................ -- --
MONEY MARKET FUND--CLASS B SHARES
1993(f)............................. -- --
1994................................ -- --
1995................................ -- --
1996................................ -- --
</TABLE>

<TABLE>
<C> <S>
(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>

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

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
----------------------------------------
NET ASSET NET NET ASSETS, AVERAGE PORTFOLIO
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE END OF PERIOD COMMISSION TURNOVER
DISTRIBUTIONS OF PERIOD RETURN(H) EXPENSES INCOME WAIVER (J) (000 OMITTED) RATE PAID RATE
- ------------- ----------- --------- -------- ----------- ----------- -------------- ---------- ----------
<S> <C> <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%
(0.56) $ 13.00 21.20% 0.98% 2.83% -- $ 173,402 $ 0.0450 60%
(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% -- $ 220,436 -- 78%
(1.09) $ 11.98 8.53% 0.98% 1.68% -- $ 195,066 $ 0.0592 67%
(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%
(0.81) $ 12.16 11.56% 0.97% 1.28% -- $ 251,583 $ 0.0600 147%
(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%
(0.92) $ 13.56 18.92% 1.01% (0.47%) -- $ 143,236 $ 0.0598 189%
(0.05) $ 10.16 2.11% 1.54%(i) 2.42%(i) 0.04%(i) $ 94,048 -- 61%
(0.25) $ 11.08 11.71% 1.35% 2.58% -- $ 143,783 $ 0.0059 26%
(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%
(0.62) $ 9.59 4.92% 0.51% 6.16% 0.40% $ 100,846 -- 144%
(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%
(0.58) $ 9.26 3.52% 0.72% 6.14% 0.09% $ 403,657 -- 201%
(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%
(0.62) $ 9.27 4.02% 0.86% 6.51% 0.19% $ 138,458 -- 268%
(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%
(0.43) $ 9.83 3.57% 0.61% 4.34% 0.37% $ 65,927 -- 41%
(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 -- --
(0.05) $ 1.00 5.39% 0.41% 5.29% 0.26% $1,039,659 -- --
(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 -- --
(0.05) $ 1.00 5.07% 0.71% 4.92% 0.26% $ 84,711 -- --
</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. As a secondary
non-fundamental objective, 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 Standard & Poor's Daily Stock Price Index of 500 Common Stocks ("S&P 500").
While there is no assurance that the Fund can achieve this goal, 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 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.

MARSHALL SMALL-CAP STOCK FUND

The investment objective of the 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
small-sized companies whose market capitalizations are under $1 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.

THE EQUITY FUNDS' ACCEPTABLE INVESTMENTS. Acceptable investments include the
following:

- common stocks of U.S. companies that are listed on the New York or
American Stock Exchange, or other domestic 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
"Portfolio Investments and 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"); the SMALL-CAP STOCK FUND may purchase commercial paper
rated "investment grade" by an NRSRO, or, if unrated, of comparable
quality as determined by the Fund's Adviser;

- 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 SMALL-CAP STOCK FUND has special risks since it invests primarily in small
capitalization stocks. These

risks are fully explained under "Portfolio Investments and Strategies" and
"Additional Investment Risks."

- ------------------------------------------------------------
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. For purposes of this investment policy,
"bonds" shall include all permitted types of debt instruments, including debt
held as collateral for repurchase agreements.

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. While seeking to achieve the Fund's objective of current
income, as a matter of operating policy the Adviser will attempt to maximize
total return. 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
Funds' 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 INTERMEDIATE TAX-FREE FUND
- ------------------------------------------------------------

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 INTERMEDIATE TAX-FREE FUND'S ACCEPTABLE INVESTMENTS. The INTERMEDIATE
TAX-FREE FUND pursues its objective 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 the
INTERMEDIATE TAX-FREE FUND'S net assets will be invested in Municipal
Securities, the income from which is exempt from federal income tax (including
the federal alternative minimum tax). Interest income of the INTERMEDIATE
TAX-FREE FUND 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
INTERMEDIATE TAX-FREE FUND'S 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 INTERMEDIATE TAX-FREE
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 INTERMEDIATE TAX-FREE FUND'S 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 (F-1+
or F-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 INTERMEDIATE TAX-FREE FUND'S Adviser.

The INTERMEDIATE TAX-FREE FUND may also engage in options, futures and options
on futures for bona fide hedging purposes. The INTERMEDIATE TAX-FREE FUND 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 diversification and other 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-FUND (3863), or by any of the following methods.

You may also place a purchase order through any authorized broker-dealer or
financial institution, including a broker-dealer or institution that may charge
a transaction fee for this service. If you purchase shares of a Fund through a
program of services offered or administered by a broker-dealer, financial
institution, or other service provider, you should read the program materials,
including information relating to fees, in conjunction with the Funds'
prospectus. Certain features of a Fund may not be available or may be modified
in connection with the program of services provided.

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-FUND (3863), or through any authorized
broker-dealer.

<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. Complete an
1-800-236-FUND application for a new account.
(3863) If you authorized telephone
LOGO exchange privileges 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 17 for more information.
</TABLE>

<TABLE>
<S> <C>
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.
</TABLE>

<TABLE>
<S> <C>
PERSON Bring in your completed account
LOGO application (for new accounts)
and a check to Marshall Funds
Investor Services, 1000 N. Water
Street (M-F 8-5 Central Time), to
any M&I Bank employing a repre-
sentative of M&I Brokerage Ser-
vices, or to any authorized
broker or dealer.

WIRE -First notify MFIS at
LOGO 1-800-236-FUND (3863) 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: Federated Shareholder
Services Company 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 1-414-287-8511 and mail a
completed 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-FUND (3863) 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 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.

It is the responsibility of MFIS, any authorized broker-dealer, financial
institution or other service provider that has entered into an agreement with
the Funds, its distributor, or administrative or shareholder services agent, to
promptly submit purchase orders to the Funds. Orders placed through one of these
entities are considered received when the Funds are notified of the purchase or
redemption order.

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 FUND
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 any authorized broker-dealer, financial
institution, or service provider to promptly submit redemption requests to the
Funds. It is the responsibility of MFIS, and any authorized broker-dealer,
financial institution, or service provider 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-FUND telephone redemption privi-
(3863) lege in your account appli-
(EXCEPT RETIREMENT cation or by a subsequent
ACCOUNTS) authorization form, you may
LOGO redeem shares by tele-
phone. If you are a cus-
tomer of an authorized
broker-dealer, you must contact your 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 to:
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-FUND (3863).

PERSON Bring in the written redemp-
LOGO tion request with the
information described in
"Mail" above
to any M&I Bank employing a representative of M&I
Brokerage Services, Marshall Funds Investor
Services, 1000 N. Water Street. (M-F 8-5 Central
Time), or to any authorized broker-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 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
account on predetermined dates on a monthly or
quarterly basis. Contact MFIS to apply for this
program.
</TABLE>

<TABLE>
<S> <C>
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 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.

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, 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. Customers of other broker-dealers, financial
institutions, or service providers should contact their account representative.
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 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.

The Corporation, the Adviser, and the Funds' distributor 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 offerings; 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; 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 and SMALL-CAP 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% 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 at 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,
1996, M&I Investment Management Corp. had approximately $7.65 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, 1996, TICI had discretionary investment
of approximately $17.2 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 4.3
million mutual fund shareholders, foundations and endowments, employee benefit
plans and individuals. TICI and its affiliates have approximately 4,100
employees in 18 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 and support staff
based in Fort Lauderdale, Nassau, New York, Edinburgh, Toronto, Hong Kong,
Melbourne, Milan, Paris, Frankfurt, and Luxembourg. 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. Mr. Sandel is also a
member of the management team for the STOCK FUND.

The STOCK FUND is managed by a team of managers headed by William J. O'Connor.
The other members of the management team are William A. Frazier, James H. Kuehn,
and Mr. Sandel.

Mr. O'Connor has been a Vice President of M&I Investment Management Corp. since
February 1995 when he rejoined the firm after serving as Vice President and
Director of Equity Research for Arnold Investment Counsel. Prior to joining
Arnold, he had been a Vice President, portfolio manager, and research analyst
with M&I Investment Management Corp. from 1979 to 1991. Mr. O'Connor is a
Chartered Financial Analyst and holds a bachelor's degree in commerce from Santa
Clara University and an M.B.A. in finance from the University of
Wisconsin-Madison.

Mr. Frazier is a Chartered Financial Analyst who joined M&I Investment
Management Corp. in 1979. He is a Vice President of the firm and a member of its
Equity Policy Group. Mr. Frazier graduated from the University of
Wisconsin-LaCrosse with a degree in finance and holds an M.B.A. degree from that
institution.

Mr. Kuehn is a Vice President of M&I Investment Management Corp. and a Chartered
Financial Analyst, having joined the firm in 1987. Prior to joining the firm, he
held financial consultant positions with E.F. Hutton and Smith Barney, Harris &
Upham & Company. Mr. Kuehn holds an accounting degree from Marquette University.

The MID-CAP STOCK FUND is managed by Steve 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 Gary R. Clemons, Senior Vice
President, Portfolio Management/Research, TICI. Mr. Clemons joined the Templeton
organization in 1993 as a portfolio manager/ research analyst with
responsibility for the telecommunications industries, as well as country
coverage of Columbia, Peru, Sweden and Norway. Prior to joining TICI, Mr.
Clemons worked as a portfolio manager/research analyst for Structured Asset
Management in New York, a subsidiary of Templeton Global Investors, Inc. His
duties included management of a small capitalization fund. Upon relocating to
Templeton's Fort Lauderdale office, Mr. Clemons also managed global and
international portfolios for Templeton Portfolio Advisory, Templeton's division
serving the wrap-fee market. Mr. Clemons holds a master of business
administration degree with emphasis in finance/investment/banking from the
University of Wisconsin-Madison and a bachelor of science degree from the
University of Nevada-Reno.

The SMALL-CAP STOCK FUND is co-managed by Steve D. Hayward and David
Lettenberger. Prior to joining M&I Investment Management Corp. as Vice President

in December 1993, Mr. Hayward served as Senior Portfolio Manager of AMOCO
Corporation and managed two aggressive growth-oriented mutual funds for American
Asset Capital Management. 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. Prior to joining M&I Investment Management Corp. in
1993, Mr. Lettenberger was employed by M&I Marshall & Ilsley Bank. He has been
an analyst on the MARSHALL MID-CAP STOCK FUND since the Fund's inception during
1993. Mr. Lettenberger holds a B.B.A. degree in Finance and Economics from
Marquette University and has completed the Chartered Financial Analyst program.

The SHORT-TERM INCOME FUND and INTERMEDIATE BOND FUND, are managed by Mark
Pittman. Mr. Pittman is a 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 INTERMEDIATE TAX-FREE FUND is managed by John D. Boritzke, who is a Vice
President of 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 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 the average daily net asset value of CLASS B SHARES, and
INTERNATIONAL STOCK FUND and SMALL-CAP STOCK FUND may pay the distributor an
amount computed at an annual rate of 0.25% of the INTERNATIONAL STOCK FUND'S and
SMALL-CAP 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 and SMALL-CAP
STOCK FUND have no present intention of paying or accruing 12b-1 fees during the
fiscal year ending August 31, 1997. 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 reason-

ably 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 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.

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 to the Funds at an annual rate as specified
below (except SMALL-CAP STOCK FUND):

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE CORPORATION
- ------------------ -----------------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

Federated Administrative Services provides these services for an annual fee
equal to 0.12% of the SMALL-CAP STOCK FUND'S average daily net assets.

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. Federated Shareholder Services Company
("FSSC"), a subsidiary of Federated Investors, has been appointed shareholder
servicing agent for all of the MARSHALL FUNDS (except for the MONEY MARKET
FUND). As such, FSSC 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. The Funds may pay FSSC a fee equal to approximately 0.25
of 1% of the average daily net asset value of Fund shares for which FSSC
provides shareholder services. FSSC may hire third parties, including Marshall
Funds Investor Services, Milwaukee, Wisconsin, a division of M&I Trust Company
("MFIS"), to provide shareholder services to the Funds.

MFIS is the shareholder servicing agent for the MONEY MARKET FUND. 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 redemption of
shares. The MONEY MARKET FUND may pay MFIS a fee equal to approximately 0.02% of
the average daily net asset value of the 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; Directors' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Corporation, the Funds, and
shares of each Fund with federal and state securities authorities; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing, mailing, auditing, and certain accounting and
legal expenses; reports to shareholders; meetings of Directors and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such non-recurring and extraordinary items as may arise. However, the
Adviser may voluntarily reimburse some expenses and, in addition, has undertaken
to reimburse each Fund up to the amount of its advisory fee, the amount by which
operating expenses exceed limitations imposed by certain states.

- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

- ------------------------------------------------------------
CERTIFICATES AND CONFIRMATIONS
- ------------------------------------------------------------

As transfer agent for the Funds, FSSC 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 INTERMEDIATE TAX-FREE FUND
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 Investment Company Act of 1940 or applicable law. Directors may
be removed by the Directors or by the shareholders at a special meeting, which
may be called by the Directors upon written request of shareholders owning at
least 10% of the Corporation's outstanding voting shares.

As of November 27, 1996, 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: 5,618,546 shares (36.80%) of EQUITY INCOME FUND; 6,861,028 shares (46.01%)
of VALUE EQUITY FUND; 10,811,599 shares (60.07%) of STOCK FUND; 5,247,683 shares
(47.39%) of MID-CAP STOCK FUND; 5,949,379 shares (42.67%) of INTERNATIONAL STOCK
FUND; 1,856,271 shares (66.39%) of SMALL-CAP STOCK FUND; 3,577,326 shares
(33.65%) of SHORT-TERM INCOME FUND; 24,489,704 shares (54.27%) of INTERMEDIATE
BOND FUND; 6,696,765 shares (41.30%) of GOVERNMENT INCOME FUND; and therefore,
may for certain purposes, be deemed to control these Funds and be able to affect
the outcome of certain matters presented for a vote of shareholders. As of
November 27, 1996, Maril & 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:
8,515,145 shares (55.77%) of EQUITY INCOME FUND; 6,078,802 shares (40.76%) of
VALUE EQUITY FUND; 5,087,118 shares (45.95%) of MID-CAP STOCK FUND; 7,216,988
shares (51.77%) of INTERNATIONAL STOCK FUND; 704,962 shares (25.21%) of
SMALL-CAP STOCK FUND; 6,006,642 shares (56.50%) of SHORT-TERM INCOME FUND;
17,433,707 shares (38.63%) of INTERMEDIATE BOND FUND; 6,749,143 shares (41.62%)
of GOVERNMENT INCOME FUND; 6,413,128 shares (89.04%) 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 November 27, 1996, Maril & Co., Milwaukee, Wisconsin, acting
in various capacities for numerous accounts, was the owner of record of
746,752,387 shares (68.52%) 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
November 27, 1996, M&I BSS Appleton, Appleton, Wisconsin, acting in various
capacities for numerous accounts, was the owner of record of 38,278,694 shares
(37.20%) 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 INTERMEDIATE
TAX-FREE FUND may advertise its tax-equivalent yield.

Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield 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 the INTERMEDIATE TAX-FREE 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 advertisements for the Funds may refer to ratings,
rankings, and other information in certain financial publications and/or compare
their performance to certain indices.

SMALL-CAP STOCK FUND. The SMALL-CAP STOCK FUND is the successor to the portfolio
of a collective trust fund managed by the Adviser. At the Fund's commencement of
operations, the assets from the collective trust fund were transferred to the
Fund in exchange for Fund shares. The Adviser has represented that the Fund's
investment objective, policies and limitations are in all material respects
identical to those of the collective trust fund.

The SMALL-CAP STOCK FUND'S total return for the period from November 1, 1995
(date of commencement of operations of the collective trust fund) to September
30, 1996 was 83.31%. The quoted performance data includes the performance of the
collective trust fund for periods before the SMALL-CAP STOCK FUND'S registration
statement became effective on August 30, 1996, as adjusted to reflect the
SMALL-CAP STOCK FUND'S anticipated expenses as set forth in the "Expenses of the
Funds" section of the prospectus. The collective trust fund was not registered
under the Investment Company Act of 1940 ("1940 Act") and therefore was not
subject to certain investment restrictions that are imposed by the 1940 Act. If
the collective trust fund had been registered under the 1940 Act, the
performance may have been adversely affected.

- --------------------------------------------------------------------------------
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 (up to 5% of total assets) 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 deposit
issued by foreign branches of U.S. banks or foreign banks. Yankee CDs are U.S.
dollar denominated certificates of deposit 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 INTERMEDIATE
TAX-FREE FUND 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 Fund's
evaluation of an acceptable investment may include 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").
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
master notes are short-term borrowing arrangements between a corporation or
government agency and an institutional lender (such as the Funds) payable upon
demand by either party. The notice period for demand typically ranges from one
to seven days, and the party may demand full or partial payment. Many master
notes give the Funds the option of increasing or decreasing the principal amount
of the master note on a daily or weekly basis within certain limits. Demand
master notes usually provide for floating or variable rates of interest.

DEPOSITARY RECEIPTS. The INTERNATIONAL STOCK FUND may invest in foreign issuers
by purchasing sponsored or unsponsored ADRs, GDRs and EDRs (collective,
"Depositary Receipts"). The other Equity Funds may invest only in ADRs. ADRs are
depositary receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Ownership of unsponsored
Depositary Receipts may not entitle a Fund to financial or other reports from
the issuer of the underlying security, to which it would be entitled as the
owner of sponsored Depositary Receipts. Depositary Receipts also involve the
risks of other investments in foreign securities.

FIXED RATE DEBT OBLIGATIONS. The Funds may invest in fixed rate securities,
including fixed rate securities with short-term characteristics. Fixed rate
securities with short-term characteristics are long-term debt obligations but
are treated in the market as having short maturities because call features of
the securities may make them callable within a short period of time. A fixed
rate security with short-term characteristics would include a fixed income
security priced close to call or redemption price or fixed income security
approaching maturity, where the expectation of call or redemption is high.

Fixed rate securities exhibit more price volatility during times of rising or
falling interest rates than securities with floating rates of interest. This is
because floating rate securities, as described below, behave like short-term
instruments in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate securities pay
a fixed rate of interest and are more sensitive to fluctuating interest rates.
In periods of rising interest

rates the value of a fixed rate security is likely to fall. Fixed rate
securities with short-term characteristics are not subject to the same price
volatility as fixed rate securities without such characteristics. Therefore,
they behave more like floating rate securities with respect to price volatility.

FLOATING RATE DEBT OBLIGATIONS. The Funds may invest in floating rate debt
obligations, including increasing rate securities. Floating rate securities are
generally offered at an initial interest rate which is at or above prevailing
market rates. The interest rate paid on these securities is then reset
periodically (commonly every 90 days to an increment over some predetermined
interest rate index). Commonly utilized indices include the three-month Treasury
bill rate, the 180-day Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial paper
rates, or the longer-term rates on U.S. Treasury securities. Increasing rate
securities' rates are reset periodically at different levels on a predetermined
scale. These levels of interest are ordinarily set at progressively higher
increments over time. Some increasing rate securities may, by agreement, revert
to a fixed rate status. These securities may also contain features which allow
the issuer the option to convert the increasing rate of interest to a fixed rate
under such terms, conditions, and limitations as are described in each issuer's
prospectus.

FOREIGN CURRENCY TRANSACTIONS. The INTERNATIONAL STOCK FUND may enter into
foreign currency transactions to obtain the necessary currencies to settle
securities transactions. Currency transactions may be conducted either on a spot
or cash basis at prevailing rates or through forward foreign currency exchange
contracts.

The INTERNATIONAL STOCK FUND may also enter into foreign currency transactions
to protect its assets against adverse changes in foreign currency exchange rates
or exchange control regulations. Such changes could unfavorably affect the value
of Fund assets which are denominated in foreign currencies, such as foreign
securities or funds deposited in foreign banks, as measured in U.S. dollars.
Although foreign currency exchanges may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations.
Cross-hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES.
The INTERNATIONAL STOCK FUND may enter into a forward foreign currency exchange
contract ("forward contract"), which is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.

Generally, no commission charges or deposits are involved. At the time the
INTERNATIONAL STOCK FUND enters into a forward contract, Fund assets with a
value equal to the Fund's obligation under the forward contract are segregated
on the Fund's records and are maintained until the contract has been settled.
The Fund generally will not enter into a forward contract with a term of more
than one year. The Fund will generally enter into a forward contract to provide
the proper currency to settle a securities transaction at the time the
transaction occurs ("trade date"). The period between trade date and settlement
date will vary between twenty-four hours and thirty days, depending upon local
custom.

The INTERNATIONAL STOCK FUND may also protect against the decline of a
particular foreign currency by entering into a forward contract to sell an
amount of that currency approximating the value of all or a portion of the
Fund's assets denominated in that currency ("hedging"). The success of this type
of short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the securities
involved. Although the Fund's Subadviser will consider the likelihood of changes
in currency values when making investment decisions, the Subadviser believes
that it is important to be able to enter into forward contracts when it believes
the interests of the Fund will be served. The Fund will not enter into forward
contracts for hedging purposes in a particular currency in an amount in excess
of the Fund's assets denominated in that currency.

The INTERNATIONAL STOCK FUND may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign currency-denominated portfolio securities and against
increases in the U.S. dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates al-
though, 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, WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds
may enter into forward commitments and 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. Liquid
assets of a Fund sufficient to make payment for the securities will be
segregated on the Fund's records at the trade date and maintained until the
transaction has been settled. 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.

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.
Collateral received in the form of cash may be invested in highly liquid
investments, including repurchase agreements and other money market instruments.
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.

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.

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 SHORT-TERM INCOME FUND, the INTERMEDIATE BOND FUND,
and the INTERMEDIATE TAX-FREE 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 INTERMEDIATE TAX-FREE FUND 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 INTERMEDIATE TAX-FREE FUND 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
Fund to treat the income from the investment as exempt from federal income tax.
The financial institutions from which the Fund purchases 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 Fund invests 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, except SMALL-CAP STOCK FUND which will not exceed
50% of the net assets of the 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 expiration 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 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, if unrated, 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 SMALL-CAP STOCK FUND anticipates its portfolio turnover
rate will not exceed 200%. 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 Funds' Statement of Additional Information contains complete
descriptions of ratings.

A Fund's Adviser or Subadviser will evaluate downgraded securities on a
case-by-case basis and will sell any security determined not to be an acceptable
investment.

An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by S&P
or Prime-1 by Moody's are all considered rated in the highest short-term rating
category. The MONEY MARKET FUND will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated as
being in the highest short-term rating category; currently, such securities must
be rated by two NRSROs in their highest rating category. 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 INTERMEDIATE TAX-FREE FUND) and foreign
securities (for the INTERNATIONAL STOCK FUND). The INTERMEDIATE TAX-FREE FUND
does 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. These instruments are either issued or guaranteed by the U.S.
government, its agencies, or instrumentalities. These securities include, but
are not limited to:

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;

- notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States; and

- notes, bonds, and discount notes of other U.S. government agencies or
instrumentalities which receive or have access to federal funding.

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 (except SMALL-CAP STOCK FUND) 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.

- ------------------------------------------------------------
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.

SMALL AND MEDIUM CAPITALIZATION STOCKS. Stocks in the small and 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, small-
and 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 small- and
medium-sized companies may, to some degree, fluctuate independently of the
stocks of large companies. That is, the stocks of small- and medium-sized
companies may decline in price as the price of large company stocks rises
or vice versa. Therefore, investors should expect that the SMALL-CAP STOCK
FUND, which invests primarily in small-capitalization stocks, and MID-CAP
STOCK FUND, which invests primarily in medium capitalization stocks, will
be 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.

- --------------------------------------------------------------------------------
TAX INFORMATION
- --------------------------------------------------------------------------------

- ------------------------------------------------------------
FEDERAL INCOME TAX
- ------------------------------------------------------------

None of the Funds will pay federal income tax because each expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other Funds of the Corporation, if any, will not be combined for tax purposes
with those realized by any of the other Funds.

Unless otherwise exempt, you are required to pay federal income tax on any
dividends and other distributions received. However, shareholders of
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
INTERMEDIATE TAX-FREE Fund representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.

Investment income received by the INTERNATIONAL STOCK FUND from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the INTERNATIONAL STOCK FUND to reduced tax rates or exemptions on this
income. The effective rate of foreign tax cannot be predicted since the amount
of INTERNATIONAL STOCK FUND'S assets to be invested

within various countries is unknown. However, the INTERNATIONAL STOCK FUND
intends to operate so as to qualify for treaty-reduced tax rates where
applicable.

If more than 50% of the value of the INTERNATIONAL STOCK FUND'S assets at the
end of the tax year is represented by stock or securities of foreign
corporations, the INTERNATIONAL STOCK FUND intends to qualify for certain
Internal Revenue Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Internal
Revenue Code may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, shareholders who elect to deduct their portion of the INTERNATIONAL
STOCK FUND'S foreign taxes rather than take the foreign tax credit must itemize
deductions on their income tax returns.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.

- ------------------------------------------------------------
STATE AND LOCAL TAXES
- ------------------------------------------------------------

Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue, and you should consult your
tax adviser for specific details regarding the status of your account under
state and local tax laws, including treatment of distributions as income or
return of capital.

- --------------------------------------------------------------------------------
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.

- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

- ------------------------------------------------------------
MARSHALL SMALL-CAP STOCK FUND
- ------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
-------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--86.5%
BASIC INDUSTRY--1.0%
CHEMICALS
25,000 Spartech Corp. $ 262,500
------------
CAPITAL GOODS--16.4%
COMPUTER SERVICES
20,000 (a)Cambridge Technology Partners,
Inc. 660,000
25,000 (a)Computer Products, Inc. 493,750
20,000 (a)Dendrite International, Inc. 532,500
20,000 (a)ONTRACK Data International, Inc. 282,500
20,000 (a)Saville Systems Ireland PLC, ADR 862,500
35,000 (a)Storm Technology, Inc. 389,375
15,000 (a)Transaction Systems Architects,
Inc., Class A 622,500
------------
Total 3,843,125
------------
ELECTRONICS
15,000 (a)Nichols Research Corp. 521,250
------------
Total Capital Goods 4,364,375
------------
CONSUMER NON-DURABLES--60.1%
BROADCASTING
20,000 (a)Cox Radio, Inc., Class A 362,500
15,000 (a)Emmis Broadcasting Corp., Class A 543,750
25,000 (a)Westwood One, Inc. 384,375
------------
Total 1,290,625
------------
COMMERCIAL SERVICES
10,000 (a)BDM International, Inc. 502,500
25,000 (a)Chicago Miniature Lamp, Inc. 743,750
20,000 (a)Diamond Home Services, Inc. 460,000
24,000 (a)Sitel Corp. 474,000
25,000 (a)Snyder Communications, Inc. 487,500
10,000 (a)Superior Services, Inc. 172,500
------------
Total 2,840,250
------------
COSMETICS/TOILETRIES
10,000 (a)French Fragrances, Inc. 88,750
------------
DRUGS
25,000 (a)North American Vaccine, Inc. 556,250
15,000 (a)Parexel International Corp. 735,000
------------
Total 1,291,250
------------
HEALTH CARE
25,000 (a)Health Management Association 550,000
20,000 (a)NCS HealthCare, Inc., Class A 607,500
20,000 (a)OccuSystems, Inc. 547,500
8,000 Omnicare, Inc. 218,000
10,000 (a)Rochester Medical Corp. 162,500
20,000 (a)Sola International, Inc. 722,500
------------
Total 2,808,000
------------
</TABLE>

<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
LEISURE & RECREATION
25,000 (a)Regal Cinemas, Inc. $ 650,000
------------
MEDICAL SUPPLIES
20,000 (a)Henry Schein, Inc. 795,000
20,000 (a)Physio-Control International Corp. 390,000
------------
Total 1,185,000
------------
RESTAURANTS
25,000 (a)Landrys Seafood Restaurants, Inc. 512,500
10,000 (a)Papa Johns International, Inc. 497,500
20,000 (a)Rainforest Cafe, Inc. 650,000
------------
Total 1,660,000
------------
RETAIL
20,000 (a)MSC Industrial Direct Co. 740,000
17,000 (a)Marks Bros. Jewelers, Inc. 395,250
10,000 (a)P. J. America, Inc. 160,000
25,000 (a)Stage Stores, Inc. 456,250
------------
Total 1,751,500
------------
SERVICES
15,000 (a)Apollo Group, Inc., Class A 412,500
17,000 (a)Learning Tree International, Inc. 718,250
25,000 (a)Rental Service Corp. 575,000
20,000 Stewart Enterprises, Inc., Class A 685,000
------------
Total 2,390,750
------------
Total Consumer Non-Durables 15,956,125
------------
ENERGY--1.1%
OIL & GAS PRODUCTS
10,000 (a)Rutherford-Moran Oil Corp. 297,500
------------
FINANCIAL--5.3%
25,000 (a)Credit Acceptance Corp. 675,000
40,000 (a)Imperial Credit Industries, Inc. 725,000
------------
Total Financial 1,400,000
------------
TELECOMMUNICATIONS--2.6%
20,000 (a)Intermedia Communications of
Florida, Inc. 640,000
3,600 (a)SmarTalk Teleservices, Inc. 54,000
------------
Total Telecommunications 694,000
------------
TOTAL COMMON STOCKS (identified cost
$22,369,843) 22,974,500
------------
U.S. TREASURY--0.3%
$75,000 (b)United States Treasury Bill,
12/12/1996, (identified cost
$74,570) 74,593
------------
(C)REPURCHASE AGREEMENT--12.8%
3,404,000 Lehman Brothers, Inc., 5.58%, dated
10/31/1996, due 11/1/1996 (at
amortized cost) 3,404,000
------------
TOTAL INVESTMENTS (identified cost
$25,848,413)(d) $ 26,453,093
===========
</TABLE>

(See Notes to Portfolio of Investments)

- --------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------

(a) Non-income producing.

(b) Represents securities held as collateral within a margin account, used to
ensure the Fund is able to satisfy the obligations of its outstanding long
futures contracts.

(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.

(d) The cost of investments for federal tax purposes amounts to $25,848,413. The
net unrealized appreciation of investments on a federal tax basis amounts to
$604,680 which is comprised of $1,287,911 appreciation and $683,231
depreciation at October 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
($26,548,393) at October 31, 1996.

The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
ADR -- American Depositary Receipt
PLC -- Public Limited Company
</TABLE>

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

MARSHALL SMALL-CAP STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS:
- --------------------------------------------------------------------------------------------
Investments in securities $23,049,093
- --------------------------------------------------------------------------------------------
Investments in repurchase agreements 3,404,000
- -------------------------------------------------------------------------------------------- -----------
Total investments, at value (identified and tax cost $25,848,413) 26,453,093
- --------------------------------------------------------------------------------------------
Income receivable 528
- --------------------------------------------------------------------------------------------
Receivable for shares sold 106,961
- --------------------------------------------------------------------------------------------
Receivable for daily variation margin 19,800
- -------------------------------------------------------------------------------------------- -----------
Total assets 26,580,382
- --------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------
Accrued Expenses 31,989
- -------------------------------------------------------------------------------------------- -----------
Net Assets for 2,521,217 shares outstanding $26,548,393
- -------------------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------
Paid in capital $26,029,885
- --------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts 583,267
- --------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and futures contracts (47,407)
- --------------------------------------------------------------------------------------------
Net investment loss (17,352)
- -------------------------------------------------------------------------------------------- -----------
Total Net Assets $26,548,393
- -------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
($26,548,393/2,521,217 shares outstanding) $10.53
- -------------------------------------------------------------------------------------------- -----------
</TABLE>

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

MARSHALL SMALL-CAP STOCK FUND
STATEMENT OF OPERATIONS
PERIOD ENDED OCTOBER 31, 1996 (UNAUDITED)*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------
Dividends $ 300
- ------------------------------------------------------------------------------------------------
Interest 37,521
- ------------------------------------------------------------------------------------------------ --------
Total income 37,821
- ------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------
Investment advisory fee $33,499
- --------------------------------------------------------------------------------------
Administrative personnel and services fee 4,020
- --------------------------------------------------------------------------------------
Custodian fees 670
- --------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 792
- --------------------------------------------------------------------------------------
Directors' fees 473
- --------------------------------------------------------------------------------------
Legal fees 447
- --------------------------------------------------------------------------------------
Portfolio accounting fees 4,055
- --------------------------------------------------------------------------------------
Shareholder services fees 8,273
- --------------------------------------------------------------------------------------
Share registration costs 1,632
- --------------------------------------------------------------------------------------
Printing and postage 737
- --------------------------------------------------------------------------------------
Taxes 507
- --------------------------------------------------------------------------------------
Miscellaneous 68
- -------------------------------------------------------------------------------------- -------
Total expenses 55,173
- ------------------------------------------------------------------------------------------------ --------
Net investment loss (17,352)
- ------------------------------------------------------------------------------------------------ --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS
- ------------------------------------------------------------------------------------------------
Net realized loss on investments (71,206)
- ------------------------------------------------------------------------------------------------
Net realized gain on futures contracts 23,799
- ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and futures contracts 583,267
- ------------------------------------------------------------------------------------------------ --------
Net realized and unrealized gain on investments and futures contracts 535,860
- ------------------------------------------------------------------------------------------------ --------
Change in net assets resulting from operations $518,508
- ------------------------------------------------------------------------------------------------ --------
</TABLE>

* For the period from September 4, 1996 (date of initial public investment) to
October 31, 1996.

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

MARSHALL SMALL-CAP STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1996*
(UNAUDITED)
-----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------------------
Net investment loss $ (17,352)
- --------------------------------------------------------------------------------------
Net realized loss on investment transactions (71,206)
- --------------------------------------------------------------------------------------
Net realized gain on futures contracts 23,799
- --------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and futures contracts 583,267
- -------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations 518,508
- -------------------------------------------------------------------------------------- -----------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------------------------
Proceeds from sale of shares 27,356,397
- --------------------------------------------------------------------------------------
Cost of shares redeemed (1,326,512)
- -------------------------------------------------------------------------------------- -----------
Change in net assets resulting from share transactions 26,029,885
- -------------------------------------------------------------------------------------- -----------
Change in net assets 26,548,393
- --------------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------------
Beginning of period --
- -------------------------------------------------------------------------------------- -----------
End of period $26,548,393
- -------------------------------------------------------------------------------------- -----------
</TABLE>

* For the period from September 4, 1996 (date of initial public investment) to
October 31, 1996.

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

MARSHALL SMALL-CAP STOCK FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1996(A)
(UNAUDITED)
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------------------
Net investment loss (0.01)
- ------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and futures contracts 0.54
- ------------------------------------------------------------------------------------ --------
Total from investment operations 0.53
- ------------------------------------------------------------------------------------ --------
NET ASSET VALUE, END OF PERIOD $ 10.53
- ------------------------------------------------------------------------------------ --------
TOTAL RETURN (B) 5.30%
- ------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------------------
Expenses 1.65%*
- ------------------------------------------------------------------------------------
Net investment income (0.52%)*
- ------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 26,548
- ------------------------------------------------------------------------------------
Average commission rate paid $ .0601
- ------------------------------------------------------------------------------------
Portfolio turnover rate 17%
- ------------------------------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from September 4, 1996 (date of initial
public investment) to October 31, 1996.

(b) Based on net asset value.

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

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------

- ------------------------------------------------------------
1. ORGANIZATION
- ------------------------------------------------------------

Marshall Funds, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Corporation consists of eleven diversified portfolios.
The financial statements included herein are only those of Marshall Small-Cap
Stock Fund (the "Fund"). The investment objective of the Fund is to seek
appreciation of capital by investing primarily in common and preferred stocks
issued by small-sized companies whose market capitalizations are under $1
billion. The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.

- ------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on a national securities exchange. U.S. government securities,
listed corporate bonds, unlisted securities and private placement securities are
generally valued at the mean of the latest bid and asked price as furnished by
an independent pricing service. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be valued
at amortized cost, which approximates fair market value.

REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.

FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders
each year substantially all of its income. Accordingly, no provisions for
federal tax are necessary.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.

FUTURES CONTRACTS--The Fund purchases stock index futures contracts to manage
cashflows, enhance yield, and to potentially reduce transaction costs. Upon
entering into a stock index futures contract with a broker, the Fund is required
to deposit in a segregated account a specified amount of cash or U.S. government
securities. Futures contracts are valued daily and unrealized gains or losses
are recorded in a "variation margin" account. Daily, the Fund receives from or
pays to the broker a specified amount of cash based upon changes in the
variation margin account. When a contract is closed, the Fund recognizes a
realized gain or loss. Futures contracts have market risks, including the risk
that the change in the value of the contract may not correlate with changes in
the value of the underlying securities.

At October 31, 1996, the Fund had outstanding futures contracts as set forth
below:
<TABLE>
<CAPTION>
EXPIRATION CONTRACTS TO UNREALIZED
DATE RECEIVE POSITION DEPRECIATION
- -------------- -------------- --------- -------------
<S> <C> <C> <C>
11 Russell
December 1996 2000 Futures Long $21,413
</TABLE>

USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.

OTHER--Investment transactions are accounted for on the trade date.

- ------------------------------------------------------------
3. CAPITAL STOCK
- ------------------------------------------------------------

The Articles of Incorporation permit the Directors to issue 50 billion full and
fractional shares of common stock, par value $0.0001 per share.

Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
OCTOBER 31, 1996*
------------------
<S> <C>
Shares sold 2,643,668
Shares redeemed (122,451)
----------
Net change resulting from share
transactions 2,521,217
==========
</TABLE>

* For the period from September 4, 1996 (date of initial public investment) to
October 31, 1996.

- ------------------------------------------------------------
4. INVESTMENT ADVISORY FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
- ------------------------------------------------------------

INVESTMENT ADVISORY FEE--M&I Investment Management Corp., the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment advisory
fee equal to 1.00% of the Fund's average daily net assets.

ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The fee paid to FAS is based
on the level of average aggregate net assets of the Corporation for the period.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ"), through its subsidiary, Federated Shareholder Services
Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.

PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

CUSTODIAN FEES--Marshall & Ilsley Trust Co. is the Fund's custodian. The fee is
based on the level of the Fund's average daily net assets for the period.

ORGANIZATIONAL EXPENSES--Organizational expenses estimated to be $20,000 were
borne initially by FServ. The Fund has agreed to reimburse FServ for the
organizational expenses during the five year period following the Fund's
effective date.

INTERFUND TRANSACTIONS--During the period ended October 31, 1996, the Fund
engaged in purchase transactions with funds that have a common investment
adviser (or affiliated investment advisers), common Directors/Trustees, and/or
common Officers. These purchase transactions were made at current market value
pursuant to Rule 17a-7 under the Act amounting to $16,344,313.

GENERAL--Certain of the Officers and Directors of the Corporation are Officers
and Directors of the above companies.

- ------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
- ------------------------------------------------------------

Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $25,305,525
-----------
SALES $ 2,935,682
-----------
</TABLE>

- --------------------------------------------------------------------------------
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 SMALL-CAP STOCK FUND
MARSHALL SHORT-TERM INCOME FUND
MARSHALL INTERMEDIATE BOND FUND
MARSHALL GOVERNMENT INCOME 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
(MONEY MARKET FUND only) P.O. Box 1348
Milwaukee, Wisconsin 53201-1348 OR
1000 North Water Street
Milwaukee, Wisconsin 53202
Federated Shareholder Services Company
(EQUITY FUNDS, INCOME FUNDS, and
INTERMEDIATE TAX-FREE FUND) Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein Shapiro Morin & Oshinsky LLP 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-FUND (3863)

TDD: Speech and Hearing Impaired Services

1-800-209-3520

Internet address: http://www.marshallfunds.com

Federated Securities Corp.
Distributor
G00714-01 (12/96)

MARSHALL FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1996

EQUITY FUNDS TAX-FREE INCOME FUND
oMARSHALL EQUITY INCOME FUND O MARSHALL INTERMEDIATE TAX-FREE
FUND

oMARSHALL VALUE EQUITY FUND
OMARSHALL STOCK FUND
OMARSHALL MID-CAP STOCK FUND
OMARSHALL INTERNATIONAL STOCK FUND
OMARSHALL SMALL-CAP 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, 1996, 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 1-414-287-8555 or 1-800-
236-FUND (3863), or you can visit the Marshall Funds' Internet site on
the World Wide Web at (http://www.marshallfunds.com).
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

FEDERATED SECURITIES CORP.
DISTRIBUTOR
A SUBSIDIARY OF FEDERATED INVESTORS

POLICIES AND ACCEPTABLE INVESTMENTS 1

INVESTMENT LIMITATIONS 11

FUNDAMENTAL LIMITATIONS 11
NON-FUNDAMENTAL LIMITATIONS 13
MARSHALL FUNDS, INC. MANAGEMENT 14

OFFICERS AND DIRECTORS 15
FUND OWNERSHIP 16
DIRECTORS' COMPENSATION 18
INVESTMENT ADVISORY SERVICES 18

ADVISER TO THE FUNDS 18
ADVISORY FEES 18
SUBADVISER TO INTERNATIONAL STOCK FUND 19
OTHER SERVICES 20

ADMINISTRATIVE SERVICES 20
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 20
CUSTODIAN 20
INDEPENDENT PUBLIC ACCOUNTANTS 20
SHAREHOLDER SERVICING ARRANGEMENTS 21

BROKERAGE TRANSACTIONS 21

PURCHASING SHARES WITH SECURITIES 22

DISTRIBUTION PLAN 22

DETERMINING MARKET VALUE 22

USE OF THE AMORTIZED COST METHOD 22
MARKET VALUES 23
TRADING IN FOREIGN SECURITIES 24
REDEMPTION IN KIND 24

BANKING LAWS 24

TAX STATUS 25

THE FUNDS' TAX STATUS 25
FOREIGN TAXES 25
SHAREHOLDERS' TAX STATUS 25
CAPITAL GAINS 25
TOTAL RETURN 26
YIELD 26

EFFECTIVE YIELD 27

TAX-EQUIVALENT YIELD 27

TAX-EQUIVALENCY TABLE 27
PERFORMANCE COMPARISONS 28

ECONOMIC AND MARKET INFORMATION 31
FINANCIAL STATEMENTS 31

APPENDIX 32

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.
DERIVATIVE CONTRACTS AND SECURITIES. The term derivative has
traditionally been applied to certain contracts (including, futures,
forward, option and swap contracts that `derive'' their value from changes
in the value of an underlying security, currency, commodity or index.
Certain types of securities that incorporate the performance

characteristics of these contracts are also referred to as `derivatives.''
The term has also been applied to securities `derived'' from the cash
flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the
response of certain derivative contracts and securities to market changes
may differ from traditional investments, such as stock and bonds,
derivatives do not necessarily present greater market risks than
traditional investments. The Funds will only use derivative contracts for
the purposes disclosed in the applicable sections of its prospectus or this
statement of additional information. To the extent that a Fund's invests
in securities that could be characterized as derivatives, it will only do
so in a manner consistent with its investment objective, policies, and
limitations.
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.
FOREIGN SECURITIES. Investments in foreign securities, particularly
those of non-governmental issuers, involve considerations which are not
ordinarily associated with investments in domestic issues. These
considerations include the possibility of expropriation, the unavailability
of financial information or the difficulty of interpreting financial
information prepared under foreign accounting standards, less liquidity and
more volatility in foreign securities markets, the impact of political,
social, or diplomatic developments, and the difficulty of assessing
economic trends in foreign countries. It may also be more difficult to
enforce contractual obligations abroad than would be the case in the United
States because of differences in the legal systems. Transaction costs in
foreign securities may be higher. The Adviser will consider these and other
factors before investing in foreign securities and will not make such
investments unless, in its opinion, such investment will meet the
applicable Fund's standards and objectives.
ECDs, ETDs, Yankee CDs, and Europaper are subject to somewhat different
risks than 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 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 the Adviser in selecting these investments.
FUNDING AGREEMENTS. The MONEY MARKET FUND may purchase funding agreements
("Agreements"), which are investment instruments issued by highly rated
U.S. insurance companies. Pursuant to such Agreements, the MONEY MARKET
FUND may make cash contributions to a deposit fund of the insurance
company's general or separate accounts. The insurance company then credits
to the MONEY MARKET FUND guaranteed interest. The insurance company may
assess periodic charges against an Agreement for expense and service costs
allocable to it, and the charges will be deducted from the value of the
deposit fund. The purchase price paid for an Agreement becomes part of the
general assets of the issuer, and the Agreement is paid from the general
assets of the issuer.
The MONEY MARKET FUND will only purchase Agreements from issuers which, at
the time of purchase, meet quality and credit standards established by the
MONEY MARKET FUND's adviser. Generally, Agreements are not assignable or
transferable without the permission of the issuing insurance companies, and
an active secondary market in Agreements does not currently exist. Also,
the MONEY MARKET FUND may not 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
associations) deemed creditworthy by the Fund's Adviser or Subadviser.
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 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%.
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. A common structure may contain
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 INTERMEDIATE TAX-FREE
FUND'S 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 INTERMEDIATE TAX-FREE FUND 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 Fund's
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 EQUITY INCOME FUND experienced a higher
portfolio turnover rate for the fiscal year ended August 31, 1996. The U.S.
stock market has been very strong over the last few years. As a result, it
is trading at new all time highs. This strength has substantially benefited
many of the stocks in the portfolio to the extent that they have reached
our sell discipline.
Above average portfolio turnover was experienced during the fiscal year
ended August 31, 1996 as the STOCK FUND was transitioning away from
numerous small and medium market capitalization issues towards larger
market capitalization and higher quality companies.
The MID-CAP STOCK FUND experienced a higher portfolio turnover rate for
the fiscal year ended August 31, 1996. With all of the major stock market
indices continuing to reach new highs throughout the fiscal year ended
August 31, 1996, market volatility was much more pronounced. Investors have
had no tolerance for disappointing news, reacting with violent sell-offs
when bad news is announced. On the other hand, good news has been rewarded
with very aggressive price appreciation. This was especially true in the
mid-cap and small-cap sectors of the market, where a lack of liquidity in
many issues magnified stock price moves in both directions. This volatility
required the fund to reposition its investments more frequently, thus
causing increased turnover.

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 Subadviser 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 Adviser or Subadviser 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 Subadviser 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 Subadviser 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 INTERMEDIATE TAX FREE FUND 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
(INTERMEDIATE TAX-FREE FUND ONLY)
The INTERMEDIATE TAX-FREE FUND will not 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, the INTERMEDIATE TAX-FREE 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
INTERMEDIATE TAX-FREE FUND) 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 that they may

purchase the securities of issuers which invest in or sponsor such
programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Funds will not purchase securities of a company for 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 INTERMEDIATE TAX-FREE FUND
does not intend to invest in warrants, it is 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 limit 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."
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
Shareholder Services Company, Federated Services Company, and Federated
Administrative Services.

Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
October 22, 1930

Chairman, Director and Treasurer

Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport
Research Ltd.; Executive Vice President and Director, Federated Securities
Corp.; Trustee, Federated Shareholder Services Company; Trustee or
Director, Executive Vice President, 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, formerly, 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, Proprietary
Client Management and Services Group, 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 November 27, 1996, the following shareholders of record owned 5%
or more of a Fund's outstanding shares:
EQUITY INCOME FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 8,515,145 shares (55.77%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
5,618,546 shares (36.80%).
VALUE EQUITY FUND
Vallee, Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 1,506,328 shares (10.10%); Maril & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 6,078,802

shares (40.76%); and Mitra & Co., Marshall & Ilsley Trust Operations, owned
approximately 6,861,028 shares (46.01%).
STOCK FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 4,076,599 shares (22.65%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
10,811,599 shares (60.07%).
MID-CAP STOCK FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 5,087,118 shares (45.95%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
5,247,683 shares (47.39%).
INTERNATIONAL STOCK FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 7,216,988 shares (51.77%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
5,949,379 shares (42.67%).
SMALL-CAP STOCK FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 704,962 shares (25.21%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
1,856,271 shares (66.39%).
SHORT-TERM INCOME FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin ,
owned approximately 6,006,642 shares (56.50%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
3,577,326 shares (33.65%).
INTERMEDIATE BOND FUND

Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 17,433,707 shares (38.63%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
24,489,704 shares (54.27%).
GOVERNMENT INCOME FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 6,749,143 shares (41.62%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
6,696,765 shares (41.30%).
INTERMEDIATE TAX-FREE FUND
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 6,413,128 shares (89.04%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately 643,581
shares (8.94%).
MONEY MARKET FUND
Maril & Co., Milwaukee, Wisconsin, owned approximately 746,752,387 of the
Class A Shares of the Fund (68.52%); Miaz & Co., Milwaukee, Wisconsin,
owned approximately 79,208,973 of the Class A Shares of the Fund (7.27%); M
& I BSS Appleton, Appleton, Wisconsin, owned approximately 38,278,694 of
the Class B Shares of the Fund (37.20%); M&I BSS Madison, Appleton,
Wisconsin, owned approximately 11,506,707 of the Class B Shares of the Fund
(11.18%); and M&I BSS Janesville, Appleton, Wisconsin, owned approximately
10,945,160 of the Class B Shares of the Fund (10.64%).

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, 1996. 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 FUNDS
The Funds' investment adviser is M&I Investment Management Corp.
("Adviser"). The Adviser shall not be liable to the Corporation, the Funds
or any shareholder of the Funds for any losses that may be sustained in the
purchase, holding, or sale of any security, or for anything done or omitted
by it, except acts or omissions involving willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties imposed upon it by
its contract with the Corporation. 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 years ended August 31, 1996 and 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 $1,101,454,
$584,150 and $245,116, respectively, of which $0, $69,757 and $39,343,
respectively, were voluntarily waived. For the fiscal years ended August
31, 1996 and 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 $1,556,051, $1,592,905 and $310,939, respectively, of which
$0, $0 and $45,477, respectively, were voluntarily waived. For the fiscal
years ended August 31, 1996, 1995, and 1994, the Adviser earned fees from
STOCK FUND of $2,003,427, $1,813,889, and $1,877,194, respectively, of
which $0, was voluntarily waived for the fiscal year ended August 31, 1996,
$17,481 was voluntarily waived for fiscal year ended August 31, 1995, and
$0 was voluntarily waived for the fiscal year ended August 31, 1994. For
the fiscal years ended August 31, 1996 and 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 $917,068, $585,271 and
$189,976, respectively, of which $0, $64,161 and $56,834, respectively,
were voluntarily waived. For the fiscal year ended August 31, 1996 and for
the period from September 2, 1994 (date of initial public investment), to
August 31, 1995, the Adviser earned fees from INTERNATIONAL STOCK FUND of
$1,179,310 and $727,503, respectively, of which $0 and $31,759,
respectively, was voluntarily waived. For the fiscal years ended August 31,
1996, 1995, and 1994, the Adviser earned fees from SHORT-TERM INCOME FUND
of $540,501, $537,366, and $575,101, respectively, of which $357,041,
$355,637, and $361,083, respectively, were voluntarily waived. For the
fiscal years ended August 31, 1996, 1995, and 1994, the Adviser earned fees
from INTERMEDIATE BOND FUND of $2,253,912, $2,046,206, and $1,873,380,
respectively, of which $338,087, $272,827, and $296,925, respectively, were
voluntarily waived. For the fiscal years ended August 31, 1996, 1995, and
1994, the Adviser earned fees from GOVERNMENT INCOME FUND of $938,027,
$635,592, and $436,508, respectively, of which $243,416, $216,611, and
$224,038, respectively, were voluntarily waived. For the fiscal year ended
August 31, 1996 and 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 $314,337, $243,850, and $95,876,
respectively, of which $196,013, $176,613, and $77,214, respectively, were
voluntarily waived. For the fiscal years ended August 31, 1996, 1995, and
1994, the Adviser earned fees from MONEY MARKET FUND of $5,636,051,
$5,435,257, and $4,623,880, respectively, of which $2,930,747, $2,826,334,
and $2,639,185, 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 fiscal year ended August 31, 1996 and 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 $544,167 and
$363,752, respectively, of which $0 and $15,880, respectively, were
voluntarily waived.

OTHER SERVICES

ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus.
For the fiscal years ended August 31, 1996 and 1995, and for the period
from October 1, 1993 (date of initial public investment), to August 31,
1994, Federated Administrative Services (`FAS'') received fees from EQUITY
INCOME FUND of $131,196, $70,707, and $45,481, respectively, of which $0
$0, and $10,965, respectively, were voluntarily waived. For the fiscal
years ended August 31, 1996 and 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 $185,501, $193,180, and $54,953,
respectively, of which $0, $0 and $9,451, respectively, were voluntarily
waived. For the fiscal years ended August 31, 1996, 1995, and 1994, FAS
received fees from STOCK FUND of $238,801, $219,917, and $241,079. For the
fiscal years ended August 31, 1996 and 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 $109,258, $70,878, and
$45,481, respectively, of which $0, $0, and $12,101, respectively, were
voluntarily waived. For the fiscal year ended August 31, 1996 and for the
period from September 2, 1994 (date of initial public investment), to
August 31, 1995, FAS received fees from INTERNATIONAL STOCK FUND of
$108,298 and $66,944, respectively. For the fiscal years ended August 31,
1996, 1995, and 1994, FAS received fees from SHORT-TERM INCOME FUND of
$80,507, $81,509, and $91,808, respectively. For the fiscal years ended
August 31, 1996, 1995, and 1994, FAS received fees from INTERMEDIATE BOND
FUND of $335,733, $310,184, and $300,278, respectively. For the fiscal
years ended August 31, 1996, 1995, and 1994, FAS received fees from
GOVERNMENT INCOME FUND of $111,760, $77,015, and $55,895, respectively. For
the fiscal years ended August 31, 1996 and 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 $50,437, $50,000, and
$28,767, respectively, of which $0, $13,052, and $13,646, respectively,
were voluntarily waived. For the fiscal years ended August 31, 1996, 1995,
and 1994, FAS received fees from MONEY MARKET FUND of $1,007,572, $988,602,
and $887,132, respectively.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, Pittsburgh, Pennsylvania, through its
registered transfer agent, Federated Shareholder Services Company,
maintains all necessary shareholder records. For its services, the
transfer agent receives a fee based on the size, type and number of
accounts and transactions made by shareholders. The fee is based on the
level of the Funds' average net assets for the period plus out-of-pocket
expenses.

The transfer agent may employ third parties, including Marshall & Ilsley
Trust Company, to provide sub-accounting and sub-transfer agency services.
In exchange for these services, the transfer agent may pay such third-party
providers a per account fee and 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.
INDEPENDENT PUBLIC ACCOUNTANTS
The Independent Public Accountants for the Funds are Arthur Andersen LLP.

SHAREHOLDER SERVICING ARRANGEMENTS

Effective September 6, 1996, Federated Shareholder Services Company
(`FSSC'') became the shareholder servicing agent for all of the MARSHALL
FUNDS except for the MONEY MARKET FUND.
For the fiscal years ended August 31, 1996 and 1995 and for the period from
October 1, 1993 (date of initial public investment) to August 31, 1994,
Marshall Funds Investors Services (`MFIS'') earned shareholder servicing

fees of $29,372, $14,413, and $4,902, respectively from EQUITY INCOME FUND.
For the fiscal years ended August 31, 1996 and 1995 and for the period from
October 1, 1993 (date of initial public investment), to August 31, 1994,
MFIS earned shareholder servicing fees of $41,495, $38,070, and $6,219,
respectively, from VALUE EQUITY FUND. For the fiscal years ended August 31,
1996, 1995, and 1994 MFIS earned shareholder servicing fees of $53,425,
$43,568, and $37,544, respectively from STOCK FUND. For the fiscal years
ended August 31, 1996 and 1995 and for the period from October 1, 1993
(date of initial public investment), to August 31, 1994, MFIS earned
shareholder servicing fees of $24,455, $14,323, and $3,800, respectively,
for MID-CAP STOCK FUND. For the period from September 2, 1994 (date of
initial public investment), to August 31, 1995, MFIS earned shareholder
servicing fees of $23,586 and $13,349, respectively, from INTERNATIONAL
STOCK FUND. For the fiscal years ended August 31, 1996, 1995, and 1994 MFIS
earned shareholder servicing fees of $18,107, $15,860, and $14,377,
respectively, from SHORT-TERM INCOME FUND. For the fiscal years ended
August 31, 1996, 1995, and 1994 MFIS earned shareholder servicing fees of
$75,130, $61,234, and $46,835, respectively, from INTERMEDIATE BOND FUND.
For the fiscal years ended August 31, 1996, 1995, and 1994 MFIS earned
shareholder servicing fees of $25,014, $15,385, and $8,730, respectively,
for GOVERNMENT INCOME FUND. For the fiscal years ended August 31, 1996 and
1995 and for the period from February 2, 1994 (date of initial public
investment) to August 31, 1994, MFIS earned shareholder servicing fees of
$10,478, $7,339, and $2,397, respectively, from INTERMEDIATE TAX-FREE FUND.
For the fiscal years ended August 31, 1996, 1995, and 1994 MFIS earned
shareholder servicing fees of $225,442, $194,970, and $138,716,
respectively, from MONEY MARKET FUND.

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 years ended August 31, 1996 and 1995 and for the period
from October 1, 1993 (date of the initial public investment), to August 31,
1994, the EQUITY INCOME FUND paid $221,712, $137,799, and $37,398
respectively, in brokerage commissions on brokerage transactions. For the
fiscal years ended August 31, 1996 and 1995 and for the period from October
1, 1993 (date of the initial public investment), to August 31, 1994, the
VALUE EQUITY FUND paid $524,079, $549,637, and $236,601, respectively, in
brokerage commissions on brokerage transactions. For the fiscal years ended
August 31, 1996, 1995, and 1994, the STOCK FUND paid $918,703, $369,668,
and $596,430, respectively, in brokerage commissions on brokerage
transactions. For the fiscal years ended August 31, 1996 and 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 $353,770, $248,008 and
$109,864, respectively, in brokerage commissions on brokerage transactions.
For the fiscal year ended August 31, 1996 and for the period from September
2, 1994 (date of initial public investment), to August 31, 1995, the
INTERNATIONAL STOCK FUND paid $115,382 and $276,073,respectively 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. 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.
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,
SMALL-CAP 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 Funds' 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 or the
SMALL-CAP STOCK FUND. For the fiscal year ended August 31, 1996, the MONEY
MARKET FUND paid $205,842 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.

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.
Cumulative total return reflects a Fund's total performance over a
specific period of time.
EQUITY INCOME FUND'S average annual total return for the one-year period
ended August 31, 1996 and for the period from October 1, 1993 (date of
initial public investment), to August 31, 1996 were 21.20% and 13.28%,
respectively. VALUE EQUITY FUND'S average annual total return for the one-
year period ended August 31, 1996 and for the period from September 30,
1993 (date of initial public investment), to August 31, 1996 were 8.53% and
11.19%, respectively. STOCK FUND'S average annual total return for the one-
year period ended August 31, 1996 and for the period from November 23, 1992

(date of initial public investment), to August 31, 1996 were 11.56% and
7.86%, respectively.
MID-CAP STOCK FUND'S average annual total return for the one-year period
ended August 31, 1996 and for the period from October 1, 1993 (date of
initial public investment), to August 31, 1996 were 18.92% and 14.09%,
respectively. INTERNATIONAL STOCK FUND'S average annual total return for
the one-year period ended August 31, 1996 and for the period from September
2, 1994 (date of initial public investment), to August 31, 1996 was 11.71%
and 6.81%, respectively. SMALL-CAP STOCK FUND'S cumulative total return
for the period from November 1, 1995 (inception date of collective trust
fund) to August 31, 1996 was 66.98%. SHORT-TERM INCOME FUND'S average
annual total return for the one-year period ended August 31, 1996 and for
the period from November 2, 1993 (date of initial public investment) to
August 31, 1996 were 4.92% and 4.43%, respectively. INTERMEDIATE BOND
FUND's average annual total return for the one-year period ended August 31,
1996 and for the period from November 23, 1992 (date of initial public
investment), to August 31, 1996 were 3.52% and 4.70%, respectively.
GOVERNMENT INCOME FUND's average annual total return for the fiscal year
ended August 31, 1996 and for the period from December 14, 1992 (date of
initial public investment) to August 31, 1996 were 4.02% and 4.99%,
respectively. INTERMEDIATE-TAX-FREE FUND's average annual total return for
the one-year period ended August 31, 1996 and for the period from February
2, 1994 (date of initial public investment), to August 31, 1996 were 3.57%
and 3.53%, 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, 1996, was 5.12%. The Fund's yield for Class B
Shares was 4.82% 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, 1996, was 2.80%. VALUE EQUITY INCOME FUND's
yield for the 30-day period ended August 31, 1996, was 1.79%. STOCK FUND's
yield for the 30-day period ended August 31, 1996, was 1.45%. MID-CAP STOCK
FUND's yield for the 30-day period ended August 31, 1996, was (.30%).
SHORT-TERM INCOME FUND's yield for the 30-day period ended August 31, 1996,

was 6.09%. INTERMEDIATE BOND FUND's yield for the 30-day period ended
August 31, 1996, was 6.15%. GOVERNMENT INCOME FUND's yield for the 30-day
period ended August 31, 1996, was 6.39%. INTERMEDIATE TAX-FREE FUND's yield
for the 30-day period ended August 31, 1996, was 4.34%.
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, 1996, was 5.25%.
The MONEY MARKET FUND's effective yield for Class B Shares was 4.93% for
the same period.
TAX-EQUIVALENT YIELD (INTERMEDIATE TAX-FREE FUND ONLY)

The tax-equivalent yield of the INTERMEDIATE TAX-FREE FUND 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. The INTERMEDIATE TAX-FREE FUND'S
tax-equivalent yield for the 30-day period ended August 31, 1996 was
7.19%.
TAX-EQUIVALENCY TABLE
The INTERMEDIATE TAX-FREE FUND may also use a tax-equivalency table in
advertising and sales literature. The interest earned by the municipal
bonds in the Fund's 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 1996
MULTISTATE MUNICIPAL FUNDS

FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $40,101 $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 263,750

SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 263,750

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%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
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 INTERMEDIATE TAX-FREE FUND'S 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 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.
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.
oRUSSELL 1000 GROWTH INDEX consists of those Russell 2000 securities
with a greater-than-average growth orientation. Securities in this

index tend to exhibit higher price-to-book and price-earnings ratios,
lower dividend yields and higher forecasted growth rates.
o RUSSELL 2000 INDEX is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be
used to compare to the total returns of funds whose portfolios are
invested primarily in small capitalization common stocks.
o STANDARD & POOR'S RATINGS GROUP SMALL STOCK INDEX is a broadly
diversified index consisting of approximately 600 small capitalization
common stocks that can be used to compare to the total returns of
funds whose portfolios are invested primarily in small capitalization
common stocks.
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.
Advertising and other promotional literature may include charts, graphs
and other illustrations using a Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar cost averaging, and systematic investment. In addition, a Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for a Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and analysis
on how such developments could affect a Fund. In addition, advertising and
sales literature may quote statistics and give general information about
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute (`ICI''). For example, according
to the ICI, twenty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well s business
and institutions, have entrusted over $3 trillion to the more than 5,500
mutual funds available.
FINANCIAL STATEMENTS

The financial statements for the fiscal period ended August 31, 1996,
are incorporated herein by reference from the Funds' Annual Report dated
August 31, 1996 (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 1-
414-287-8555 or 1-800-FUND (3863).

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 (12/96)

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements: (1-10) The Financial Statements for
the fiscal year ended August 31, 1996, are hereby
incorporated herein by reference from the Funds' Annual
Report dated August 31, 1996. (11) Filed in Part A.
(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.);
(vi)Conformed copy of Amendment No. 6 to the Articles
of Incorporation (12.);
(vii)Conformed copy of Amendment No. 7 to the Articles
of Incorporation (14.);
(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 No. 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 No. 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 No. 11 on Form N-1A filed October 21, 1994. (File Nos. 33-
48907 and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33-
48907 and 811-7047).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 30, 1996. (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)Conformed copy of Exhibit M of the Investment
Advisory Contract; (12.);
(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.);
(x)Conformed copy of Exhibit N to the Investment
Advisory Contract (14);
(6) (i) Conformed copy of Distributor's Contract of the
Registrant, including conformed copies of
Exhibits A through J; (12.);
(ii) Conformed copy of Exhibit K of the Distributor's
Contract; +
(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 (11.);
(ii)Conformed copy of Amendment No. 1 to Schedule A
of Fund Accounting and Shareholder Recordkeeping
Agreement; +
(iii)Conformed copy of Amendment No. 1 to Schedule C
of Fund Accounting and Shareholder Recordkeeping
Agreement; +
(iv)Conformed copy of Administrative Services
Agreement (7.);
+ All exhibits have been filed electronically.

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).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-
48907 and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33-
48907 and 811-7047).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 30, 1996. (File Nos. 33-
48907 and 811-7047).

(v) Conformed copy of Amendment No. 1 to
Administrative Services Agreement; +
(vi) Conformed copy of Shareholder Services Agreement
of the Registrant on behalf of
Marshall Equity Income Fund, Marshall
Government Income Fund, Marshall
Intermediate Bond Fund, Marshall
Intermediate Tax-Free Fund, Marshall
International Stock Fund, Marshall Mid-Cap Stock

Fund, Marshall Money Market Fund, Marshall Short-
Term Income Fund, Marshall Short-Term Tax-Free Fund,
Marshall Stock Fund, and Marshall Value
Equity Fund (4.);
(vii) Conformed copy of Amendment No. 1 to Schedule
A of the Shareholder Services Agreement (6.);
(viii) Conformed Copy of Amendment No. 2 to Schedule
A of the Shareholder Services Agreement (7.);
(ix) Conformed copy of Amendment No. 3 to Schedule A
of the Shareholder Services Agreement (12.);
(x) Copy of Amendment No. 1 to Schedule B of the
Shareholder Services Agreement (11.);
(xi) Conformed copy of Marshall Funds, Inc.
Multiple Class Plan (Marshall Money Market Fund
Class A Shares and Class B Shares) (11.);
(xii) Conformed copy of new Shareholder Services
Agreement between the Registrant and Marshall &
Ilsley Trust Company on behalf of Marshall Equity
Income Fund, Marshall Government Income Fund,
Marshall Intermediate Bond Fund, Marshall
Intermediate Tax-Free Fund, Marshall
International Stock Fund, Marshall Mid-Cap Stock
Fund, Marshall Short-Term Income Fund, Marshall
Small-Cap Stock Fund, Marshall Stock Fund, and
Marshall Value Equity Fund; +

+ 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).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-
48907 and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33-
48907 and 811-7047).

(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered (4.);
(11) Not applicable;
(12) Not applicable;
(13) Conformed copy of Initial Capital
Understanding (11.);
(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
(11.);
(iv)Form of 12b-1 Agreement through and including
Exhibit B (11.);
(v) Copy of Exhibit C to Rule 12b-1 Agreement of the
Registrant (13.);
(vi) Conformed copy of Exhibit C to the
Distribution Plan of the Registrant; +
(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.);
(iii) Copy of Schedule for Computation of Fund
Performance Data for Marshall Small-Cap Stock
Fund; +
(17) Copy of Financial Data Schedules; +
(18) Not Applicable;
(19) (i) Conformed copy of Power of Attorney (11.);
(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

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).
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).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-
48907 and 811-7047).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed July 9, 1996. (File Nos. 33-
48907 and 811-7047).

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of November 27, 1996
-----
Shares of capital stock

Marshall Intermediate Bond Fund 344
Marshall Government Income Fund 1,801

Marshall Money Market Fund
Class A Shares 2,801
Marshall Money Market Fund
Class B Shares 1,842
Marshall Short-Term Income Fund 197
Marshall Stock Fund 2,993
Marshall Equity Income Fund 525
Marshall Mid-Cap Stock Fund 705
Marshall Value Equity Fund 435
Marshall Intermediate Tax-Free Fund 30
Marshall International Stock Fund 310
Marshall Small-Cap Stock Fund 304

Item 27. Indemnification: (5.)

Item 28. Business and Other Connections of Investment Adviser:

M&I INVESTMENT MANAGEMENT CORP.

(a)M&I Investment Management Corp. is a registered investment
adviser and wholly-owned subsidiary of Marshall & Ilsley
Corporation, a registered bank holding company headquartered
in Milwaukee, Wisconsin. As of December 1, 1996 M&I
Investment Management Corp. had approximately $7.65 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 March 4, 1996 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,
1996 TICI had discretionary investment management of $17.2
billion of assets.

5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-
48907 and 811-7047).

For a list of the officers and directors of TICI and for
further information about TICI, any other business, vocation
or employment of a substantial nature in which a director or

officer of TICI is, or at any time in the past two fiscal
years has been, engaged for his or her own account or in the
capacity of director, officer, employee, partner or trustee,
response is incorporated by reference to TICI's Form ADV,
File No. 801-15125, dated February 1, 1996 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:

111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities,
Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.;

Federated U.S. Government Bond Fund; Federated U.S. Government Securities
Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years; Federated Utility
Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument
Funds; SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-
Free Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds;
The Monitor Funds; The Planters Funds; The Starburst Funds; The Starburst
Funds II; The Virtus Funds; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; andWorld Investment Series, Inc.

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

(b)

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, Executive ViceChairman, Director
Federated Investors Tower President, Federated, and Treasurer
Pittsburgh, PA 15222-3779 Securities Corp.

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

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

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

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

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

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

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

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

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

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

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

Name and Principal Positions and Offices Positions and Offices

Business Address With Underwriter With Registrant

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

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

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

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

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

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

Dale R. Browne 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

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

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

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

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

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

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

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

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

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

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

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

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

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

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

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

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

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

Thomas A. Peters III 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

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

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

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

Edward L. Smith 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

Richard Suder 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

Miles J. Wallace 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

Edward J. Wojnarowski 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

Edward R. Bozek Assistant Vice President --
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

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

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

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Location of Accounts and Records:

Marshall Funds, Inc...... Federated Investors Tower
......................... Pittsburgh, PA 15222-3779

Federated Shareholder Services Federated Investors Tower
Company Pittsburgh, PA 15222-3779
("Transfer Agent, Dividend
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 18th day of December, 1996.

MARSHALL FUNDS, INC.

BY: /s/ C. Todd Gibson
C. Todd Gibson, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
December 18, 1996

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

NAME TITLE DATE

By:/s/C. Todd Gibson
C. Todd Gibson Attorney In Fact December 18, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

Edward C. Gonzales Chairman, Director, December 18, 1996
and Treasurer (Chief
Executive Officer, Principal

Financial and Accounting
Officer)

James F. Duca, II President

John DeVincentis Director

Ody J. Fish Director

Paul E. Hassett Director

* By Power of Attorney

Exhibit 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 use in
Post-Effective Amendment No. 19 to Form N-1A Registration Statement of
Marshall Funds, Inc. of our report dated October 10, 1996, 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 Intermediate Tax-Free Fund
and Marshall Money Market Fund (10 of the portfolios comprising the
Marshall Funds, Inc.), included in or made a part of this registration
statement.

By: ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
December 16, 1996

Exhibit 6(ii) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

Exhibit K
to the
Distributor's Contract

MARSHALL FUNDS, INC.

MARSHALL SMALL-CAP STOCK FUND

The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 1st day of October, 1992 between MARSHALL
FUNDS, INC. and Federated Securities Corp. with respect to Classes of the
Funds set forth above.

1. The Fund hereby appoints FSC to engage in activities principally
intended to result in the sale of shares. Pursuant to this appointment,
FSC is authorized to select a group of brokers ("Brokers") to sell shares
of the above-listed Fund (`Shares'') at the current offering price thereof
as described and set forth in the respective prospectuses of the Fund, and
to render administrative support services to the Fund and its shareholders.
In addition, FSC is authorized to select a group of administrators
("Administrators") to render administrative support services to the Fund
and its shareholders.

2. Administrative support services may include, but are not limited
to, the following functions: 1) account openings: the Broker or
Administrator communicates account openings via computer terminals located
on the Broker's or Administrator's premises; 2) account closings: the
Broker or Administrator communicates account closings via computer
terminals; 3) enter purchase transactions: purchase transactions are
entered through the Broker's or Administrator's own personal computer or
through the use of a toll-free telephone number; 4) enter redemption
transactions: Broker or Administrator enters redemption transactions in
the same manner as purchases; 5) account maintenance: Broker or
Administrator provides or arranges to provide accounting support for all
transactions. Broker or Administrator also wires funds and receives funds
for Fund share purchases and redemptions, confirms and reconciles all
transactions, reviews the activity in the Fund's accounts, and provides
training and supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Fund's accounts; 7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; 8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; 9) customer lists: the Broker
or Administrator continuously provides names of potential customers; 10)
design services: the Broker or Administrator continuously designs material
to send to customers and develops methods of making such materials
accessible to customers; and 11) consultation services: the Broker or
Administrator continuously provides information about the product needs of
customers.

3. During the term of this Agreement, the Fund will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the annual
rate of .25% of the average aggregate net asset value of the Class B Shares
of the MARSHALL SMALL-CAP STOCK FUND held during the month. For the month
in which this Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number of days
that the Agreement is in effect during the month.

4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Shares' expenses
exceed such lower expense limitation as FSC may, by notice to the Fund,
voluntarily declare to be effective.

5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1 herein.
FSC, in its sole discretion, may pay Brokers and Administrators a periodic
fee in respect of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid shall be determined from time to time by FSC in its sole
discretion.

6. FSC will prepare reports to the Board of Directors of the
Fund on a quarterly basis showing amounts expended hereunder including
amounts paid to Brokers and Administrators and the purpose for such
payments.

7. In the event any amendment to this Agreement materially increases
the fees set forth in Paragraph 3, such amendment must be approved by a
vote of a majority of the outstanding voting securities of the particular
class.

In consideration of the mutual covenants set forth in the
Distributor's Contract dated OCTOBER 1, 1992 between MARSHALL FUNDS, INC.
and Federated Securities Corp., MARSHALL FUNDS, INC. executes and delivers
this Exhibit on behalf of the Fund set forth in this Exhibit.

Witness the due execution hereof this 1st day of August, 1996.

ATTEST: MARSHALL FUNDS, INC.

/s/ Peter J. Germain /s/ Joseph S. Machi
Secretary Vice President
(SEAL)

ATTEST: FEDERATED SECURITIES CORP.

/s/ Byron F. Bowman /s/ E C Gonzales
Secretary Executive Vice President

(SEAL)

Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AMENDMENT NO. 1 TO SCHEDULE A
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT

This Amendment No. 1 to Schedule A of the Fund Accounting and
Shareholder Recordkeeping Agreement is made and entered into as of July 1,
1993 by and between the Marshall Funds, Inc. (the `Company''), a Wisconsin
corporation, and Federated Administrative Services, assignee of Federated
Services Company (`Services''), a Delaware business trust.

WHEREAS, the Company and Services entered into a Fund Accounting and
Shareholder Recordkeeping Agreement dated September 14, 1992 (the
`Agreement''); and

WHEREAS, the Company and Services have agreed to amend the Agreement
in certain respects;

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

1. Schedule A to the Agreement is amended by deleting the Schedule A
in its entirety and replacing it with the following:

SCHEDULE A
FUND ACCOUNTING
FEE SCHEDULE

ANNUAL FEES FOR PORTFOLIO RECORD KEEPING/FUND ACCOUNTING SERVICES
First $100 Million 3.0 Basis Points
$100 Million - $300 Million 2.0 Basis Points
$300 Million - $500 Million 1.0 Basis Points
Over $500 Million 0.5 Basis Points
Fund Minimum $39,000
Additional Class of Shares $12,000
(Plus pricing charges and other out-of-pocket expenses)

WITNESS the due execution hereof this November 1, 1996.

Attest: MARSHALL FUNDS, INC.

/s/ Peter J. Germain By:/s/ Joseph S. Machi
Secretary Vice President

Attest: FEDERATED ADMINISTRATIVE SERVICES
(assignee of Federated Services Company)

/s/ Thomas J. Ward By:/s/ Douglas L. Hein
Secretary Senior Vice President

Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AMENDMENT NO. 1 TO SCHEDULE C
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT

This Amendment No. 1 to Schedule C of the Fund Accounting and
Shareholder Recordkeeping Agreement is made and entered into as of July 1,
1993 by and between the Marshall Funds, Inc. (the `Company'') and
Federated Shareholder Services Company, (formerly Federated Services
Company (`Services'')), a Delaware business trust.

WHEREAS, the Company and Services entered into a Fund Accounting and
Shareholder Recordkeeping Agreement dated September 14, 1992 (the
`Agreement''); and

WHEREAS, the Company and Services have agreed to amend the Agreement
in certain respects;

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

1.Schedule C to the Agreement is amended by deleting the Schedule C
and replacing it with the following:

SCHEDULE C
FEES AND EXPENSES
SHAREHOLDER RECORDKEEPING

I.GROUP I SERVICES
Base Fee* (Annual fee per fund, class or other subdivision) $24,000
Account Fee* (Annual account charge)
(includes system access and funds control and reconcilement)
- Daily dividend fund $16.00
- Monthly dividend fund $10.00
- Quarterly dividend fund $10.00
- Contingent Deferred Sales Charge (Additionally) $5.00
(monthly and quarterly funds only)
- Closed Accounts* $1.20
Termination Fee (One time charge per fund, class or other subdivision)
$20,000

II. GROUP II SERVICES
Other Account Fees* (Annual account charge - Services or features not
covered above)
- Account Activity Processing $3.50
(including account establishment, transaction and maintenance
processing)
- Account Servicing $4.50
(includes shareholder servicing and correspondence)
* All fees are annualized and will be prorated on a monthly basis for
billing purposes. Out-of-pocket expenses are not covered by these fees.

WITNESS the due execution hereof this November 1, 1996.

Attest: MARSHALL FUNDS, INC.

/s/ Peter J. Germain By/s/ Joseph S. Machi
Secretary Vice President
Attest: FEDERATED SHAREHOLDER SERVICES COMPANY
(formerly Federated Services Company)

/s/ Thomas J. Ward By:/s/ R. Jeffrey Niss
Secretary President

Exhibit 9(v) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AMENDMENT NO. 1
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
MARSHALL FUNDS, INC.
AND
FEDERATED ADMINISTRATIVE SERVICES

This Amendment No. 1 to the Administrative Services Agreement is made
and entered into on this 1st day of September, 1996 by and between Marshall
Funds, Inc., a Wisconsin corporation (the `Corporation'') and Federated
Administrative Services, a Delaware business trust (`FAS'').

WHEREAS, the Corporation and FAS entered into an Administrative
Services Agreement dated October 1, 1992 (the `Agreement'');

WHEREAS, the Corporation is adding a new portfolio, the Marshall
Small-Cap Stock Fund, which will be available for sale to the public on
September 1, 1996; and

WHEREAS, the Corporation and FAS desire to amend the Agreement in
certain respects;

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

1. Paragraph 4 of the Agreement is amended by inserting the following
paragraph immediately following the administrative fee table, as the new
second paragraph of such Paragraph 4:
Notwithstanding the foregoing table, for the Administrative Services
provided to the Marshall Small-Cap Stock Fund (`Small-Cap''), the
Corporation hereby agrees to pay and FAS hereby agrees to accept as
full compensation for its services rendered to Small-Cap, an
administrative fee equal to .12 of 1% of Small-Cap's average daily net
assets, payable daily.

2. The Corporation and FAS hereby ratify and confirm all terms,
conditions and provisions of the Agreement, as herein amended, as remaining
and continuing in full force and effect.

WITNESS the above due execution hereof as of the day and year first
written above.
MARSHALL FUNDS, INC.
FEDERATED ADMINISTRATIVE SERVICES

By:/s/ Joseph S. Machi
Title: Vice President

By:/s/ James J. Dolan
Title: President

Exhibit 9(xii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

SHAREHOLDER SERVICES AGREEMENT

AGREEMENT made as of the 1st day of August, 1996, by and between the
Marshall Funds, Inc., and those portfolios of the Fund (collectively the
`Funds'') listed on Exhibit 1, as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 and who have approved this form of Agreement
(individually referred to herein as a "Fund" and collectively as "Funds") and
Federated Shareholder Services Company, a Delaware business trust, having its
principal office and place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 ("FSS").

1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts of
shareholders of the Funds ("Services"). In addition to providing Services
directly to shareholders of the Funds, FSS is hereby appointed the Funds' agent
to select, negotiate and subcontract for the performance of Services. FSS
hereby accepts such appointments. FSS agrees to provide or cause to be provided
Services which, in its best judgment (subject to supervision and control of the
Funds' Boards of Trustees or Directors, as applicable), are necessary or
desirable for shareholders of the Funds. FSS further agrees to provide the
Funds, upon request, a written description of the Services which FSS is
providing hereunder.

2. During the term of this Agreement, each Fund will pay FSS and FSS agrees to
accept as full compensation for its services rendered hereunder a fee at an
annual rate, calculated daily and payable monthly, up to 0.25% of 1% of average
net assets of each Fund.
For the payment period in which this Agreement becomes effective or terminates
with respect to any Fund, there shall be an appropriate proration of the monthly
fee on the basis of the number of days that this Agreement is in effect with
respect to such Fund during the month. To enable the Funds to comply with an
applicable exemptive order, FSS represents that the fees received pursuant to
this Agreement will be disclosed to and authorized by any person or entity
receiving Services, and will not result in an excessive fee to FSS.

3. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year only if the form of
this Agreement is approved at least annually by the Board of each Fund,
including a majority of the members of the Board of the Fund who are not
interested persons of the Fund ("Independent Board Members") cast in person at a
meeting called for that purpose.

4. Notwithstanding paragraph 3, 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 Independent Board Members of any Fund or by a vote
of a majority of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on 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; and
(c) by any party to the Agreement without cause by giving the other
party at least sixty (60) days' written notice of its intention to
terminate.
5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is required
under Section 3406 of the Internal Revenue Code, and any applicable Treasury
regulations, and to provide each Fund 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.

6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
FSS shall be entitled to rely on and may act upon advice of counsel (who may be
counsel for such Fund) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Any person, even
though also an officer, trustee, partner, employee or agent of FSS, who may be
or become a member of such Fund's Board, officer, employee or agent of any Fund,
shall be deemed, when rendering services to such Fund or acting on any business
of such Fund (other than services or business in connection with the duties of
FSS hereunder) to be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or one under the
control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.

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

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

9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, 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 FSS, but
bind only the trust property of FSS as provided in the Declaration of Trust of
FSS.

10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any Fund and to
such Fund at the following address: Federated Investors Tower, Pittsburgh, PA
15222-3779, Attention: Joseph S. Machi, Vice President and if delivered to FSS
at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention: President.

11. 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. If any provision of this Agreement shall be held or made
invalid by a court or regulatory agency decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby. Subject to the
provisions of Sections 3 and 4, hereof, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and shall be governed by Pennsylvania law; provided, however, that nothing
herein shall be construed in a manner inconsistent with the Investment Company
Act of 1940 or any rule or regulation promulgated by the Securities and Exchange
Commission thereunder.

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

13. This Agreement shall not be assigned by any party without the prior written
consent of FSS in the case of assignment by any Fund, or of the Funds in the
case of assignment by FSS, except that any party may assign to a successor all
of or a substantial portion of its business to a party controlling, controlled
by, or under common control with such party. Nothing in this Section 14 shall
prevent FSS from delegating its responsibilities to another entity to the extent
provided herein.

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

Marshall Funds, Inc. (portfolios listed on Exhibit
1)

By: /s/ E C Gonzales
Edward C. Gonzales

Title:Chairman

Federated Shareholder Services Company

By: /s/ James J. Dolan

Title:Chairman

EXHIBIT 1
SHAREHOLDER SERVICES AGREEMENT

Marshall Equity Income Fund
Marshall Government Income Fund
Marshall Intermediate Bond Fund
Marshall Intermediate Tax-Free Fund
Marshall International Stock Fund
Marshall Mid-Cap Stock Fund
Marshall Short-Term Income Fund
Marshall Small-Cap Stock Fund
Marshall Stock Fund
Marshall Value Equity Fund

Schedule for Initial
Computation
of Fund Performance Invest of: $1,000
Data
Offering
Marshall Small-Cap Price/
Stock
Share= $10.00
Return Since Inception
ending 11/30/96 NAV= $10.66

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FYE: August
DECLARED: QUARTERLY
PAID: QUARTERLY

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Begin Capital Total Ending Total Mutual
Reinvest Period Dividend Gain Investment Period Ending Invest Fund
Dates Shares /Share /Share Value Shares Price Value Expense
11/30/95 100.000 0.000000000 0.00000 $10.95 100.000 $10.95 $1,095.00 -1.2248
12/31/95 100.000 0.000000000 0.00000 $11.91 100.000 $11.91 $1,087.45 -1.253
1/31/96 100.000 0.000000000 0.00000 $12.56 100.000 $12.56 $1,055.05 -1.2593
2/29/96 100.000 0.000000000 0.00000 $13.33 100.000 $13.33 $1,060.91 -1.2643
3/31/96 100.000 0.000000000 0.00000 $14.67 100.000 $14.67 $1,100.62 -1.2704
4/30/96 100.000 0.000000000 0.00000 $16.93 100.000 $16.93 $1,154.26 -1.2946
5/31/96 100.000 0.000000000 0.00000 $18.03 100.000 $18.03 $1,065.03 -1.3203
6/30/96 100.000 0.000000000 0.00000 $17.92 100.000 $17.92 $993.63 -1.3325
7/31/96 100.000 0.000000000 0.00000 $15.84 100.000 $15.84 $883.99 -1.3362
8/31/96 100.000 0.000000000 0.00000 $16.90 100.000 $16.90 $1,067.21 -1.2125
9/3/96 100.000 0.000000000 0.00000 $16.83 100.000 $16.83 $995.73 -1.3362
9/4/96 100.000 0.000000000 0.00000 $10.00 100.000 $10.00 $1,000.00 0
9/30/96 100.000 0.000000000 0.00000 $11.04 100.000 $11.04 $1,104.00 0
10/31/96 100.000 0.000000000 0.00000 $10.53 100.000 $10.53 $953.80 0
11/30/96 100.000 0.000000000 0.00000 $10.66 100.000 $10.66 $1,012.35 0

</TABLE>

Marshall Small-Cap Stock Yield = $21,978.54 - $38,138.50)+1)^6-1}=
2{(

Computation of SEC Yield 2,689,586 *( $10.66 - 0.00000)
As of: November 30, 1996
SEC Yield = -0.68%

Dividend and/or Interest
Inc for the 30 days ended $21,978.54

Net Expenses for $38,138.50
the Period

Avg Daily Shares
Outstanding and entitled
to receive dividends 2,689,586

Maxium offering price $10.66
per share as of 11-30-96

Undistributed net income 0.00000

Tax Equivalent Yield
(assumes individual
does not itemize
on Federal Return)
100 % minus the Federal
taxable % (100%-28%=72%)

30 SEC yield / by the tax
equiv % (0.00% / 72.0%)= -0.94%

</TABLE>

Schedule for Initial
Computation
of Fund Performance Invest of: $1,000
Data
Offering
Marshall Small-Cap Price/
Stock
Share= $10.00
Return Since Inception
ending 11/30/96 NAV= $10.66

FYE: August
DECLARED: QUARTERLY
PAID: QUARTERLY

Begin Capital Total Ending Total Mutual
Reinvest Period Dividend Gain Investment Period Ending Invest Fund
Dates Shares /Share /Share Value Shares Price Value Expense
11/30/95 100.000 0.000000000 0.00000 $10.95 100.000 $10.95 $1,095.00 -1.2248
12/31/95 100.000 0.000000000 0.00000 $11.91 100.000 $11.91 $1,087.45 -1.253
1/31/96 100.000 0.000000000 0.00000 $12.56 100.000 $12.56 $1,055.05 -1.2593
2/29/96 100.000 0.000000000 0.00000 $13.33 100.000 $13.33 $1,060.91 -1.2643
3/31/96 100.000 0.000000000 0.00000 $14.67 100.000 $14.67 $1,100.62 -1.2704
4/30/96 100.000 0.000000000 0.00000 $16.93 100.000 $16.93 $1,154.26 -1.2946
5/31/96 100.000 0.000000000 0.00000 $18.03 100.000 $18.03 $1,065.03 -1.3203
6/30/96 100.000 0.000000000 0.00000 $17.92 100.000 $17.92 $993.63 -1.3325
7/31/96 100.000 0.000000000 0.00000 $15.84 100.000 $15.84 $883.99 -1.3362
8/31/96 100.000 0.000000000 0.00000 $16.90 100.000 $16.90 $1,067.21 -1.2125
9/3/96 100.000 0.000000000 0.00000 $16.83 100.000 $16.83 $995.73 -1.3362
9/4/96 100.000 0.000000000 0.00000 $10.00 100.000 $10.00 $1,000.00 0
9/30/96 100.000 0.000000000 0.00000 $11.04 100.000 $11.04 $1,104.00 0
10/31/96 100.000 0.000000000 0.00000 $10.53 100.000 $10.53 $953.80 0
11/30/96 100.000 0.000000000 0.00000 $10.66 100.000 $10.66 $1,012.35 0

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> Marshall Funds, Inc.
Marshall Equity Income Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 154,806,094
<INVESTMENTS-AT-VALUE> 174,280,593
<RECEIVABLES> 1,008,062
<ASSETS-OTHER> 12,754
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,301,409
<PAYABLE-FOR-SECURITIES> 1,539,890
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 359,021
<TOTAL-LIABILITIES> 1,898,911
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,966,845
<SHARES-COMMON-STOCK> 13,338,229
<SHARES-COMMON-PRIOR> 9,585,200
<ACCUMULATED-NII-CURRENT> 567,336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,393,818
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,474,499
<NET-ASSETS> 173,402,498
<DIVIDEND-INCOME> 4,565,441
<INTEREST-INCOME> 1,032,576
<OTHER-INCOME> 0
<EXPENSES-NET> 1,442,343
<NET-INVESTMENT-INCOME> 4,155,674
<REALIZED-GAINS-CURRENT> 13,207,077
<APPREC-INCREASE-CURRENT> 8,421,937
<NET-CHANGE-FROM-OPS> 25,784,688
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,048,209
<DISTRIBUTIONS-OF-GAINS> 2,218,321
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,255,226
<NUMBER-OF-SHARES-REDEEMED> 2,740,860
<SHARES-REINVESTED> 238,663
<NET-CHANGE-IN-ASSETS> 65,903,820
<ACCUMULATED-NII-PRIOR> 459,871
<ACCUMULATED-GAINS-PRIOR> 405,062
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,101,454
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,442,343
<AVERAGE-NET-ASSETS> 145,812,864
<PER-SHARE-NAV-BEGIN> 11.220
<PER-SHARE-NII> 0.340
<PER-SHARE-GAIN-APPREC> 2.000
<PER-SHARE-DIVIDEND> 0.350
<PER-SHARE-DISTRIBUTIONS> 0.210
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.000
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Marshall Funds, Inc.
Marshall Government Income Fund

<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 152,935,781
<INVESTMENTS-AT-VALUE> 150,113,548
<RECEIVABLES> 10,397,339
<ASSETS-OTHER> 11,981
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 160,522,868
<PAYABLE-FOR-SECURITIES> 13,433,376
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,631,637
<TOTAL-LIABILITIES> 22,065,013
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144,225,560
<SHARES-COMMON-STOCK> 14,933,942
<SHARES-COMMON-PRIOR> 10,908,777
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,945,472)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,822,233)
<NET-ASSETS> 138,457,855
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,223,208
<OTHER-INCOME> 0
<EXPENSES-NET> 1,077,498
<NET-INVESTMENT-INCOME> 8,145,710
<REALIZED-GAINS-CURRENT> (620,860)
<APPREC-INCREASE-CURRENT> (3,330,343)
<NET-CHANGE-FROM-OPS> 4,194,507
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,145,710
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,753,556
<NUMBER-OF-SHARES-REDEEMED> 2,222,851
<SHARES-REINVESTED> 494,460
<NET-CHANGE-IN-ASSETS> 138,457,855
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 85,682
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 938,027
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,320,914
<AVERAGE-NET-ASSETS> 124,129,924
<PER-SHARE-NAV-BEGIN> 9.510
<PER-SHARE-NII> 0.620
<PER-SHARE-GAIN-APPREC> (0.240)
<PER-SHARE-DIVIDEND> 0.620
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.270
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Marshall Funds
Marshall Intermediate Bond Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 572,909,406
<INVESTMENTS-AT-VALUE> 566,178,022
<RECEIVABLES> 24,631,895
<ASSETS-OTHER> 26,211
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 590,836,128
<PAYABLE-FOR-SECURITIES> 11,985,711
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 175,193,691
<TOTAL-LIABILITIES> 187,179,402
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 433,018,726
<SHARES-COMMON-STOCK> 43,581,545
<SHARES-COMMON-PRIOR> 36,198,112
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22,630,616)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,731,384)
<NET-ASSETS> 403,656,726
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 25,734,801
<OTHER-INCOME> 0
<EXPENSES-NET> 2,708,238
<NET-INVESTMENT-INCOME> 23,026,563
<REALIZED-GAINS-CURRENT> 2,488,022
<APPREC-INCREASE-CURRENT> (13,320,804)
<NET-CHANGE-FROM-OPS> 12,193,781
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 23,026,563
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,992,321
<NUMBER-OF-SHARES-REDEEMED> 10,085,356
<SHARES-REINVESTED> 1,476,468
<NET-CHANGE-IN-ASSETS> 59,586,045
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (25,118,638)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,253,912
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,046,325
<AVERAGE-NET-ASSETS> 374,901,143
<PER-SHARE-NAV-BEGIN> 9.510
<PER-SHARE-NII> 0.580
<PER-SHARE-GAIN-APPREC> (0.250)
<PER-SHARE-DIVIDEND> 0.580
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.260
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> Marshall Funds
Marshall International Stock Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 133,301,606
<INVESTMENTS-AT-VALUE> 143,637,173
<RECEIVABLES> 845,742
<ASSETS-OTHER> 160,658
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 144,643,573
<PAYABLE-FOR-SECURITIES> 356,523
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 504,019
<TOTAL-LIABILITIES> 860,542
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 129,170,134
<SHARES-COMMON-STOCK> 12,979,131
<SHARES-COMMON-PRIOR> 9,257,933
<ACCUMULATED-NII-CURRENT> 2,995,403
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,276,516
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,340,978
<NET-ASSETS> 143,783,031
<DIVIDEND-INCOME> 3,629,460
<INTEREST-INCOME> 993,464
<OTHER-INCOME> 0
<EXPENSES-NET> 1,586,334
<NET-INVESTMENT-INCOME> 3,036,590
<REALIZED-GAINS-CURRENT> 1,946,210
<APPREC-INCREASE-CURRENT> 7,673,848
<NET-CHANGE-FROM-OPS> 12,656,648
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,228,753
<DISTRIBUTIONS-OF-GAINS> 281,633
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,874,333
<NUMBER-OF-SHARES-REDEEMED> 2,273,523
<SHARES-REINVESTED> 120,388
<NET-CHANGE-IN-ASSETS> 49,735,477
<ACCUMULATED-NII-PRIOR> 1,777,487
<ACCUMULATED-GAINS-PRIOR> (598,495)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,179,310
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,586,334
<AVERAGE-NET-ASSETS> 117,743,940
<PER-SHARE-NAV-BEGIN> 10.160
<PER-SHARE-NII> 0.210
<PER-SHARE-GAIN-APPREC> 0.960
<PER-SHARE-DIVIDEND> 0.220
<PER-SHARE-DISTRIBUTIONS> 0.030
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.080
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> Marshall Funds, Inc.
Marshall Intermediate Tax-Free Fund

<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 68,388,072
<INVESTMENTS-AT-VALUE> 68,634,066
<RECEIVABLES> 810,821
<ASSETS-OTHER> 12,354
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,457,241
<PAYABLE-FOR-SECURITIES> 3,099,835
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 430,155
<TOTAL-LIABILITIES> 3,529,990
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,183,254
<SHARES-COMMON-STOCK> 6,704,131
<SHARES-COMMON-PRIOR> 4,646,887
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (501,997)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 245,994
<NET-ASSETS> 65,927,251
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,592,938
<OTHER-INCOME> 0
<EXPENSES-NET> 317,149
<NET-INVESTMENT-INCOME> 2,275,789
<REALIZED-GAINS-CURRENT> 148,532
<APPREC-INCREASE-CURRENT> (698,763)
<NET-CHANGE-FROM-OPS> 1,725,558
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,275,789
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,848,116
<NUMBER-OF-SHARES-REDEEMED> 816,031
<SHARES-REINVESTED> 25,159
<NET-CHANGE-IN-ASSETS> 19,876,442
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (650,529)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 314,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 513,162
<AVERAGE-NET-ASSETS> 52,756,726
<PER-SHARE-NAV-BEGIN> 9.910
<PER-SHARE-NII> 0.430
<PER-SHARE-GAIN-APPREC> (0.080)
<PER-SHARE-DIVIDEND> 0.430
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.830
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> Marshall Funds
Marshall Mid-Cap Stock Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 153,426,979
<INVESTMENTS-AT-VALUE> 168,833,577
<RECEIVABLES> 951,753
<ASSETS-OTHER> 6,226,157
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 176,011,487
<PAYABLE-FOR-SECURITIES> 1,262,463
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,513,137
<TOTAL-LIABILITIES> 32,775,600
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 109,679,636
<SHARES-COMMON-STOCK> 10,564,924
<SHARES-COMMON-PRIOR> 8,804,452
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,155,155
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,401,096
<NET-ASSETS> 143,235,887
<DIVIDEND-INCOME> 263,071
<INTEREST-INCOME> 396,796
<OTHER-INCOME> 0
<EXPENSES-NET> 1,237,749
<NET-INVESTMENT-INCOME> (577,882)
<REALIZED-GAINS-CURRENT> 16,484,304
<APPREC-INCREASE-CURRENT> 3,869,291
<NET-CHANGE-FROM-OPS> 19,775,713
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 8,032,341
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,934,068
<NUMBER-OF-SHARES-REDEEMED> 3,579,779
<SHARES-REINVESTED> 406,183
<NET-CHANGE-IN-ASSETS> 34,979,822
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,281,074
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 917,068
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,237,749
<AVERAGE-NET-ASSETS> 123,005,632
<PER-SHARE-NAV-BEGIN> 12.300
<PER-SHARE-NII> (0.050)
<PER-SHARE-GAIN-APPREC> 2.230
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.920
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.560
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Marshall Funds
Marshall Money Market Fund
Class A Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 1,118,654,538
<INVESTMENTS-AT-VALUE> 1,118,654,538
<RECEIVABLES> 9,274,090
<ASSETS-OTHER> 261,720
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,128,190,348
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,819,833
<TOTAL-LIABILITIES> 3,819,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,124,370,515
<SHARES-COMMON-STOCK> 1,039,659,411
<SHARES-COMMON-PRIOR> 1,128,622,836
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,039,659,411
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 63,816,643
<OTHER-INCOME> 0
<EXPENSES-NET> 4,807,164
<NET-INVESTMENT-INCOME> 59,009,479
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 59,009,479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55,633,616
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,347,680,311
<NUMBER-OF-SHARES-REDEEMED> 3,446,715,442
<SHARES-REINVESTED> 10,071,706
<NET-CHANGE-IN-ASSETS> (34,582,954)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,636,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,737,911
<AVERAGE-NET-ASSETS> 1,121,214,395
<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>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Marshall Funds
Marshall Money Market Fund
Class B Shares
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 1,118,654,538
<INVESTMENTS-AT-VALUE> 1,118,654,538
<RECEIVABLES> 9,274,090
<ASSETS-OTHER> 261,720
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,128,190,348
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,819,833
<TOTAL-LIABILITIES> 3,819,833
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,124,370,515
<SHARES-COMMON-STOCK> 84,711,104
<SHARES-COMMON-PRIOR> 30,330,633
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 84,711,104
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 63,816,643
<OTHER-INCOME> 0
<EXPENSES-NET> 4,807,164
<NET-INVESTMENT-INCOME> 59,009,479
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 59,009,479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,375,863
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 560,449,868
<NUMBER-OF-SHARES-REDEEMED> 509,499,472
<SHARES-REINVESTED> 3,430,075
<NET-CHANGE-IN-ASSETS> (34,582,954)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,636,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,737,911
<AVERAGE-NET-ASSETS> 1,121,214,395
<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>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Marshall Funds, Inc.
Marshall Stock Fund

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 230,675,060
<INVESTMENTS-AT-VALUE> 250,137,375
<RECEIVABLES> 2,941,757
<ASSETS-OTHER> 25,091
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 253,104,223
<PAYABLE-FOR-SECURITIES> 647,189
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 873,960
<TOTAL-LIABILITIES> 1,521,149
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,686,251
<SHARES-COMMON-STOCK> 20,696,816
<SHARES-COMMON-PRIOR> 22,080,353
<ACCUMULATED-NII-CURRENT> 486,968
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,947,540
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19,462,315
<NET-ASSETS> 251,583,074
<DIVIDEND-INCOME> 5,399,747
<INTEREST-INCOME> 594,797
<OTHER-INCOME> 0
<EXPENSES-NET> 2,593,179
<NET-INVESTMENT-INCOME> 3,401,365
<REALIZED-GAINS-CURRENT> 38,737,034
<APPREC-INCREASE-CURRENT> (12,626,510)
<NET-CHANGE-FROM-OPS> 29,511,889
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,254,360
<DISTRIBUTIONS-OF-GAINS> 14,368,059
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,298,980
<NUMBER-OF-SHARES-REDEEMED> 6,826,659
<SHARES-REINVESTED> 1,144,142
<NET-CHANGE-IN-ASSETS> (5,436,365)
<ACCUMULATED-NII-PRIOR> 339,963
<ACCUMULATED-GAINS-PRIOR> 10,578,565
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,003,427
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,593,179
<AVERAGE-NET-ASSETS> 265,774,940
<PER-SHARE-NAV-BEGIN> 11.640
<PER-SHARE-NII> 0.160
<PER-SHARE-GAIN-APPREC> 1.170
<PER-SHARE-DIVIDEND> 0.150
<PER-SHARE-DISTRIBUTIONS> 0.660
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.160
<EXPENSE-RATIO> 0.97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Marshall Funds
Marshall Short-Term Income Fund

<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 104,400,934
<INVESTMENTS-AT-VALUE> 103,753,526
<RECEIVABLES> 696,266
<ASSETS-OTHER> 7,134
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,456,926
<PAYABLE-FOR-SECURITIES> 3,169,840
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 441,002
<TOTAL-LIABILITIES> 3,610,842
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,753,955
<SHARES-COMMON-STOCK> 10,516,782
<SHARES-COMMON-PRIOR> 8,654,058
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,260,463)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (647,408)
<NET-ASSETS> 100,846,084
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,005,772
<OTHER-INCOME> 0
<EXPENSES-NET> 460,445
<NET-INVESTMENT-INCOME> 5,545,327
<REALIZED-GAINS-CURRENT> (481,536)
<APPREC-INCREASE-CURRENT> (791,174)
<NET-CHANGE-FROM-OPS> 4,272,617
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,545,327
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,157,123
<NUMBER-OF-SHARES-REDEEMED> 5,605,778
<SHARES-REINVESTED> 311,379
<NET-CHANGE-IN-ASSETS> 16,572,918
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,778,927)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 540,501
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 817,486
<AVERAGE-NET-ASSETS> 89,117,199
<PER-SHARE-NAV-BEGIN> 9.740
<PER-SHARE-NII> 0.620
<PER-SHARE-GAIN-APPREC> (0.150)
<PER-SHARE-DIVIDEND> 0.620
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.590
<EXPENSE-RATIO> 0.51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> Marshall Funds, Inc.
Marshall Value Equity Fund

<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Aug-31-1996
<INVESTMENTS-AT-COST> 244,894,391
<INVESTMENTS-AT-VALUE> 247,737,826
<RECEIVABLES> 2,826,043
<ASSETS-OTHER> 37,526
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 250,601,395
<PAYABLE-FOR-SECURITIES> 1,596,635
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,939,120
<TOTAL-LIABILITIES> 55,535,755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166,006,103
<SHARES-COMMON-STOCK> 16,286,159
<SHARES-COMMON-PRIOR> 18,243,540
<ACCUMULATED-NII-CURRENT> 678,885
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25,537,217
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,843,435
<NET-ASSETS> 195,065,640
<DIVIDEND-INCOME> 4,073,755
<INTEREST-INCOME> 1,446,601
<OTHER-INCOME> 0
<EXPENSES-NET> 2,034,410
<NET-INVESTMENT-INCOME> 3,485,946
<REALIZED-GAINS-CURRENT> 27,219,156
<APPREC-INCREASE-CURRENT> (13,487,233)
<NET-CHANGE-FROM-OPS> 17,217,869
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,546,870
<DISTRIBUTIONS-OF-GAINS> 14,826,135
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,603,620
<NUMBER-OF-SHARES-REDEEMED> 6,491,712
<SHARES-REINVESTED> 930,711
<NET-CHANGE-IN-ASSETS> 25,370,388
<ACCUMULATED-NII-PRIOR> 739,809
<ACCUMULATED-GAINS-PRIOR> 13,144,196
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,556,051
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,034,410
<AVERAGE-NET-ASSETS> 207,349,098
<PER-SHARE-NAV-BEGIN> 12.080
<PER-SHARE-NII> 0.210
<PER-SHARE-GAIN-APPREC> 0.780
<PER-SHARE-DIVIDEND> 0.210
<PER-SHARE-DISTRIBUTIONS> 0.880
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.980
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Marshall Funds, Inc.
Marshall Small-Cap Stock Fund

<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> Aug-31-1996
<PERIOD-END> Oct-31-1996
<INVESTMENTS-AT-COST> 25,848,413
<INVESTMENTS-AT-VALUE> 26,453,093
<RECEIVABLES> 127,289
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,580,382
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31,989
<TOTAL-LIABILITIES> 31,989
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,029,885
<SHARES-COMMON-STOCK> 2,521,217
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (47,407)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 583,267
<NET-ASSETS> 26,548,393
<DIVIDEND-INCOME> 300
<INTEREST-INCOME> 37,521
<OTHER-INCOME> 0
<EXPENSES-NET> 55,173
<NET-INVESTMENT-INCOME> (17,352)
<REALIZED-GAINS-CURRENT> (47,407)
<APPREC-INCREASE-CURRENT> 583,267
<NET-CHANGE-FROM-OPS> 518,508
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,643,668
<NUMBER-OF-SHARES-REDEEMED> 122,451
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,548,393
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 33,499
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 55,173
<AVERAGE-NET-ASSETS> 20,493,526
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.010)
<PER-SHARE-GAIN-APPREC> 0.540
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.530
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>