MARSHALL FUNDS
Dear Shareholder:
I am pleased to report on a very successful fiscal year for the Marshall Funds.
Our achievements position us to be more effective in our product and service
offerings in the years to come. Here are some highlights:
. As of September 30, 1996, the Marshall Short-Term Income Fund achieved a
five-star overall rating from Morningstar among 948 funds in the fixed
income category./1/
. The Marshall Equity Income Fund ranked 4th among 143 equity income funds
as reported by The Wall Street Journal's Interactive Edition. This
information was based on a trailing 12-month return for the period ended
September 12, 1996, as compiled by Lipper Analytical Services, Inc./2/ It
also was the featured fund in the August Issue of Mutual Fund Buyer's
Guide.
. Lipper Analytical Services, Inc. also ranked the Marshall Mid-Cap Stock
Fund 28th among 140 mid-cap stock funds based on total return for the
one-year period ended September 30, 1996./2/
. The new Marshall Small-Cap Stock Fund produced a cumulative total return
of 83.31% from November 1, 1995 (inception date of common trust fund) to
September 30, 1996./3/
In achieving these results, we were committed to maintaining our investment
discipline with each of our Funds. When you buy a Marshall Fund, you know that
the Fund is managed consistent with its name. For example, we carefully review
any holding of the Marshall Mid-Cap Stock Fund whose market capitalization
exceeds the mid-cap range. A security will be sold if it is no longer
consistent with the Fund's objectives. We believe this "truth-in-labeling"
approach is essential to maintaining your confidence in the investment
discipline followed by our Funds and services.
In addition to our efforts to produce competitive investment performance, we
also want to make the Marshall Funds as accessible and convenient for you to
use as possible. To follow are some of our efforts:
. You can now reach our shareholder servicing group 24 HOURS A DAY, 7 DAYS
A WEEK.
. The Marshall Funds are now available through a growing list of no-
transaction-fee programs, including Fidelity's Funds Network, Jack White
& Company and Pershing.
. You can visit our new internet site at http://www.marshallfunds.com and
look for more enhancements to our web site over the coming months.
. The Marshall Funds Family continues to be no-load./4/
If we can serve you better in any way, please call us at 1-800-236-FUND. Thank
you again for investing in the Marshall Funds.
Very truly yours,
LOGO
James F. Duca, II
President
October 15, 1996
- ------
/1Morningstar/proprietary ratings reflect historical risk-adjusted performance.
They are subject to change every month. Past performance is no guarantee of
future results. Ratings are calculated from the Funds' 3-, 5- and 10-year
average annual returns in excess of 90-day Treasury bill returns with
appropriate fee adjustments, and a risk factor that reflects Fund performance
below 90-day Treasury bill returns. The 1-year rating is calculated using the
same methodology, but is not a component of the overall rating. The Fund
received 5 stars for the three-year period and was rated among 948 fixed
income funds. For the 1-year period, the Fund received 4 stars and was rated
among 1,506 funds. Ten percent of funds in a rating universe receive 5 stars,
22.5% receive 4 stars, 35% receive 3 stars, 22.5% receive 2 stars and 10%
receive 1 star.
/2Lipper/rankings are based on total return and do not reflect sales charges.
Past performance does not guarantee future results.
/3The/Marshall Small-Cap Stock Fund is the successor to a collective trust
fund. The quoted performance data is for the collective trust fund for
periods before the Fund's registration statement became effective on August
30, 1996, as adjusted to reflect the Fund's anticipated expenses. 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 imposed by the 1940 Act. If the collective trust fund had been
registered under the 1940 Act, the performance may have been adversely
affected. You may call 1-800-236-FUND to receive a copy of the Small-Cap
Fund's prospectus. Please read it carefully before investing or sending
money. Small-cap funds may experience a higher degree of volatility than
others. This record was established over a short period of time and is not
indicative of how the Fund will perform during periods of less favorable
market performance.
/4Marshall/Money Market Fund--Class B shares are subject to 12b-1 fees which
reduce the amount of income paid to shareholders.
SHARES OF THE MARSHALL FUNDS, INC. ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY M&I BANKS OR ANY OTHER M&I AFFILIATES. MARSHALL FUNDS
ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE FDIC, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. INVESTING IN MUTUAL FUNDS INVOLVES RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
MANAGEMENT DISCUSSION & ANALYSIS
EQUITY INCOME FUND
The Marshall Equity Income Fund (the "Fund") seeks capital growth and current
income through investments in common stocks. The Fund pursues these objectives
by employing a disciplined approach of investing in a broadly diversified
portfolio of common stocks with above-average dividend yields. The portfolio is
structured to pursue a yield at least 100 basis points (1%) more than the
Standard & Poor's 500 Index ("S&P 500").* On August 31, 1996, the average yield
of the investments held in the Fund was 3.89%, and the SEC 30-day yield (total
income less fees and expenses) was 2.80%**, while the S&P 500 was yielding
2.25%.
The Fund continued its excellent performance during its fiscal year ended
August 31, 1996. Over this time period (9/01/95-8/31/96), the Fund provided a
total return of 21.20%** versus 18.73% for the S&P 500. The Fund was ranked 4th
among 143 equity income funds as reported by The Wall Street Journal's
Interactive Edition. This information was based on a trailing 12-month return
for the period ended September 12, 1996, as compiled by Lipper Analytical
Services, Inc. In addition, the Fund was featured as the fund of the month by
Mutual Fund Buyer's Guide in their August edition.
Since February 1996, equity prices have remained within a volatile and
choppy trading range. This has been greatly influenced by investor concerns
over interest rates, corporate earnings and the presidential election. Equity
prices dropped during the second quarter corporate earnings preannouncement
period (June/July) as investors improperly extrapolated the negative early
reports. The stock market later rallied, as it became apparent that corporate
America had a robust second quarter. Investors are concerned that the Federal
Reserve Board (the "Fed") may soon boost short-term interest rates.
Intermediate and long-term bonds appear to have already discounted some future
Fed action as rates are about 125 basis points higher since January.
This rise in rates has had a negative impact on the bond market and
traditional high yield sectors of the stock market such as electric utilities.
For example, for the first eight months of 1996, the S&P Utilities Index* is
down 4.25% versus a rise of 7.45% for the S&P 500. Because of this wide
performance disparity, the Fund increased its investments in electric utilities
to take advantage of what we perceived to be a good value buying opportunity.
The Fund continues to employ a disciplined approach of investing in
attractively priced stocks of companies paying above-average dividends. This is
the cornerstone of our investment approach. If the economy softens in the final
quarters of 1996 and into 1997, as many economists expect, the investment style
employed by the Fund should be favored. In addition, during periods of volatile
market conditions, we believe that stocks of companies providing relatively
attractive current dividend yields, plus dividend growth, gain increasing
appeal. The Fund currently holds significant portions of the portfolio in
traditional high yield groups; financials (17.7%), utilities (15.5%), and
energy (13.4%).
GROWTH OF $10,000 INVESTED IN MARSHALL EQUITY INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Fund from September 30, 1993 (start of performance) to August 31, 1996 compared
to the S&P 500 and the Lipper Equity Income Funds Index (LEIFI).*
`Graphic representation ``A'' omitted. See Appendix.''
* S&P 500 is an unmanaged broad-based index measuring changes in stock market
conditions based on the average performance of 500 widely held common
stocks. Standard & Poor's Utilities Index is an unmanaged index of common
stocks from forty different electric, natural gas, and telecommunications
utilities. Lipper figures represent the average of the total returns
reported by 30 of the largest mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective categories indicated. These
indices are not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in a mutual fund's performance.
Actual investments may not be made in an index.
** Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
The S&P 500 and the LEIFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MARSHALL FUNDS
VALUE EQUITY FUND
The Marshall Value Equity Fund (the "Fund"), introduced on September 30, 1993,
utilizes a value-oriented approach in purchasing common stocks within a mid-to-
large market capitalization range. The stocks purchased are typically
characterized as being undervalued, out-of-favor, and neglected. For the fiscal
year ended August 31, 1996, the Fund produced a total return of 8.53%.* This
compares to total returns of 18.72% and 15.42% for the S&P 500 Index ("S&P
500") and the Lipper Growth and Income Funds Index (LGIFI), respectively.**
Since inception, the Fund, the S&P 500, and the LGIFI generated cumulative
total returns of 36.31%, 53.26%, and 42.92%, respectively, as of August 31,
1996.
For several quarters, the Fund has underperformed the S&P 500, primarily
for two reasons. First, is the seemingly insatiable appetite investors have for
the large-cap growth stocks which dominate the S&P 500. However, this leaves
stocks down the capitalization scale neglected and
attractively valued. We are confident that buying these undervalued stocks will
ultimately close the Fund's relative performance gap.
Second, is the prevailing emphasis on owning stocks with strong, positive
price momentum, regardless of valuation. Generally, when momentum stocks are in
favor, investors tend to move powerfully in the same direction, while having
little interest or tolerance for stocks that are out-of-favor or require
patience. However, as history proves, this can lead stock valuations to higher
levels than real long-term economic values would warrant. In time, this
reverses and investors once again seek to own undervalued stocks.
Since the last commentary six months ago, several of the Fund's stocks have
been recognized for offering excellent value. Sunbeam Corp. increased over 35%
due to its restructuring plans, while Melville rose 33% because of its
divestiture strategy. Both are examples of patience paying off for the Fund.
GROWTH OF $10,000 INVESTED IN MARSHALL VALUE EQUITY FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Fund from September 30, 1993 (start of performance) to August 31, 1996 compared
to the S&P 500 and the LGIFI.**
`Graphic representation ``B'' omitted. See Appendix.''
* Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
** The S&P 500 and LGIFI are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in a mutual fund's
performance. Actual investments may not be made in an index. The S&P 500 is
an unmanaged broad-based index measuring changes in stock market conditions
based on the average performance of 500 widely held common stocks. Lipper
figures represent the average of the total returns reported by 30 of the
largest mutual funds designated by Lipper Analytical Services, Inc. as
falling into the respective categories indicated.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
The S&P 500 and the LGIFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MANAGEMENT DISCUSSION & ANALYSIS
STOCK FUND
The Marshall Stock Fund (the "Fund") invests in large capitalization stocks
with a growth and income orientation. The Fund focuses on those companies that
are typically leaders in their respective industries, show records of above
average financial performance, and have proven superior management.
The equity and bond markets offered two distinct backdrops during the
Fund's fiscal year. The first half of the fiscal year was characterized by a
slowing of economic growth, falling interest rates, and declining stock prices
of many economically sensitive issues, especially technology shares. For
example, from September 1995 through January 1996, the S&P Financial Index*
returned 24.6%, S&P Utilities Index* 21.4%, long-term Treasuries 14.9%, while
the technology-laden NASDAQ* stock index gained just 5.9%. All that changed
with the very strong February 1996 non-farm payroll report. In February 1996
alone, long-term Treasuries lost 5.8% in total value, S&P Utilities Index
declined 2.7%, while the economically sensitive Dow Jones Industrial Average,
gained 7.6%.
The Fund posted a total return of 11.56%** during the fiscal year as
compared to a total return for the Standard and Poor's 500 Index (the "S&P
500")* of 18.72%. Most of the relative under-performance of the Fund versus the
S&P 500 Index was during the January through February 1996 time period. During
that time, the Fund was transitioning away from small and mid-capitalization
issues toward larger market capitalization and higher quality companies.
Looking forward, the equity market is now passing through a period of
earnings risk as calendar 1996 third quarter earnings are released. This
uncertainty of earnings is demonstrated by the rich valuations afforded to some
leading predictable earnings companies, such as Coca-Cola and Gillette, which
now sell at 30-year highs relative to the overall market. However, starting in
the calendar fourth quarter of 1996 overall corporate earnings versus 1995
should look better. The Fund remains broadly diversified, with exposure to
economically sensitive areas, such as electrical equipment, chemicals, retail,
and to more defensive sectors, such as foods, healthcare, and tobaccos. The
Fund continues to focus on the dominant companies in their respective
industries, such as Intel, Microsoft, General Electric, Anheuser-Busch,
Gannett, and American International Group, as these companies distance
themselves from the rest of their competitors.
GROWTH OF $10,000 INVESTED IN MARSHALL STOCK FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Marshall Stock Fund (the "Fund") from November 20, 1992 (start of performance)
to August 31, 1996 compared to the Standard & Poor's 500 Index (S&P 500) and
the Lipper Growth and Income Funds Index (LGIFI).*
`Graphic representation ``C'' omitted. See Appendix.''
* The S&P 500 and LGIFI are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in a mutual fund's
performance. Actual investments may not be made in an index. Standard &
Poor's Financial Index is an unmanaged capitalization-weighted index of all
stocks designed to measure the performance of the financial sector of the
Standard & Poor's 500 Index. S&P 500 is an unmanaged composite index of
common stocks in industry, transportation, financial, and public utility.
Standard & Poor's Utilities Index is an unmanaged index of common stocks
from forty different electric, natural gas, and telecommunications
utilities. National Association of Securities Dealers Automated Quotations
system (NASDAQ) is a computerized system that provides brokers and dealers
with price quotations for securities traded over the counter as well as
for many New York Stock Exchange listed securities. Lipper figures
represent the average of the total returns reported by 30 of the largest
mutual funds designated by Lipper Analytical Services, Inc. as falling
into the respective categories.
** Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
The S&P 500 and the LGIFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MARSHALL FUNDS
MID-CAP STOCK FUND
The objective of the Marshall Mid-Cap Stock Fund (the "Fund") is to seek
capital appreciation. The Fund pursues this objective by investing in companies
with market capitalizations between $300 million and $4.0 billion. In addition,
the Fund seeks investments in companies exhibiting strong financial
characteristics and expected growth significantly above the average
corporation.
For the six-month period ended August 31, 1996, the Fund had a total return
of 7.88%* versus the Standard & Poor's Midcap 400 Stock Price Index (SPMC)** of
2.67%. On a trailing twelve-month basis through August 31, 1996, the Fund has
achieved an 18.92%* total return versus the SPMC return of 11.88%. As of
September 30, 1996, the Fund ranked 28 out of 140 mid-cap stock funds on a
trailing twelve-month total return basis, as measured by Lipper Analytical
Services, Inc.
Performance was driven by continued strength in telecommunications issues,
such as ADC Telecommunications, Tellabs, and Andrew Corp. Our "soft technology"
(technology services and software), i.e., Sitel Corp., BDM International and
Transaction Systems Architects, Inc., were also significant contributors.
Smaller-cap stocks, after outperforming large-cap stocks through June,
slumped in July and have not fully recovered to new highs as some investors
have sought safety in larger, well-known companies. We expect smaller, rapidly
growing companies will demonstrate superior growth in earnings going forward,
making them potentially rewarding investment opportunities.
GROWTH OF $10,000 INVESTED IN MARSHALL MID-CAP STOCK FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Fund from September 30, 1993 (start of performance) to August 31, 1996 compared
to the SPMC and the Lipper Mid-Cap Funds Index (LMCFI).**
`Graphic representation ``D'' omitted. See Appendix.''
* Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
** The SPMC and the LMCFI are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in a mutual fund's
performance. Actual investments may not be made in an index. The SPMC is an
unmanaged composite index of 400 common stocks with market capitalizations
between $200 million and $7.5 billion in industry, transportation,
financial, and public utility. Lipper figures represent the average of the
total returns reported by 30 of the largest mutual funds designated by
Lipper Analytical Services, Inc. as falling into the respective categories
indicated.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
The SPMC and the LMCFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MANAGEMENT DISCUSSION & ANALYSIS
INTERNATIONAL STOCK FUND
The Marshall International Stock Fund (the "Fund"), which is sub-advised by
Templeton Investment Counsel, Inc., continues to perform favorably when
compared to the Morgan Stanley Capital International Europe, Australia and Far
East Index ("EAFE Index")* and Lipper International Funds Index.* For the
fiscal year ended August 31, 1996, the Fund returned 11.71%** versus 7.87% and
10.13% for the EAFE Index and Lipper International Fund Index, respectively.
These positive results are attributable to several factors which include an
underweighting of the Japanese market and an overweighting of the better
performing European market. Exposure to emerging markets also benefited the
Fund's performance.
The Fund remains underweighted in the Japanese market. This position has
been beneficial over the past year as the Japanese market, in dollar terms, has
fallen by 2.3%. Although we have few investments in Japan, it does not mean we
ignore the market as we devote a great deal of time researching the market in
hopes of discovering a gem. Recent Japanese legal changes that permit the
repurchase of shares by companies is being closely monitored. Given the cash
rich position of many Japanese companies, this new option may result in
significant enhancement of shareholder value.
The overweighted European exposure, particularly in Sweden and Spain which
registered returns over the past year in excess of 20%, in dollar terms,
contributed handsomely to the Fund's performance. Although many of the European
markets have done well over the past year, we continue to find bargains
throughout the region.
Our emerging market investments, bolstered by the strong performing
Brazilian telephone company, Telebras, had a positive impact on the Fund's
performance. Given the highly volatile nature of the developing markets, we are
frequently provided with attractive investment opportunities. Foreign investing
involves special risks including currency risk, increased volatility of foreign
currencies, and differences in auditing and other financial standards. We,
however, remain ever more diligent in our research and evaluation of companies
that operate in these ever changing emerging markets.
Valuations remain reasonable on a global basis, except for Japan which
continues to trade at an astronomically high price to earnings multiple.
Japan's trailing twelve-month price to earnings of '95 dwarfs the EAFE Index
multiple of 25 times. We continue to find bargains throughout the world as new
purchases are not concentrated in a single region.
GROWTH OF $10,000 INVESTED IN MARSHALL INTERNATIONAL STOCK FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Fund from September 1, 1994 (start of performance) to August 31, 1996 compared
to the EAFE Index and the Lipper International Funds Index (LIFI).*
`Graphic representation ``E'' omitted. See Appendix.''
* The EAFE Index and the LIFI are not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in a mutual
fund's performance. Actual investments may not be made in an index. The EAFE
Index is an unmanaged 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. Lipper figures
represent the average of the total returns reported by 30 of the largest
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective categories indicated.
** Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
The EAFE and the LIFI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MARSHALL FUNDS
SHORT-TERM INCOME FUND
The Marshall Short-Term Income Fund's (the "Fund") emphasis on yield helped it
weather the storm as interest rates on short maturity bonds rose nearly 100
basis points during the latest six-month period. An economy that has proved
more resilient than expected has ignited fears of rising inflation, sending
bond yields sharply higher and bond prices plunging. Treasury securities with
maturities longer than five years turned in negative total returns while two
and three-year Treasuries were held to 1.5% and 0.7%, respectively.
We believe that while it is likely the economy will eventually give way to
a mature economic cycle, the bond markets' fears of rising inflation may
escalate the anticipation of monetary tightening. This high degree of
uncertainty is likely to yield continued bond market volatility. The negative
trend in bond prices has forced the Fund to employ a more defensive posture,
emphasizing yield as the dominant component of total return. To this end, the
Fund will continue to enhance yield through positions in short-term mortgage
backed and asset backed securities while reducing exposure to the corporate and
Treasury sectors.
GROWTH OF $10,000 INVESTED IN MARSHALL SHORT-TERM INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Fund from November 1, 1992 (start of performance) to August 31, 1996 compared
to the Lipper Short-Term Investment Grade Bond Funds Index (LSTIBI),
IBC/Donoghue's Taxable Money Fund Average (DMFA), and the Short-Term Fund
Benchmark (STFB).*
`Graphic representation ``F'' omitted. See Appendix.''
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
* The LSTIBI, DMFA and STFB are not adjusted to reflect sales loads, expenses,
or other fees that the SEC requires to be reflected in a mutual fund's
performance. These indices are unmanaged. Actual investments may not be made
in an index. The STFB consists of a weighted average of 50% DMFA and 50%
Lehman Brothers 1-3 Year Government Bond Index. Lipper figures represent the
average of the total returns reported by 30 of the largest mutual funds
designated by Lipper Analytical Services, Inc. as falling into the respective
categories indicated.
** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LSTIBI, DMFA and STFB have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MANAGEMENT DISCUSSION & ANALYSIS
INTERMEDIATE BOND FUND
Interest rates continued to rise during the latest six-month period as
investors feared economic strength would translate into higher inflation.
Rising rates sent bond prices lower and depressed bond performance. Indicative
of the markets poor showing, ten-year U.S. Treasury notes returned (2.3%) for
the period and five-year Treasury notes returned (1.1%). The Marshall
Intermediate Bond Fund (the "Fund") was unable to escape the negative price
momentum during the period, but did benefit from positions in corporate and
mortgage securities which enhanced yield.
A buoyant economy characterized by low unemployment and low inflation is a
recipe for bond market volatility. Ultimately, the economy should give way to a
mature business cycle and calm fixed income investors. In the meantime,
economic fundamentals in conjunction with a strong stock market, make it
difficult for bonds to compete for investor dollars. In such an environment, it
is prudent to reduce the portfolio's exposure to changes in interest rates. The
Fund has moved to a duration neutral to that of its benchmark. This positioning
makes income a more important component of total return. Accordingly,
additional steps were taken to increase portfolio yield. To this end, exposure
to corporate bonds remains high and asset-backed and mortgage-backed positions
were increased.
GROWTH OF $10,000 INVESTED IN MARSHALL INTERMEDIATE BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Fund from November 20, 1992 (start of performance) to August 31, 1996 compared
to the Lehman Brothers Intermediate Government/Corporate Bond Index (LGCI) and
the Lipper Intermediate Investment Grade Bond Funds Index (LIBF).*
`Graphic representation ``G'' omitted. See Appendix.''
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
* The LGCI and the LIBF are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in a mutual fund's
performance. Actual investments may not be made in an index. LGCI is an
unmanaged index comprised of government and corporate bonds rated BBB or
higher with maturities between 1-10 years. Lipper figures represent the
average of the total returns reported by 30 of the largest mutual funds
designated by Lipper Analytical Services, Inc. as falling into the respective
categories indicated.
** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LGCI and the LIBF have been adjusted to reflect reinvestment of dividends on
securities in the indices.
MARSHALL FUNDS
GOVERNMENT INCOME FUND
For the fiscal year ended August 31, 1996, the Marshall Government Income Fund
(the "Fund") generated a total return of 4.02%.* Although modest in absolute
terms, the Fund compared favorably to other mortgage funds. For the one-year
period ended September 30, 1996, the Fund was ranked 24 out of 60 U.S. Mortgage
Funds, based on total return, according to the Lipper Analytical Services, Inc.
In a period characterized by a strong rally during the final months of 1995 and
a sharp decline in early 1996, mortgages performed well compared to other asset
classes. The Lehman Brothers Mortgage-Backed Securities Index** returned 4.97%,
for the one year versus the Lehman Brothers Treasury Bond Index** return of
3.69% and the Lehman Brothers Government/Corporate (Total) Index** return of
3.79%.** Mortgages benefited from a strengthening position in both supply of
new mortgages and demand from investors. The supply of new mortgages coming
from homeowners refinancing virtually stopped due to the rise in interest
rates. The dearth of mortgages from refinancing was only modestly offset by a
resilient home purchase market. Demand for mortgages from investors was due to
the higher relative yields compared to other fixed-rate investments and the
desire to capture the higher relative returns mortgages historically generate
in a bear market.
The generally higher relative yields in mortage investments must be
tempered by the call and extension risk inherent in the securities. As rates
fall, homeowners are quick to refinance and call away higher coupon mortgages
causing the duration of the Fund to shorten at a time when longer duration is
desired. Alternatively, fewer mortages are refinanced when rates rise causing
prepayments to slow and the average life of the mortgage to lengthen when a
shorter maturity is more attractive. Indicative of this average life
volatility, the Lehman Brothers Mortgage-Backed Securities Index had a duration
of 4.4 years in August 1994, 3.5 years in August 1995, and 4.3 years on August
31, 1996. Managing the Fund's duration is a primary concern in markets where
interest rates move by more than 100 basis points both up and down.
The portfolio strategy changed decidedly from the first four months of the
fiscal year to the last eight. During the first four months, the portfolio was
characterized by a longer duration with Treasury and lower coupon mortgage
pass-through holdings. In the final eight months, the Fund's duration was
neutral to the Lehman Brothers Mortgage-Backed Securities Index with an
overweighting in the premium or high coupon mortgages and no Treasury holdings.
A cautious duration stance, while generating the maximum level of yield and
current income, has been the strategy in the closing months of the fiscal year.
It is likely to be the strategy until the November elections and a clearer
picture of Federal Reserve Board policy is determined.
MANAGEMENT DISCUSSION & ANALYSIS
GROWTH OF $10,000 INVESTED IN MARSHALL GOVERNMENT INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Marshall Government Income Fund (the "Fund") from December 13, 1992 (start of
performance) to August 31, 1996 compared to the Lehman Brothers Mortgage-Backed
Securities Index (LMI) and the Lipper U.S. Mortgage Funds Index (LUSMI).**
`Graphic representation ``H'' omitted. See Appendix.''
* Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
** The LMI and the LUSMI are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in a mutual fund's
performance. Actual investments may not be made in an index. LMI is an
unmanaged index comprised 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).
Lehman Brothers Treasury Bond Index is an unmanaged index comprised entirely
of U.S. Treasury obligations. Lehman Brothers Government/Corporate (Total)
Index is an unmanaged index 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 corporations; and publicly issued, fixed-rate, non-convertible
domestic bonds of companies in industry, public utilities and finance.
Lipper figures represent the average of the total returns reported by 30 of
the largest mutual funds designated by Lipper Analytical Services, Inc. as
falling into the respective categories indicated.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
The LMI and the LUSMI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MARSHALL FUNDS
INTERMEDIATE TAX-FREE FUND
For the fiscal year ended August 31, 1996, the Marshall Intermediate Tax-Free
Fund provided a total return of 3.57%.* The past year provided both bullish and
bearish investors with an opportunity to justify their positions. Expectations
of a slower economy early in the fiscal year caused the Federal Reserve Board
to lower short-term interest rates. Contrary to most economic forecasts, the
slow period of winter growth soon evolved into a robust spring and summer. As
is usual in the bond market, faster growth sparked renewed inflationary
worries. This anxiety immediately caused interest rates to rise, despite the
fact that consumer inflation remains benign when compared to recent economic
cycles.
Although recent returns from bonds generally have been disappointing to
most investors, municipal bonds have performed better than most taxable bond
sectors. Fears of tax reform have faded, along with the Republican hopes of
being elected this fall. It should be noted that Dole's tax plan proposals of
lower marginal tax rates would generally be negative for municipal securities
that rely heavily on their tax-exempt status to be considered beneficial to
individual investors. Anything that would deter one from buying municipal bonds
could cause problems as individuals are the dominant participants in today's
tax-free market. As long as President Clinton maintains a double digit lead in
the election polls, the worry over potential tax reform will remain
inconsequential.
Another support under the municipal market has been the general lack of
supply of new issues. Reasons why municipal supply is light include, the
inability of issuers to advance refund older securities and the general lack of
approval voters give to referendums allowing the issuance of tax-supported
bonds for various proposed projects across the country.
The performance of bonds as an asset class has lagged stocks by a wide
margin over the last few years. Thus, many investors have chosen to reduce or
eliminate their allocation to bonds in their portfolios. For investors in the
top marginal tax brackets, one should not ignore the potential benefit of
owning municipal securities. Whenever the taxable equivalent yield of a
municipal bond approaches the long-term compound annual return of the equity
market, the less risky bond alternative should attract renewed interest. We
will strive to build a portfolio that offers a competitive return for our
shareholders.
GROWTH OF $10,000 INVESTED IN MARSHALL INTERMEDIATE TAX-FREE FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Marshall Intermediate Tax-Free Fund (the "Fund") from February 2, 1994 (start
of performance) to August 31, 1996 compared to the Lehman Brothers 5-Year
General Obligations Bonds Index (L5GO) and the Lipper Intermediate Municipal
Funds Index (LIMI).**
`Graphic representation ``I'' omitted. See Appendix.''
* Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost.
** The L5GO and the LIMI are not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in a mutual fund's
performance. Actual investments may not be made in an index. L5GO is an
unmanaged index comprised of all state general obligation debt issues with
maturities between four and six years. Lipper figures represent the average
of the total returns reported by 30 of the largest mutual funds designated
by Lipper Analytical Services, Inc. as falling into the respective
categories indicated.
*** Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions.
The L5GO and the LIMI have been adjusted to reflect reinvestment of
dividends on securities in the indices.
MANAGEMENT DISCUSSION & ANALYSIS
MONEY MARKET FUND
For the fiscal year ended August 31, 1996, the Marshall Money Market Fund (the
"Fund") provided a total return of 5.39%* for the Class A shares and 5.07%* for
the Class B shares. This compares to a return of 5.08% for the IBC/Donoghue's
Taxable Money Fund Average ("Donoghue's").** The Fund's 7-day net yield on
August 31, 1996, was 5.12% for Class A Shares and 4.82% for Class B Shares.* A
favorable maturity positioning relative to Donoghue's and the Fund's allocation
to various attractive sectors of the money market are some of the reasons for
the outperformance of the Fund. While the Fund began the period with an average
maturity of 78 days, it has ended the period at 53 days. The average maturity
has been steadily shortened since the beginning of the year in response to an
economy that has shown resilience, even in the face of higher long-term
interest rates.
At the beginning of the fiscal year, the economy looked sluggish and
stagnant. Economists were predicting the Federal Reserve Board (the "Fed")
would be easing interest rates throughout the year. These predictions were
short-lived, as the economic data in the first quarter showed the economy was
swiftly rebounding. Bond market participants have pushed interest rates higher
by over 1.0% in response to this growth. Higher interest rates typically slow
rate-sensitive sectors, such as housing and automobile production. Strength in
these and other sectors, even with higher rates, has caused many to worry about
the possibility of higher inflation. Price inflation, as measured by both the
Consumer Price Index and the Producer Price Index, has remained subdued. Both
the bond and stock markets are focused on the Fed and whether the Fed will
raise interest rates to restrain economic activity and prevent inflation.
* Performance quoted represents past performance and is not indicative of
future results. Yield will vary. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no
assurance that they will be able to do so. An investment in the Fund is
neither insured nor guaranteed by the U.S. government.
** IBC/Donoghue's Money Fund Report(TM) publishes annualized yields of hundreds
of money market funds on a weekly basis and through its Money Market Insight
publication reports monthly and year-to-date investment results for the same
money funds.
[This Page Intentionally Left Blank]
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
EQUITY INCOME FUND
<TABLE>
--------------------------------------------------
<CAPTION>
Shares Description Value
--------------------------------------------------
<C> <S> <C>
COMMON STOCKS--85.4%
CAPITAL GOODS--10.5%
AEROSPACE AND DEFENSE
27,000 Northrop Grumman Corp. $1,937,250
13,600 Rockwell International Corp. 707,200
21,500 Textron, Inc. 1,835,563
----------
Total 4,480,013
----------
ELECTRICAL EQUIPMENT
18,300 Amp, Inc. 699,975
93,300 General Electric Co. 7,755,563
----------
Total 8,455,538
----------
ELECTRONICS
21,000 General Signal Corp. 842,625
----------
MACHINERY & MACHINE TOOLS
10,000 Cooper Industries, Inc. 405,000
11,400 Dana Corp. 342,000
----------
Total 747,000
----------
OTHER CAPITAL GOODS
32,000 GenCorp, Inc. 444,000
41,000 Ogden Corp. 804,625
47,100 Tenneco, Inc. 2,343,225
----------
Total 3,591,850
----------
Total Capital Goods 18,117,026
----------
CONSUMER DURABLES--2.3%
AUTOMOTIVE & RELATED
52,600 Chrysler Corp. 1,531,975
52,000 Ford Motor Co. 1,742,000
----------
Total 3,273,975
----------
APPLIANCE
39,000 Maytag Corp. 784,875
----------
Total Consumer Durables 4,058,850
----------
CONSUMER NON-DURABLES--18.0%
BEVERAGES & FOODS
11,000 General Mills, Inc. 605,000
----------
COSMETICS/TOILETRIES
24,100 Tambrands, Inc. 1,024,250
----------
HEALTH CARE
19,000 Abbott Laboratories 857,375
34,000 American Home Products Corp. 2,014,500
18,500 Bausch & Lomb, Inc. 612,812
40,000 Baxter International, Inc. 1,785,000
40,500 Bristol Myers Squibb Co. 3,553,875
27,000 Lilly (Eli) & Co. 1,545,750
23,000 Merck & Co., Inc. 1,509,375
104,000 Pharmacia & Upjohn, Inc. 4,368,000
----------
Total 16,246,687
----------
PHOTOGRAPHY
23,500 Eastman Kodak Co. 1,703,750
----------
RETAIL
16,300 May Department Stores Co. 741,650
25,600 Penney JC Inc. 1,353,600
----------
Total 2,095,250
----------
SERVICES
16,400 Block H&R, Inc. 410,000
----------
</TABLE>
<TABLE>
-----------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
TOBACCO
23,900 American Brands, Inc. $970,936
66,100 Philip Morris Cos., Inc. 5,932,475
84,800 RJR Nabisco Holdings 2,236,600
----------
Total 9,140,011
----------
Total Consumer Non-Durables 31,224,948
----------
ENERGY--13.4%
DOMESTIC & INTERNATIONAL OIL
19,000 Amoco Corp. 1,311,000
21,000 Ashland, Inc. 779,625
13,300 Atlantic Richfield Co. 1,552,775
42,700 Exxon Corp. 3,474,712
34,500 Mobil Corp. 3,889,875
64,000 Occidental Petroleum Corp. 1,488,000
19,600 Royal Dutch Petroleum Co., ADR 2,927,750
14,299 Sun, Inc. 337,814
20,700 Texaco, Inc. 1,837,125
20,200 Ultramar Corp. 555,500
50,000 Unocal Corp. 1,712,500
123,300 USX Marathon Group 2,573,888
----------
Total 22,440,564
----------
OIL SERVICE
40,000 McDermott International, Inc. 830,000
----------
Total Energy 23,270,564
----------
FINANCIAL--17.7%
BANKS
32,500 Ahmanson (H.F.) & Co. 820,625
52,910 Banc One Corp. 2,030,421
13,000 Bank of Boston Corp. 685,750
62,600 Bank of New York, Inc. 1,744,975
38,200 (a)Bankamerica Corp. 2,960,500
39,532 Chase Manhattan Corp. 2,940,192
21,500 Citicorp 1,789,875
20,000 Corestates Financial Corp. 827,500
12,500 Crestar Financial Corp. 726,562
22,000 First Tennessee National Corp. 750,750
36,500 Fleet Financial Group, Inc. 1,523,875
23,400 Mellon Bank Corp. 1,295,775
29,000 NationsBank Corp. 2,468,625
9,975 Old Kent Financial Corp. 402,741
30,500 Summit Bancorp 1,181,875
----------
Total 22,150,041
----------
FINANCIAL SERVICES
25,600 Federal National Mortgage Association 793,600
----------
INSURANCE
26,000 American General Corp. 949,000
24,500 Cigna Corp. 2,845,062
36,100 IPC Holdings Ltd. 744,563
15,600 ITT Hartford Group, Inc. 822,900
19,400 Safeco Corp. 642,625
----------
Total 6,004,150
----------
OTHER FINANCIAL
23,700 Hospitality Properties Trust 633,975
40,000 Storage Trust Realty 875,000
15,000 Summit Properties, Inc. 286,875
----------
Total 1,795,850
----------
Total Financial 30,743,641
----------
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
EQUITY INCOME FUND (continued)
<TABLE>
<CAPTION>
------------------------------------------------------------
Shares Description Value
------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
RAW MATERIALS/INTERMEDIATE GOODS--7.2%
CHEMICALS
16,900 Dow Chemicals Co. $1,347,775
41,300 Du Pont (E.I.) DeNemours 3,391,762
20,000 Goodrich B.F. Co. 750,000
55,000 Monsanto Co. 1,766,875
22,500 Nalco Chemicals Co. 722,813
----------
Total 7,979,225
----------
OTHER RAW MATERIALS
101,200 Hanson PLC, ADR 1,277,650
----------
PAPERS
20,200 International Paper Co. 808,000
20,800 Kimberly-Clark Corp. 1,630,200
19,000 Weyerhaeuser Co. 847,875
----------
Total 3,286,075
----------
Total Raw Materials/Intermediate Goods 12,542,950
----------
TRANSPORTATION--0.8%
RAILROAD
19,000 Union Pacific Corp. 1,384,625
----------
UTILITIES--15.5%
ELECTRIC
28,000 Central & SouthWest Corp. 738,500
34,600 Duke Power Co. 1,617,550
41,000 Edison International 712,375
33,600 Entergy Corp. 852,600
56,700 FPL Group, Inc. 2,508,975
22,400 GPU, Inc. 705,600
37,800 Houston Industries, Inc. 822,150
44,400 Nipsco Industries, Inc. 1,642,800
13,800 New York State Electric & Gas Corp. 296,700
59,400 Pinnacle West Capital Corp. 1,707,750
24,000 Public Services Enterprise Group 651,000
40,700 Texas Utilities Co. 1,668,700
13,900 Wisconsin Energy Corp. 382,250
9,100 WPS Resources Corp. 284,375
----------
Total 14,591,325
----------
GAS DISTRIBUTION
17,000 Consolidated Natural Gas Co. 924,375
24,000 Questar Corp. 870,000
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
GAS DISTRIBUTION (continued)
31,400 Sonat, Inc. $1,385,525
23,000 Wicor, Inc. 825,125
------------
Total 4,005,025
------------
TELECOMMUNICATIONS
67,200 BellSouth Corp. 2,436,000
54,900 Frontier Corp. 1,619,550
20,000 GTE Corp. 787,500
49,000 Pacific Telesis Group 1,586,375
33,200 Sprint Corp. 1,348,750
14,100 U.S. West, Inc. 415,950
------------
Total 8,194,125
------------
Total Utilities 26,790,475
------------
TOTAL COMMON STOCKS (IDENTIFIED COST $128,510,617) 148,133,079
------------
CONVERTIBLE BONDS--0.3%
$550,000 Hilton Hotels Corp., Conv. Sub. Note, 5.00%,
5/15/2006 576,736
------------
TOTAL CONVERTIBLE BONDS (IDENTIFIED COST $550,000) 576,736
------------
CONVERTIBLE PREFERRED STOCKS--0.6%
ENERGY--0.2%
10,700 Sun, Inc., Conv. Pfd., Series A, $1.80 263,488
------------
SERVICES--0.4%
23,500 Browning Ferris Industries, Inc., 7.25% ACES
Converts 6/30/1998 693,250
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (IDENTIFIED
COST $1,131,437) 956,738
------------
U.S. TREASURY BILLS--0.1%
$140,000 due 12/12/1996
(at amortized cost) 138,040
------------
(B)REPURCHASE AGREEMENT--14.1%
$24,476,000 Goldman Sachs & Co., 5.25%, dated 8/30/1996, due
9/3/1996 (at amortized cost) 24,476,000
------------
TOTAL INVESTMENTS (IDENTIFIED COST $154,806,094) $174,280,593
============
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
VALUE EQUITY FUND
<TABLE>
--------------------------------------------------------------
<CAPTION>
Shares Description Value
--------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 82.9%
CAPITAL GOODS -- 4.5%
ELECTRICAL EQUIPMENT
136,500 (c)Silicon Graphics, Inc. $3,173,625
----------
MACHINERY & MACHINE TOOLS
275,650 Giddings & Lewis, Inc. 3,583,450
----------
OFFICE EQUIPMENT
85,500 (d)Apple Computer, Inc. 2,073,375
----------
Total Capital Goods 8,830,450
----------
CONSUMER DURABLES -- 9.9%
AUTOMOTIVE & RELATED
31,000 Ford Motor Co. 1,038,500
----------
BUILDING & FOREST PRODUCTS
80,000 American Greetings Corp., Class A 2,060,000
18,000 Champion International Corp. 774,000
12,500 Georgia-Pacific Corp. 929,687
36,700 Houghton Mifflin Co. 1,743,250
42,000 (d)James River Corp. of Virginia 1,092,000
59,400 (d)Lafarge Corp. 1,128,600
56,000 (d)Louisiana-Pacific Corp. 1,218,000
20,900 (d)Mead Corp. 1,196,525
----------
Total 10,142,062
----------
HOMEBUILDERS
109,000 Kaufman & Broad Homes Corp. 1,335,250
----------
HOUSEHOLD PRODUCT/WARES
66,000 Dial Corp. Del. 759,000
51,000 Rubbermaid, Inc. 1,351,500
213,400 (d)Sunbeam Corp. 4,641,450
----------
Total 6,751,950
----------
Total Consumer Durables 19,267,762
----------
CONSUMER NON-DURABLES -- 19.8%
BEVERAGES & FOODS
308,000 Darden Restaurants, Inc. 2,464,000
98,000 Dean Foods Co. 2,535,750
105,200 International Multifoods Corp. 1,748,950
93,900 Supervalu, Inc. 2,640,938
----------
Total 9,389,638
----------
PHARMACEUTICALS & HEALTH CARE
182,400 (c)Acuson Corp. 2,485,200
131,450 (d)Caremark International, Inc. 3,269,819
25,600 (d)Ciba-Giegy AG, ADR 1,638,400
103,050 (d)Mallinckrodt Group, Inc. 4,173,525
191,200 (c)Tenet Healthcare Corp. 4,015,200
125,000 (c)Value Health, Inc. 1,984,375
----------
Total 17,566,519
----------
RETAIL
52,500 Dillard Department Stores, Inc., Class A 1,785,000
35,000 (c)(d)Federated Department Stores, Inc. 1,211,875
77,778 (d)Limited, Inc. 1,438,893
46,000 Melville Corp. 1,943,500
138,000 (c)Price/Costco, Inc. 2,742,750
----------
Total 9,122,018
----------
</TABLE>
---------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
SERVICES
66,000 Viad Corp. $940,500
48,000 WMX Technologies, Inc. 1,518,000
----------
Total 2,458,500
----------
Total Consumer Non-Durables 38,536,675
----------
ENERGY -- 6.7%
INTERNATIONAL OIL
27,400 (d)Royal Dutch Petroleum Co., ADR 4,092,875
----------
OIL & GAS PRODUCTS
18,700 (d)Mobil Corp. 2,108,425
56,000 (d)Occidental Petroleum Corp. 1,302,000
24,400 (d)Texaco, Inc. 2,165,500
162,120 USX Marathon Group 3,384,255
----------
Total 8,960,180
----------
Total Energy 13,053,055
----------
FINANCIAL -- 9.6%
BANKS
125,900 Ahmanson (H.F.) & Co. 3,178,975
80,000 (d)Bank of New York Co., Inc. 2,230,000
20,900 Chase Manhattan Corp. 1,554,437
65,400 (d)PNC Financial Corp. 2,043,750
----------
Total 9,007,162
----------
INSURANCE
15,800 (d)Aetna Services Inc. 1,044,775
41,196 Allstate Corp. 1,838,371
12,750 (d)CIGNA Corp. 1,480,594
63,000 Everest Reinsurance Holdings, Inc. 1,535,625
98,500 IPC Holdings Ltd. 2,031,563
40,400 (d)Torchmark Corp. 1,717,000
----------
Total 9,647,928
----------
Total Financial 18,655,090
----------
RAW MATERIALS/INTERMEDIATE GOODS -- 18.4%
CHEMICALS
335,600 Calgon Carbon Corp. 3,859,400
32,975 Eastman Chemical Co. 1,842,478
45,250 (d)Imperial Chemical Industries, PLC, ADR 2,290,781
97,000 Lawter International, Inc. 1,151,875
52,500 (d)Nalco Chemical Co. 1,686,563
202,800 (c)Pegasus Gold, Inc. 2,433,600
40,000 (d)Rhone-Poulenc, ADR 1,055,000
50,000 Wellman, Inc. 1,031,250
----------
Total 15,350,947
----------
INTERMEDIATE GOODS
143,000 (d)Canadian Pacific Ltd. 3,217,500
415,800 (d)Hanson PLC, ADR 5,249,475
----------
Total 8,466,975
----------
METALS
27,000 AK Steel Holding Corp. 1,005,750
488,950 Horsham Corp. 6,478,588
253,200 LTV Corp. 2,975,100
----------
Total 10,459,438
----------
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
VALUE EQUITY FUND (continued)
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
Principal
Amount
or Shares Description Value
----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
RAW MATERIALS/INTERMEDIATE GOODS (continued)
OTHER RAW MATERIALS
71,000 (d)Ball Corp. $1,677,375
-----------
Total Raw Materials/
Intermediate Goods 35,954,735
-----------
TELECOMMUNICATIONS -- 4.6%
SERVICES
37,500 GTE Corp. 1,476,562
90,000 MCI Communications Corp. 2,261,250
30,500 (d)SBC Communications, Inc. 1,422,063
68,000 U.S. West, Inc. 2,006,000
98,000 (c)(d)U.S. West Media Group 1,776,250
-----------
Total Telecommunications 8,942,125
-----------
TRANSPORTATION -- 3.6%
OTHER TRANSPORTATION
144,100 (d)APL, Ltd. 3,404,362
145,150 Alexander and Baldwin, Inc. 3,701,325
-----------
Total Transportation 7,105,687
-----------
UTILITIES -- 5.8%
ELECTRIC DISTRIBUTION
25,000 AT&T Corp. 1,312,500
153,600 Entergy Corp. 3,897,600
106,300 Houston Industries, Inc. 2,312,025
22,100 (d)NIPSCO Industries, Inc. 817,700
35,600 Pinnacle West Capital Corp. 1,023,500
48,000 Telephone and Data System, Inc. 2,046,000
-----------
Total Utilities 11,409,325
-----------
TOTAL COMMON STOCKS (identified cost $158,911,469) 161,754,904
-----------
(E)COLLATERAL FOR SECURITIES LENDING -- 27.4%
$3,000,000 (f)Bear, Stearns & Co., Inc., 5.68%, 9/11/1996 3,000,000
2,812,500 (f)Carco Auto Trust, 5.485%, 9/16/1996 2,821,781
3,000,000 (f)Chrysler Corp., 5.58%, 9/18/1996 2,998,290
2,000,000 (f)Citicorp, 5.513%, 9/30/1996 1,993,540
1,067,231 Dreyfus Cash Management Plus (shares at net asset
value) 1,067,231
2,000,000 Federal Signal Corp., 5.5%, 9/3/1996 2,000,000
10,000,000 (b)First Boston Repurchase Agreement, 5.45%,
9/3/1996 10,000,000
2,000,000 (f)General Electric Capital Corp., 5.43%, 9/3/1996 1,997,200
3,500,000 GMAC, 5.315%, 9/3/1996 3,500,000
3,000,000 (f)Heller Financial Corp., 5.42%, 9/3/1996 3,000,000
14,000,000 (b)Morgan Stanley Repurchase Agreement, 5.375%,
9/3/1996 14,000,000
2,000,000 Sears, Roebuck Acceptance Corp., 5.334%, 9/4/1996 2,000,000
3,000,000 (f)Sears, Roebuck & Co., 5.53%, 9/18/1996 2,997,480
</TABLE>
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
---------------------------------------------------------------------------
<C> <S> <C>
(E)COLLATERAL FOR SECURITIES LENDING (continued)
$2,000,000 Superior Wholesale Inventory Financing Trust,
5.572%, 9/16/1996 $2,001,400
------------
TOTAL COLLATERAL FOR SECURITIES LENDING (at
amortized cost) 53,376,922
------------
(B)REPURCHASE AGREEMENT -- 16.7%
32,606,000 Goldman Sachs & Co., 5.25%, dated 8/30/1996, due
9/3/1996 (at amortized cost) 32,606,000
------------
TOTAL INVESTMENTS (identified cost $244,894,391) $247,737,826
============
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
STOCK FUND
<TABLE>
-----------------------------------------------------------
<CAPTION>
Shares Description Value
-----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 98.2%
BASIC INDUSTRIES -- 4.7%
CHEMICALS
65,000 Du Pont (E.I.) de Nemours $5,338,125
----------
PAPER
51,000 Georgia-Pacific Corp. 3,793,125
35,000 Kimberly-Clark Corp. 2,743,125
----------
Total 6,536,250
----------
Total Basic Industries 11,874,375
----------
BASIC MATERIALS -- 1.6%
CHEMICALS
75,000 Air Products & Chemicals, Inc. 4,106,250
----------
CAPITAL GOODS -- 24.5%
AEROSPACE AND RELATED
46,000 Boeing Co. 4,163,000
90,000 General Dynamics Corp. 5,771,250
----------
Total 9,934,250
----------
COMPUTER SERVICES
90,000 Electronic Data Systems Corp. 4,905,000
150,000 Equifax, Inc. 3,825,000
66,000 First Data Corp. 5,148,000
54,000 Hewlett-Packard Co. 2,362,500
26,500 International Business Machines Corp. 3,030,938
31,000 (c)Microsoft Corp. 3,797,500
----------
Total 23,068,938
----------
ELECTRICAL EQUIPMENT
46,000 Emerson Electric Co. 3,852,500
83,000 General Electric Co. 6,899,375
----------
Total 10,751,875
----------
ELECTRONICS
49,000 Intel Corp. 3,910,813
35,000 Motorola, Inc. 1,868,125
----------
Total 5,778,938
----------
OTHER CAPITAL GOODS
55,000 Briggs & Stratton Corp. 2,392,500
75,000 Fluor Corp. 4,800,000
155,000 WMX Technologies, Inc. 4,901,875
----------
Total 12,094,375
----------
Total Capital Goods 61,628,376
----------
CONSUMER NON-DURABLES -- 32.9%
BEVERAGES & FOODS
50,000 Anheuser-Busch Cos., Inc. 3,787,500
70,000 McDonalds Corp. 3,246,250
155,000 PepsiCo, Inc. 4,456,250
148,000 Quaker Oats Co. 4,865,500
----------
Total 16,355,500
----------
COSMETICS/TOILETRIES
150,000 Dial Corp. 1,725,000
----------
ENTERTAINMENT
23,000 Disney (Walt) Co. 1,311,000
----------
HEALTH CARE
95,000 Abbott Laboratories 4,286,875
70,000 Merck & Co., Inc. 4,593,750
107,500 Pharmacia & Upjohn, Inc. 4,515,000
70,000 Schering Plough Corp. 3,911,250
----------
Total 17,306,875
----------
</TABLE>
----------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
----------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
MEDIA
55,000 Gannett Co., Inc. $3,685,000
110,000 New York Times Co., Class A 3,437,500
----------
Total 7,122,500
----------
OTHER CONSUMER NON-DURABLES
40,000 Minnesota Mining & Manufacturing Co. 2,750,000
----------
RETAIL
155,000 (c)Federated Department Stores, Inc. 5,366,875
75,000 Home Depot, Inc. 3,984,375
95,000 (c)Kohl's Corp. 3,610,000
100,000 (c)Toys "R" Us, Inc. 2,950,000
125,000 Walgreen Co. 4,125,000
----------
Total 20,036,250
----------
SERVICES
50,000 Eastman Kodak Co. 3,625,000
225,000 Viad Corp. 3,206,250
----------
Total 6,831,250
----------
TOBACCO
45,000 Philip Morris Cos., Inc. 4,038,750
195,000 RJR Nabisco Holdings Corp. 5,143,125
----------
Total 9,181,875
----------
Total Consumer Non-Durables 82,620,250
----------
ENERGY -- 10.6%
INTERNATIONAL OIL & GAS
50,000 Amerada-Hess Corp. 2,543,750
70,000 Exxon Corp. 5,696,250
190,000 Occidental Petroleum Corp. 4,417,500
30,000 Royal Dutch Petroleum Co., ADR 4,481,250
55,000 Texaco, Inc. 4,881,250
----------
Total 22,020,000
----------
OIL & GAS PRODUCTS
20,000 Consolidated Natural Gas Co. 1,087,500
90,000 Enron Corp. 3,611,250
----------
Total 4,698,750
----------
Total Energy 26,718,750
----------
FINANCIAL -- 14.5%
BANKS
150,000 Bank of New York Co., Inc. 4,181,250
70,000 BankAmerica Corp. 5,425,000
78,000 Chase Manhattan Corp. 5,801,250
50,000 Mellon Bank Corp. 2,768,750
----------
Total 18,176,250
----------
INSURANCE
45,000 American International Group, Inc. 4,275,000
95,000 Chubb Corp. 4,215,624
----------
Total 8,490,624
----------
OTHER FINANCIAL
105,000 American Express Company 4,593,750
60,000 Federal Home Loan Mortgage Corp. 5,302,500
----------
Total 9,896,250
----------
Total Financial 36,563,124
----------
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
STOCK FUND (continued)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
RAW MATERIALS/INTERMEDIATE GOODS -- 1.3%
INTERMEDIATE GOODS
250,000 Hanson PLC, ADR $3,156,250
------------
TRANSPORTATION -- 0.7%
RAILROAD
25,000 Union Pacific Corp. 1,821,875
------------
UTILITIES -- 7.4%
ELECTRIC
55,000 Duke Power Co. 2,571,250
80,000 Wisconsin Energy Corp. 2,200,000
------------
Total 4,771,250
------------
TELECOMMUNICATIONS
115,000 AT&T Corp. 6,037,500
75,000 Ameritech Corp. 3,871,875
100,000 GTE Corp. 3,937,500
------------
Total 13,846,875
------------
Total Utilities 18,618,125
------------
TOTAL COMMON STOCKS (identified cost, $227,645,060) 247,107,375
------------
(B)REPURCHASE AGREEMENT -- 1.2%
$3,030,000 Goldman Sachs & Co., 5.25%, dated 8/30/1996, due
9/3/1996 (at amortized cost) 3,030,000
------------
TOTAL INVESTMENTS (identified cost, $230,675,060) $250,137,375
============
</TABLE>
- --------------------------------------------------------------------------------
MID-CAP STOCK FUND
<TABLE>
----------------------------------------------------------------------
<CAPTION>
Shares Description Value
----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 96.1%
CAPITAL GOODS -- 3.9%
COMPUTERS
30,000 (c)(d)Dell Computer Corp. $2,013,750
30,000 (c)Gateway 2000, Inc. 1,336,875
----------
Total 3,350,625
----------
ELECTRICAL EQUIPMENT
50,000 (c)(d)Parametric Technology Corp. 2,264,062
----------
Total Capital Goods 5,614,687
----------
CONSUMER DURABLES -- 3.9%
AUTOMOTIVE AND RELATED
75,000 Harley-Davidson, Inc. 3,075,000
----------
FURNITURE
50,000 (d)Industrie Natuzzi Spa, ADR 2,525,000
----------
Total Consumer Durables 5,600,000
----------
CONSUMER NON-DURABLES -- 64.5%
BROADCASTING
40,000 Belo (A.H.) Corp., Series A 1,605,000
60,000 (c)Emmis Broadcasting Corp., Class A 3,135,000
50,000 (c)Lin Television Corp. 1,787,500
75,000 (c)Westwood One, Inc. 1,284,375
----------
Total 7,811,875
----------
COMMERCIAL SERVICES
45,000 (c)(d)AccuStaff, Inc. 1,046,250
50,000 (c)BDM International, Inc. 2,650,000
50,000 (c)Ceridian Corp. 2,131,250
50,000 (c)Dendrite International, Inc. 1,250,000
70,000 (c)FiServ, Inc. 2,371,250
42,000 (c)FYI, Inc. 819,000
40,000 Manpower, Inc. 1,425,000
70,000 (c)Sitel Corp. 2,458,750
50,000 (c)(d)Superior Services, Inc. 812,500
50,000 (c)TeleTech Holdings, Inc. 1,318,750
130,400 (c)Transaction Systems Architects, Inc., Class A 3,977,200
75,000 (c)(d)Youth Services International, Inc. 1,453,125
----------
Total 21,713,075
----------
COMPUTER SERVICES
30,000 (c)(d)BMC Software, Inc. 2,235,000
----------
DRUGS
125,000 (c)North American Vaccine, Inc. 2,718,750
35,000 (c)(d)Parexel International Corp. 1,697,500
----------
Total 4,416,250
----------
ENERGY
75,000 Apache Corp. 2,203,125
----------
FOREST PRODUCTS & PAPER
85,000 (c)Fort Howard Corp. 2,008,125
----------
HEALTH CARE
55,000 (d)Cardinal Health, Inc. 4,035,625
60,000 (c)(d)HEALTHSOUTH Corp. 1,942,500
100,000 (c)Health Management Association, Class A Shares 2,275,000
70,000 (c)OccuSystems, Inc. 1,942,500
100,000 (d)Omnicare, Inc. 2,450,000
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
MID-CAP STOCK FUND (continued)
-------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value
-------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CONSUMER NON-DURABLES (continued)
HEALTH CARE (continued)
50,000 (c)Sola International, Inc. $1,750,000
60,000 United States Surgical Corp. 2,190,000
----------
Total 16,585,625
----------
LEISURE & RECREATION
100,000 (c)(d)Circus Circus Enterprises, Inc. 3,400,000
60,000 International Game Technology 1,222,500
100,000 (c)Mirage Resorts, Inc. 2,325,000
70,000 (c)(d)Regal Cinemas, Inc. 2,607,500
----------
Total 9,555,000
----------
MEDICAL SUPPLIES
75,000 (c)Henry Schein, Inc. 2,493,750
50,000 (c)Physio-Control International Corp. 918,750
----------
Total 3,412,500
----------
OTHER CONSUMER NON-DURABLES
75,000 (c)Smith International, Inc. 2,606,250
----------
RESTAURANTS
70,000 (c)(d)Landrys Seafood Restaurants, Inc. 1,933,750
50,000 (c)Outback Steakhouse, Inc. 1,412,500
30,000 (c)(d)Papa Johns International, Inc. 1,357,500
----------
Total 4,703,750
----------
RETAIL
50,000 (c)(d)Bed Bath & Beyond, Inc. 1,131,250
35,000 (c)(d)Department 56, Inc. 835,625
65,000 (c)(d)Gymboree Corp. 1,876,875
100,000 (c)Kohl's Corp. 3,800,000
60,000 (c)(d)Oakley, Inc. 2,460,000
50,000 (c)Tommy Hilfiger Corp. 2,506,250
----------
Total 12,610,000
----------
SERVICES
100,000 (c)(d)Apollo Group, Inc., Class A 2,550,000
----------
Total Consumer Non-Durables 92,410,575
----------
FINANCIAL -- 10.8%
70,000 Advanta Corp., Class B 3,115,000
65,000 (c)(d)Credit Acceptance Corp. 1,446,250
25,000 Crestar Financial Corp. 1,453,125
30,000 First of America Bank Corp. 1,417,500
65,000 Firstar Corp. 3,071,250
75,000 (c)Imperial Credit Industries, Inc. 2,268,750
40,000 (d)Northern Trust Corp. 2,625,000
----------
Total Financial 15,396,875
----------
INSURANCE -- 1.9%
50,000 AMBAC, Inc. 2,718,750
----------
TELECOMMUNICATIONS -- 9.9%
70,000 (c)ADC Telecommunications, Inc. 3,972,500
70,000 (c)(d)Andrew Corp. 3,115,000
40,000 (c)Brooks Fiber Properties, Inc. 1,200,000
70,000 (c)(d)Tellabs, Inc. 4,436,250
90,000 (c)Transaction Network Services, Inc. 1,485,000
----------
Total Telecommunications 14,208,750
----------
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
TRANSPORTATION -- 1.2%
RAILROAD
50,000 (c)(d)Wisconsin Central Transportation Corp. $1,762,500
------------
TOTAL COMMON STOCKS (identified cost, $116,092,539) 137,712,137
------------
(G)U.S. TREASURY BILL -- 0.1%
$140,000 12/12/1996 (at amortized cost) 138,040
------------
(E)COLLATERAL FOR SECURITIES LENDING -- 21.6%
1,233,400 Dreyfus Cash Management Plus (shares at net asset
value) 1,233,400
5,000,000 General Motors Acceptance Corp., 5.316%, 9/3/1996 5,000,000
3,750,000 Federal Signal Corp., 5.50%, 9/3/1996 3,750,000
3,000,000 JP Morgan Securities, 5.479%, 9/3/1996 3,000,000
10,000,000 (b)First Boston Corporate Repurchase Agreement
5.45%, dated 8/30/1996, due 9/3/1996 10,000,000
5,000,000 (b)Merrill Lynch Corporate Repurchase Agreement
5.40%, dated 8/30/1996, due 9/3/1996 5,000,000
3,000,000 Sears Roebuck Acceptance Corp., 5.334%, 9/4/1996 3,000,000
------------
TOTAL COLLATERAL FOR SECURITIES LENDING (at
amortized cost) 30,983,400
------------
(B)REPURCHASE AGREEMENT -- 4.3%
6,213,000 Goldman Sachs & Co., 5.25%, dated 8/30/1996, due
9/3/1996 (at amortized cost) 6,213,000
------------
TOTAL INVESTMENTS (identified
cost, $153,426,979) $175,046,577
============
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value in
Shares Description U.S. Dollars
--------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- 76.0%
ARGENTINA -- 0.7%
TELEPHONE -- 0.7%
42,750 (c)(h)Telefonica De Argentina S.A., ADR $1,020,656
----------
AUSTRALIA -- 3.5%
AIR TRAVEL -- 0.6%
50,500 (h)Qantas Airways, Ltd., ADR 799,142
----------
BANKING -- 0.8%
225,200 Westpac Banking, Corp., Ltd. 1,106,314
----------
BROADCASTING -- 0.2%
64,235 News Corp., Ltd. 342,492
----------
BUSINESS SERVICES -- 0.7%
72,000 Brambles Industries, Ltd. 1,076,497
----------
CONSTRUCTION MATERIALS -- 1.0%
481,200 Pioneer International, Ltd. 1,389,431
----------
INDUSTRIAL MACHINERY -- 0.2%
81,390 BTR PLC, Class A 325,148
----------
Total Australia 5,039,024
----------
AUSTRIA -- 1.9%
ELECTRIC UTILITIES -- 0.9%
9,900 Evn Energie-Versorgung Niederoesterreich AG 1,343,955
----------
INDUSTRIAL MACHINERY -- 1.0%
11,000 VA Technologie AG 1,406,885
----------
Total Austria 2,750,840
----------
BELGIUM -- 1.8%
CHEMICALS -- 0.9%
2,200 Solvay S.A. 1,286,581
----------
NON-FERROUS METALS -- 0.9%
15,900 (c)NV Union Miniere SA 1,223,277
----------
Total Belgium 2,509,858
----------
BRAZIL -- 1.3%
BROADCASTING -- 1.3%
25,500 Telecomunicacoes Brasileras, ADR 1,896,563
----------
CANADA -- 2.7%
BANKING -- 1.4%
60,000 Canada Imperial Bank of Commerce 2,001,169
----------
ELECTRONICS -- 0.7%
18,500 (c)Newbridge Networks Corp. 1,063,071
----------
INSURANCE -- 0.3%
18,600 London Insurance Group, Inc. 419,917
----------
MINING -- 0.3%
58,000 (c)Inmet Mining Corp. 396,215
----------
Total Canada 3,880,372
----------
CHILE -- 0.6%
TELEPHONE -- 0.6%
9,500 Compania De Telecomunicacion, ADR 928,625
----------
CHINA -- 0.6%
ELECTRIC UTILITIES -- 0.6%
94,100 Shandong Huaneng Power Company, Ltd., Class N, ADR 882,188
----------
</TABLE>
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value in
Shares Description U.S. Dollars
--------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
CZECHOSLOVAKIA -- 2.4%
BANKING -- 0.5%
4,000 Komercni Banka A.S. $385,342
12,000 (c)(h)Komercni Banka A.S., GDR 373,500
----------
Total 758,842
----------
ELECTRIC UTILITIES -- 0.8%
28,315 (c)CEZ A.S. 1,123,828
----------
TELECOMMUNICATIONS -- 1.1%
12,200 (c)SPT Telekom A.S. 1,601,218
----------
Total Czechoslavakia 3,483,888
----------
FINLAND -- 1.8%
CONGLOMERATES -- 0.8%
47,500 Amer Group, Ltd., Class A 1,157,863
----------
FINANCIAL SERVICES -- 0.6%
425,000 (c)Merita Ltd., Class A 901,020
----------
PAPER -- 0.4%
73,500 Metsa-Serla Oy, Class B 550,642
----------
Total Finland 2,609,525
----------
FRANCE -- 7.6%
AUTOMOBILES -- 0.8%
53,218 Renault S.A. 1,180,566
----------
BANKING -- 1.3%
50,581 Banque Nationale de Paris 1,822,487
----------
CHEMICALS -- 1.5%
82,332 Rhone-Poulenc, Class A 2,158,200
----------
CONTAINER & GLASS -- 0.3%
1,500 Compagnie Generale D'Industrie Et De Participation 357,051
----------
ELECTRICAL EQUIPMENT -- 1.0%
18,842 Alcatel Alsthom 1,459,033
----------
GAS EXPLORATION -- 1.3%
25,592 Elf Aquitaine 1,864,435
----------
HOLDING COS.-DIVERSIFIED -- 0.1%
1,766 Marine-Wendel SA 157,682
----------
INSURANCE -- 1.3%
32,819 AXA 1,842,475
----------
Total France 10,841,929
----------
GERMANY -- 3.3%
BANKING -- 1.3%
37,650 Deutsche Bank, AG 1,859,853
----------
CHEMICALS -- 1.3%
53,500 Bayer AG 1,912,780
----------
ELECTRIC UTILITIES -- 0.7%
3,600 (c)Veba Intl Finance-W98, Warrants, 4/6/1998 973,236
----------
Total Germany 4,745,869
----------
GREAT BRITAIN -- 8.6%
BANKING -- 1.0%
100,000 Barclays PLC 1,420,987
----------
ELECTRIC UTILITIES -- 1.1%
264,434 National Power Co. PLC 1,664,068
----------
ELECTRICAL EQUIPMENT -- 1.3%
345,694 The BICC Group 1,812,748
----------
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND (continued)
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Value in
Shares Description U.S. Dollars
--------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
GREAT BRITIAN (continued)
FOOD & BEVERAGES -- 2.2%
2,211,306 Albert Fisher Group PLC $1,467,528
585,865 Hillsdown Holdings PLC 1,665,013
----------
Total 3,132,541
----------
GAS & PIPELINE UTILITIES -- 1.0%
458,800 British Gas PLC 1,461,511
----------
POLLUTION CONTROL -- 0.4%
60,000 (c)Waste Management International PLC, ADR 562,500
----------
RETAIL TRADE -- 0.6%
146,100 Kwik Save Group PLC 901,148
----------
WATER UTILITIES -- 1.0%
125,166 Hyder PLC 1,432,646
----------
Total Great Britain 12,388,149
----------
HONG KONG -- 4.5%
BANKING -- 1.3%
104,807 HSBC Holdings PLC 1,809,588
----------
CONGLOMERATES -- 1.9%
210,000 Hutchinson Whampoa 1,271,081
171,500 Swire Pacific, Ltd., Class A 1,524,913
----------
Total 2,795,994
----------
ELECTRIC UTILITIES -- 0.2%
110,000 Hong Kong Electric Holdings, Ltd. 328,634
----------
FINANCIAL SERVICES -- 1.1%
485,500 Jardine Strategic Holdings Ltd. 1,553,600
----------
Total Hong Kong 6,487,816
----------
HUNGARY -- 0.6%
OIL & GAS -- 0.6%
88,814 (h)MOL Magyar Olay, ADR 910,344
----------
INDONESIA -- 0.4%
BANKING -- 0.1%
210,000 PT Pan Indonesia Bank 206,190
----------
FOREST PRODUCTS -- 0.3%
599,500 Barito Pacific Timber 371,089
----------
Total Indonesia 577,279
----------
ITALY -- 1.9%
PAPER -- 0.5%
170,000 Burgo (Cartiere) S.P.A. 773,520
----------
TELEPHONE -- 1.4%
825,000 STET-Societa Finanziaria Telefonica S.P.A. 1,990,221
----------
Total Italy 2,763,741
----------
JAPAN -- 3.6%
ELECTRICAL EQUIPMENT -- 1.5%
67,000 Hitachi Koki Co. 647,432
163,000 Hitachi, Ltd. 1,497,092
----------
Total 2,144,524
----------
ENGINEERING & CONSTRUCTION -- 0.9%
55,000 Daito Trust Construction 693,447
47,000 Kyudenko, Co., Ltd. 601,233
----------
Total 1,294,680
----------
</TABLE>
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value in
Shares Description U.S. Dollars
------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
JAPAN (continued)
HOUSEHOLD APPLIANCES & FURNISHINGS -- 1.2%
27,000 Sony Corp. $1,694,644
----------
Total Japan 5,133,848
----------
MEXICO -- 0.2%
CONTAINER & GLASS -- 0.2%
182,400 Vitro SA 356,043
----------
NETHERLANDS -- 4.5%
CHEMICALS -- 1.4%
11,700 Azko Nobel NV 1,360,334
20,000 European Vinyls Corp., International N.V. 589,476
----------
Total 1,949,810
----------
FINANCIAL SERVICES -- 1.4%
63,750 ING Groep, N.V. 1,986,544
----------
INSURANCE -- 1.2%
35,140 Aegon N.V. 1,715,593
----------
RETAIL TRADE -- 0.5%
9,657 Koninklijke Bijenkorf Beheer 750,861
----------
Total Netherlands 6,402,808
----------
NEW ZEALAND -- 2.1%
CONSTRUCTION MATERIALS -- 0.2%
137,500 Fletcher Challenge Building 302,813
----------
INVESTMENT COMPANIES -- 1.3%
1,853,300 Brierley Investments, Ltd. 1,842,425
----------
OIL & GAS -- 0.2%
137,500 Fletcher Challenge Energy 318,001
----------
PAPER -- 0.4%
275,000 Fletcher Challenge Paper 529,686
----------
Total New Zealand 2,992,925
----------
NORWAY -- 3.0%
COMMERCIAL SERVICES -- 0.4%
39,500 Unitor Ships Service 554,723
----------
DRUGS & HEALTHCARE -- 0.5%
56,000 (c)Nycomed ASA, Class B 668,477
----------
ELECTRIC UTILITIES -- 0.2%
56,000 Hafslund ASA, Class B 353,899
----------
ENGINEERING & CONSTRUCTION-- 0.7%
28,550 Kvaerner A.S., Class B 935,540
----------
NON-FERROUS METALS -- 0.6%
56,000 Elkem A.S. 795,181
----------
PETROLEUM SERVICES -- 0.6%
60,500 Saga Petroleum A.S., Class A 911,002
----------
Total Norway 4,218,822
----------
PHILIPPINES -- 0.3%
TELEPHONE -- 0.3%
12,820 (h)Philippine Long Distance Telephone Co., GDR 429,470
----------
PORTUGAL -- 0.6%
BANKING -- 0.4%
32,700 Banco Totta & Acores Nationalisiert, Class B 618,014
----------
FINANCIAL SERVICES -- 0.2%
25,000 BPI-SGPS S.A. 310,544
----------
Total Portugal 928,558
----------
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND (continued)
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value in
U.S.
Shares Description Dollars
---------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued)
SINGAPORE -- 1.1%
HOLDING COS.-DIVERSIFIED -- 0.8%
170,000 Jardine Matheson $1,071,000
-----------
RETAIL TRADE -- 0.3%
588,229 Dairy Farm International Holdings, Ltd. 464,701
-----------
Total Singapore 1,535,701
-----------
SPAIN -- 7.6%
BANKING -- 2.7%
46,000 Banco Bilbao Vizcaya 1,932,974
91,500 Corporacion Bancaria de Espana SA, ADR 1,898,625
-----------
Total 3,831,599
-----------
ELECTRIC UTILITIES -- 2.2%
24,500 Empresa Nac De Electridad 1,426,842
191,500 Iberdrola SA 1,728,740
-----------
Total 3,155,582
-----------
PETROLEUM SERVICES -- 1.2%
53,500 Repsol SA 1,737,388
-----------
TELEPHONE -- 1.5%
118,500 Telefonica de Espana 2,201,019
-----------
Total Spain 10,925,588
-----------
SWEDEN -- 6.2%
AUTOMOBILES -- 1.1%
76,500 Volvo AB 1,628,987
-----------
BANKING -- 2.3%
70,000 Stadshypotek AB 1,813,006
75,000 Svenska Handelsbanken, Series A 1,534,750
-----------
Total 3,347,756
-----------
DRUG & HEALTHCARE -- 1.0%
34,500 Astra AB, Class B 1,427,600
-----------
FOREST PRODUCTS -- 1.0%
98,000 Stora Kopparbergs, Class B 1,369,004
-----------
OFFICE & BUSINESS EQUIPMENT -- 0.7%
47,000 Esselte AB, Class A 986,619
-----------
TOBACCO -- 0.1%
73,500 (c)Swedish Match AB 210,901
-----------
Total Sweden 8,970,867
-----------
SWITZERLAND -- 2.6%
BUSINESS SERVICES -- 0.5%
300 Societe Generale de Surveillance Holding SA, Class B 701,075
-----------
ELECTRONICS -- 1.2%
1,350 ABB AG 1,663,459
-----------
INSURANCE -- 0.3%
1,800 Zurich Versicherungsgesellschaft 494,876
-----------
LEISURE -- 0.6%
350 Reiseburo Kuoni AG, Class B 810,631
-----------
Total Switzerland 3,670,041
-----------
TOTAL COMMON STOCKS (identified cost $98,312,524) 109,281,337
-----------
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares or
Principal Value in
Amount Description U.S. Dollars
------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS -- 0.6%
AUSTRALIA -- 0.3%
BROADCASTING -- 0.3%
106,572 News Corp., Ltd., Pfd. $480,548
---------
ITALY -- 0.3%
ENGINEERING & CONSTRUCTION-- 0.3%
260,000 Autostrade Priv 430,193
---------
TOTAL PREFERRED STOCKS (identified cost $777,553) 910,741
---------
CLOSED-END INVESTMENT COMPANIES -- 2.9%
26,000 (c)Chile Fund, Inc. 598,000
12 (c)Korea International Trust, ADR 534,000
353,400 (c)India Fund 604,268
9,000 Singapore Fund 108,000
62,677 Thailand Fund, Inc. 1,347,556
83,000 Turkish Growth Fund 975,250
---------
TOTAL CLOSED-END INVESTMENT COMPANIES (identified
cost $5,090,696) 4,167,074
---------
CONVERTIBLE BONDS -- 2.2%
CAYMAN ISLANDS -- 1.1%
$1,790,000 PIV Investment Finance, Company Guarantee, 4.50%,
12/1/2000 1,530,450
---------
SWITZERLAND -- 1.1%
$920,000 CS Holding AG, Company Guarantee, 4.875%,
11/19/2002 1,520,300
---------
TOTAL CONVERTIBLE BONDS (identified cost
$2,842,496) 3,050,750
---------
CONVERTIBLE PREFERRED STOCKS -- 2.6%
ARGENTINA -- 0.8%
24,080 Cointel, Telefonica de Argentina S.A. $5.04, PRIDES 1,167,880
---------
GREAT BRITIAN -- 0.1%
107,100 Hyder PLC, Pfd., $0.07875 167,657
---------
MEXICO -- 1.0%
42,978 Nacional Financiera, SNC 11.25%, PRIDES 1,461,252
---------
PHILIPPINES -- 0.7%
29,000 Philippine Long Distance Telephone Co., Conv. Pfd.,
Series II, $1.44 971,500
---------
TOTAL CONVERTIBLE PREFERRED STOCKS (identified cost
$3,808,085) 3,768,289
---------
GOVERNMENT AGENCIES -- 12.5%
(I)FEDERAL HOME LOAN BANK DISCOUNT
NOTES -- 4.8%
$1,300,000 5.31%, 9/12/1996 1,298,115
1,430,000 5.21%, 9/9/1996 1,428,344
3,665,000 5.22%, 11/13/1996 3,625,931
570,000 5.17%, 10/9/1996 566,889
---------
Total 6,919,279
---------
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERNATIONAL STOCK FUND (continued)
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Value in
Amount Description U.S. Dollars
--------------------------------------------------------------------
<C> <S> <C>
GOVERNMENT AGENCIES (continued)
(I)FEDERAL HOME LOAN MORTGAGE CORP.
DISCOUNT NOTES -- 0.1%
$200,000 5.29%, 9/3/1996 $199,941
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 1.3%
1,900,000 5.50%, 9/23/1996 1,900,988
------------
(I)FEDERAL NATIONAL MORTGAGE ASSOCIATION DISCOUNT
NOTES -- 6.3%
360,000 5.21%, 11/7/1996 356,483
1,325,000 5.26%, 9/9/1996 1,323,451
900,000 5.22%, 9/16/1996 898,043
1,955,000 5.23%, 9/19/1996 1,949,888
3,950,000 5.22%, 9/26/1996 3,935,681
510,000 5.26%, 9/12/1996 509,180
------------
Total 8,972,726
------------
TOTAL GOVERNMENT AGENCIES (identified cost
$17,992,320) 17,992,934
------------
U.S. TREASURY ISSUES -- 3.1%
2,016,000 Treasury Bill, 12/12/1996 1,987,776
230,000 Treasury Bill, 9/19/1996 229,416
70,000 Treasury Bill, 9/19/1996 69,828
50,000 Treasury Bill, 9/19/1996 49,873
860,000 Treasury Bill, 9/19/1996 857,826
355,000 Treasury Bill, 9/5/1996 355,011
95,000 Treasury Bill, 9/5/1996 94,948
836,000 Treasury Note, 5.125%, 4/30/1998 821,370
------------
TOTAL U.S. TREASURY ISSUES
(identified cost $4,477,932) 4,466,048
------------
TOTAL INVESTMENTS (identified
cost $133,301,606) $143,637,173
============
</TABLE>
- --------------------------------------------------------------------------------
SHORT-TERM INCOME FUND
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 26.7%
$2,125,000 Contimortgage Home Equity Loan Trust, Series 1995-
4, Class A3, 6.20%, 10/15/2010 $2,097,439
1,394,561 Equicon Home Equity Loan Trust, Series 1992-7,
Class A, 5.90%, 9/18/2005 1,391,173
310,922 Ford Credit Grantor Trust, Series 1993-B, Class A,
4.30%, 7/15/1998 309,454
940,400 Green Tree Acceptance Corp., Series 1994-4, Class
A1, 6.55%, 7/15/2019 942,159
3,000,000 Green Tree Acceptance Corp., Series 1996-C, Class
HEA2, 7.10%, 6/15/2027 2,995,770
2,680,576 Independent National Mortgage Corp., Series 1995-R,
Class A1, 7.25%, 11/25/2010 2,678,295
1,238,601 Olympic Automobile Receivables, Series 1994, Class
A, 5.65%, 1/15/2001 1,232,618
1,666,809 Olympic Automobile Receivables, Series 1995, Class
B, 7.35%, 10/15/2001 1,677,075
684,327 Premier Auto Trust, Series 1993-4, Class A2, 4.65%,
2/2/1999 680,173
217,106 (f) Revolving Home Equity Loan Trust, Series 1992-
1, Class A, 5.8675%, 9/15/1996 217,475
2,871,788 Structured Asset Securities Corp., Series 1995-C1,
Class A1A, 7.375%, 9/25/2024 2,884,367
2,450,000 The Money Store Home Equity Loan Trust, Series
1995-C, Class A2, 6.25%, 8/15/2016 2,395,118
2,257,224 The Money Store Home Equity Loan Trust, Series
1992-D2, Class A3, 7.55%, 1/15/2018 2,269,750
1,796,595 UCFC Home Equity Loan, Series 1994-C1, Class A2,
7.275%, 6/10/2007 1,806,026
2,000,000 UCFC Home Equity Loan, Series 1996-A1, Class A4,
6.30%, 5/15/2010 1,943,120
1,419,995 Western Financial Grantor Trust, Series 1994-2,
Class A1, 6.375%, 9/1/1999 1,426,414
----------
TOTAL ASSET-BACKED SECURITIES (identified cost
$27,046,447) 26,946,426
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 32.4%
FEDERAL HOME LOAN MORTGAGE CORP. -- 11.3%
536,582 6.00%, 7/15/2010 (Series
1468-C) 536,013
403,015 7.75%, 1/15/2018 (Series
1259-H) 406,562
1,082,897 10.00%, 7/15/2018, REMIC (Series 10-D) 1,104,209
4,847,594 7.00%, 1/15/2020 (Series
1834-A) 4,791,502
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
SHORT-TERM INCOME FUND (continued)
<TABLE>
----------------------------------------------------------------------------
<CAPTION>
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS (continued)
FEDERAL HOME LOAN MORTGAGE CORP. (continued)
$4,733,334 6.05%, 9/15/2020 (Series
1818-A) $4,539,357
----------
Total 11,377,643
----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 1.3%
1,330,845 7.50%, 4/25/2014 REMIC (Series 1991-06-K) 1,337,619
----------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 0.5%
469,138 7.50%, 10/17/2015, CMO (Class E) 467,965
----------
OTHER FINANCIAL -- 19.3%
1,082,896 Citicorp Mortgage Securities, Inc. Series 1992-19,
Class A2, 7.50%, 1/25/2019 1,081,878
2,636,420 CMC Securities Corp., III, Series 1994-E, Class AM,
6.00%, 3/25/2024 2,609,025
3,000,000 GE Capital Mortgage Services, Inc., Series 1994-28,
Class A3, 8.00%, 8/25/2024 3,031,980
1,109,256 PaineWebber CMO Trust, Class 0-4, 9.50%, 6/1/2017 1,120,925
1,999,593 PNC Mortgage Securities Corp., Series 1994-1, Class
T7, 6.00%, 2/25/2024 1,894,613
2,175,000 Prudential Home Mortgage Securities Co., Series
1992-32, Class A4, 7.15%, 9/25/2022 2,157,469
2,505,000 Prudential Home Mortgage Securities Co., Series
1993-54, Class A21, 5.50%, 1/25/2024 2,426,343
3,137,000 (a)Residential Accredit Loans, Inc., Series 1996-
QS5, Class A15, 7.60%, 1/1/1999 3,132,106
2,111,031 Residential Funding Mortgage Securities I, Series
1993-S41, Class A1, 6.85%, 9/25/2023 2,074,087
----------
Total 19,528,426
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(identified cost $33,055,382) 32,711,653
----------
CORPORATE BONDS -- 11.1%
BANKING -- 1.8%
1,800,000 NationsBank Corp., Sr. Note, 7.50%, 2/15/1997 1,814,490
----------
FINANCE -- 6.2%
3,000,000 Bear Stearns Company Inc., 6.75%, 5/1/2001 2,942,250
143,350 Heller Financial Inc., 6.45%, 2/15/1997 143,790
3,000,000 Lehman Brothers Holdings Inc., 8.875%, 2/15/2000 3,139,980
----------
Total 6,226,020
----------
</TABLE>
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (continued)
FINANCE -- AUTOMOTIVE -- 3.1%
$3,000,000 Ford Holdings, 9.25%, 7/15/1997 $3,077,550
------------
TOTAL CORPORATE BONDS (identified cost
$11,247,907) 11,118,060
------------
MORTGAGE BACKED SECURITIES -- 6.1%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
1,562,674 8.00%, 8/1/2007 1,599,288
4,498,701 8.00%, 5/1/2008 4,591,419
------------
TOTAL MORTGAGE BACKED SECURITIES (identified cost
$6,193,723) 6,190,707
------------
U.S. TREASURY-NOTE -- 17.2%
17,000,000 7.875%, 1/15/1998 (identified cost $17,447,969) 17,374,680
------------
(B)REPURCHASE AGREEMENT -- 9.3%
9,412,000 Goldman Sachs & Co., 5.25%, dated 8/30/1996, due
9/3/1996 (at amortized cost) 9,412,000
------------
TOTAL INVESTMENTS (identified cost $104,403,428) $103,753,526
============
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 16.4%
$14,630,000 Citibank Credit Card Master Trust I, Series 1996-1,
Class Association, 5.79%, 2/7/2003 $10,760,160
5,000,000 Contimortgage Home Equity Loan Trust, Series 1995-
4, Class A5, 6.56%, 12/15/2010 4,861,700
4,325,000 Green Tree Financial Corp., Series 1994-7, Class
A4, 8.35%, 3/15/2020 4,523,167
12,000,000 Green Tree Financial Corp., Series 1996-6, Class
A3, 6.75%, 9/15/2027 11,953,080
6,642,655 Mortgage Capital Funding, Inc., Series 1995-MC1,
Class A1A, 7.70%, 5/25/2027 6,698,719
5,840,000 Olympic Automobile Receivables Trust, Series 1995-
D, Class A4, 6.05%, 11/15/2000 5,787,201
9,572,628 Structured Asset Securities Corp., Series 1995-C1,
Class A1A, 7.375%, 9/25/2024 9,614,556
12,000,000 The Money Store, Series
1996-B, Class A7, 7.55%, 8/15/2020 11,947,560
-----------
TOTAL ASSET-BACKED SECURITIES (identified cost
$66,791,878) 66,146,143
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.4%
6,786,632 Federal Home Loan Mortgage Association, 7.00%,
1/15/2020, Series 1834, Class A 6,708,103
9,544,543 Federal Home Loan Mortgage Association, 6.50%,
10/15/2021, Series 1829, Class H 9,222,414
909,049 Government National Mortgage Association, 7.50%,
10/17/2015, Series 3E 906,776
10,275,000 Prudential Home Mortgage Securities Corp., Series
1993-54, Class A21, 5.50%, 1/25/2024 9,952,365
7,000,000 (a)Residential Accredit Loans, Inc., Series 1996-
QS5, 7.60%, 1/1/1999 6,989,080
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(identified cost $33,956,693) 33,778,738
-----------
CORPORATE BONDS -- 34.0%
BANKING -- 11.5%
8,000,000 Fleet Financial Group, Inc., Sub. Note, 8.125%,
7/1/2004 8,278,800
9,000,000 (d)Merita Bank Ltd, 6.50%, 1/15/2006 8,273,520
6,350,000 NationsBank Corp., 6.94%, 4/12/2002 6,257,354
8,000,000 Provident Bank, 6.125%, 12/15/2000 7,698,560
10,000,000 Santander Financial Issuances, Sub. Note, 7.25%,
5/30/2006 9,715,800
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (continued)
BANKING (continued)
$6,000,000 Toronto-Dominion Bank, 7.875%, 8/15/2004 $6,065,340
-----------
Total 46,289,374
-----------
BROKER -- 5.9%
7,000,000 Donaldson, Lufkin and Jenrette Securities Corp.,
5.625%, 2/15/2016 6,595,470
10,000,000 Goldman Sachs Group, LP, 6.25%, 2/1/2003 9,382,070
7,525,000 Lehman Brothers Holdings, Inc., 8.875%, 2/15/2000 7,876,117
-----------
Total 23,853,657
-----------
CONSUMER SERVICES -- 0.6%
2,500,000 Marriott International, Inc., Series C, 7.125%,
6/1/2007 2,357,925
-----------
FINANCE -- 7.5%
6,750,000 Ford Motor Credit Co., 6.25%, 12/20/2002 6,384,353
5,000,000 Ford Motor Credit Co., 8.24%, 1/15/2002 5,184,900
5,165,000 General Motors Acceptance Corp., 7.00%, 6/6/2003 5,032,156
6,700,000 General Motors Acceptance Corp., 7.50%, 6/9/2000 6,786,028
7,090,000 Sears Roebuck Acceptance Corp., Series 1, 6.40%,
9/25/2000 6,912,254
-----------
Total 30,299,691
-----------
INDUSTRIAL SERVICES -- 5.6%
5,000,000 Dayton-Hudson Corp., 6.40%, 2/15/2003 4,728,450
7,000,000 Dayton-Hudson Corp., 9.75%, 7/1/2002 7,761,110
10,000,000 Texas Instruments, Inc., 6.875%, 7/15/2000 9,957,500
-----------
Total 22,447,060
-----------
UTILITIES-GAS -- 1.4%
5,590,000 Burlington Resources, Inc., 7.15%, 5/1/1999 5,619,683
-----------
UTILITIES-TELEPHONE -- 1.5%
6,070,000 NYNEX Capital Funding Co., Series B, 8.10%,
11/1/1999 6,234,618
-----------
TOTAL CORPORATE BONDS (identified cost $141,098,800) 137,102,008
-----------
CORPORATE NOTES -- 2.0%
BROKER/DEALERS -- 2.0%
8,000,000 Bear Stearns & Co., Inc., 6.75%, 5/1/2001
(identified cost $7,974,720) 7,846,000
-----------
MORTGAGE BACKED SECURITIES -- 12.0%
FEDERAL HOME LOAN MORTGAGE
ASSOCIATION -- 12.0%
15,416 8.75%, 4/1/2001 15,580
25,000,000 (j)6.50%, TBA 24,007,500
25,000,000 (j)7.00%, TBA 24,507,500
-----------
TOTAL MORTGAGE BACKED SECURITIES (identified cost
$49,102,085) 48,530,580
-----------
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERMEDIATE BOND FUND (continued)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
-----------------------------------------------------------------------------
<C> <S> <C>
U.S. TREASURY SECURITIES-AGENCY -- 30.2%
FEDERAL HOME LOAN BANK -- 1.5%
$ 5,810,000 7.26%, 9/6/2001 $5,904,878
------------
(D)TREASURY NOTES -- 28.7%
40,265,000 7.875%, 1/15/1998 41,152,441
40,000,000 6.125%, 5/15/1998 39,903,600
20,000,000 6.375%, 5/15/1999 19,935,600
15,000,000 6.375%, 1/15/2000 14,898,750
------------
Total 115,890,391
------------
TOTAL U.S. TREASURY SECURITIES-AGENCY (identified
cost $123,005,946) 121,795,269
------------
(E)COLLATERAL FOR SECURITIES LENDING -- 32.0%
5,000,000 (f)Bear Stearns & Co., Inc., 5.68%, 9/11/96 5,000,000
3,750,000 (f)Carco Auto Trust, 5.485%, 9/16/96 3,762,375
5,000,000 (f)Chrysler Corp., 5.58%, 9/18/96 4,997,150
4,000,000 (f)Citicorp, 5.513%, 9/30/96 3,987,080
1,490,073 Dreyfus Cash Management Plus (shares at net asset
value) 1,490,073
8,000,000 Federal Signal Corporation, Master Note, 5.50%,
9/3/1996 8,000,000
15,000,000 (f)Ford Motor Credit Co., 5.68%, 11/27/96 15,024,000
3,000,000 (f)General Electric Capital Corp., 5.43%, 9/3/96 2,995,800
5,000,000 (f)Heller Financial Corp., 5.42%, 9/3/96 5,000,000
15,000,000 JP Morgan Securities, Inc., Master Note, 5.479%,
9/3/1996 15,000,000
20,000,000 (b)Merrill Lynch, Pierce, Fenner & Smith, Inc.,
Repurchase Agreement, 5.40%, 9/3/1996 20,000,000
20,654,906 (b)Morgan Stanley & Co., Inc., Repurchase
Agreement, 5.355%, 9/3/1996 20,654,906
5,000,000 (f)National Bank, 5.52%, 9/24/96 5,000,000
10,000,000 Sears Roebuck Acceptance Corp., Master Note,
5.334%, 9/4/1996 10,000,000
5,000,000 (f)Sears Roebuck & Co., 5.53%, 9/18/96 4,995,800
3,000,000 (f)Superior Wholesale Inventory Financing Trust,
5.572%, 9/16/96 3,002,100
------------
TOTAL COLLATERAL FOR SECURITIES LENDING (at
amortized cost $128,909,284) 128,909,284
------------
(B)REPURCHASE AGREEMENT -- 5.5%
22,070,000 Goldman Sachs & Co., 5.25%, dated 8/30/1996, due
9/3/1996 (at amortized cost) 22,070,000
------------
TOTAL INVESTMENTS (identified cost $572,909,406) $566,178,022
============
</TABLE>
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
---------------------------------------------------------------------------
<C> <S> <C>
ASSET-BACKED SECURITIES -- 2.0%
$ 2,800,000 The Money Store, 7.91%, 7/15/2024, (Series
1996-1-T7) (identified
cost $2,798,688) $2,818,368
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 18.2%
3,141,526 Chase Mortgage Finance Corp., 6.25%, 11/25/2009,
(Series 1993-M-CL-A6) 2,985,169
3,117,974 Citicorp Mortgage Securities, Inc., 7.50%,
1/25/2019, (Series 1992-19-CL-A2) 3,115,042
5,000,000 GE Capital Mortgage Services, Inc., 8.00%,
8/25/2024, (Series 1994-28-A3) 5,053,300
6,450,000 Independent National Mortgage Corp.,
7.50%, 9/25/2025,
(Series 1995-M-A2) 6,350,728
4,524,801 PNC Mortgage Securities Corp., 6.00%, 2/25/2024,
(Series 1994-1-CL-T7) 4,287,249
3,500,000 Resolution Trust Corp., 7.50%, 10/25/2028, REMIC,
(Series 1995-1-A2D) 3,413,585
----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(identified cost $25,329,424) 25,205,073
----------
MORTGAGE-BACKED SECURITIES -- 73.2%
FEDERAL HOME LOAN MORTGAGE
CORP. -- 22.3%
6,638,463 6.00%, 2/1/2011 6,227,609
5,500,000 7.00%, 12/15/2020 5,232,095
3,000,000 7.00%, 8/15/2021 2,855,880
5,831,869 7.50%, 5/1/2024 5,753,430
10,000,000 (j)8.00%, TBA 10,014,200
100,540 8.75%, 4/1/2001 101,610
677,384 9.00%, 5/1/2017 712,093
13,401 9.50%, 2/1/2001 13,661
22,808 10.50%, 10/1/2000 24,034
----------
Total 30,934,612
----------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION -- 26.6%
3,325,000 6.50%, TBA 3,191,967
5,325,700 6.50%, 7/1/2008 5,147,076
5,501,953 7.00%, 10/1/2009 5,419,368
6,439,862 7.50%, 1/1/2024 6,314,993
1,875,209 8.00%, 8/1/2007 1,919,145
8,000,000 8.50%, TBA 8,147,360
4,966,130 8.50%, 8/1/2022 5,080,897
805,760 11.00%, 6/1/2020 896,286
624,240 11.50%, 10/1/2015 701,795
----------
Total 36,818,887
----------
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND (continued)
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
----------------------------------------------------------------------------
<C> <S> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION -- 24.3%
$8,099,637 6.50%, 3/20/2026 $7,421,211
4,009,124 7.00%, 8/15/2011 3,942,693
224,827 7.50%, 10/17/2015 224,265
8,178,782 8.00%, 8/15/2024 8,191,460
8,092,814 9.00%, 5/20/2025 8,396,214
556,002 9.50%, 7/15/2019 596,134
3,817,428 9.50%, 10/15/2024 4,094,154
670,594 10.00%, 11/15/2020 731,986
16,714 10.50%, 10/15/2000 17,424
29,933 10.50%, 10/15/2000 31,205
50,427 11.00%, 11/15/2000 53,345
------------
Total 33,700,091
------------
TOTAL MORTGAGE-BACKED SECURITIES (identified cost
$103,799,438) 101,453,590
------------
AGENCY BONDS -- 6.1%
7,757,650 Jordan Aid, 8.75%, 9/1/2019 (identified cost
$8,780,231) 8,408,517
------------
(B)REPURCHASE AGREEMENT -- 8.8%
12,228,000 Goldman Sachs Group, LP, 5.25%, dated 8/30/1996,
due 9/3/1996 (at amortized cost) 12,228,000
------------
TOTAL INVESTMENTS (identified
cost $152,935,781) $150,113,548
============
</TABLE>
- --------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Description Rating(k) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS -- 97.1%
ARIZONA -- 2.4%
$1,000,000 Maricopa County, AZ, Community College
District, GO UT Bonds (Series A), 6.00%,
7/1/2006, Callable 7/1/2003 @ 101 AA $1,048,820
500,000 Maricopa County, AZ, School District, 6.75%
(District No. 48 Scottsdale Improvement),
7/1/2010, Prerefunded 7/1/2001 @ 101 AA 547,265
----------
Total 1,596,085
----------
CONNECTICUT -- 0.7%
150,000 Connecticut State, GO UT Refunding Bonds
(Series B), 6.00%, 11/15/2001 AA- 159,095
300,000 South Central CT Regional Water Authority,
Refunding Revenue Bonds, 5.40%, (FGIC
INS), 8/1/2002 AAA 307,287
----------
Total 466,382
----------
HAWAII -- 2.7%
750,000 Hawaii State, GO UT (Series BZ), 5.25%,
10/1/2000 AA 767,888
1,000,000 Hawaii State, GO UT Bonds (Series CA),
5.50%, 1/1/2012 AA 989,710
----------
Total 1,757,598
----------
ILLINOIS -- 11.7%
1,500,000 Arlington Heights, IL, GO UT Refunding
Bonds (Series A), 4.55%, 12/1/2001 AA 1,484,070
2,000,000 Illinois Development Finance Authority,
Refunding Revenue Bonds, 4.625% (WMX
Technologies, Inc.)/ (MBIA INS), 2/1/1998 AAA 2,004,640
525,000 Illinois State, GO UT Bonds, 3.50%, Public
Improvements, 6/1/2001, Callable 6/1/1996
@ 101 AA- 486,444
2,500,000 Lake County, IL, Community School District
No. 60, GO LT (Series B), 5.30%, (FSA
INS), 12/1/2005 AAA 2,532,575
1,085,000 Waukegan, IL, GO UT Bonds, 6.40%, (MBIA
INS), 12/30/2004, Callable 12/30/2002
@ 100 AAA 1,171,822
----------
Total 7,679,551
----------
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND (continued)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Description Rating(k) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
INDIANA -- 3.0%
$1,000,000 Fort Wayne Industrial Economic Development,
Revenue Bonds, 5.75%, (LOC: First National
Bank, Chicago), 11/1/2005 AA- $1,002,020
1,000,000 Indiana University, Refunding Revenue Bonds
(Series K), 5.00%, University and College
Improvements (Student Fee), 8/1/2001 AA- 1,005,130
----------
Total 2,007,150
----------
IOWA -- 1.6%
1,050,000 Cedar Rapids, IA, GO UT Bonds (Series B),
5.20%, Airport and Marina Improvements,
Public and Water Utility Improvements,
6/1/2007, Callable 6/1/2004 @ 100 AAA 1,043,091
----------
LOUISIANA -- 3.2%
1,000,000 Louisiana Public Facility Revenue
Authority, Student Loan Refunding Revenue
Bonds (Series A-2), 6.75%, 9/1/2006,
Callable 9/1/2002
@ 102 AAA 1,050,920
1,000,000 Mississippi River Bridge Authority, LA,
Revenue Bonds, 6.625%, 11/1/2006, Callable
@ 102, Mandatory Sinking Fund 11/1/2003 @
100 A- 1,084,870
----------
Total 2,135,790
----------
MARYLAND -- 4.6%
1,000,000 Maryland State Department of
Transportation, Refunding Revenue Bonds,
4.20%, 12/15/2001 AA 974,520
1,000,000 Maryland State, GO UT Bonds, 5.20%, State
and Local Facilities Loan Bond, 3/15/2003 AAA 1,025,550
1,000,000 Northeast MD, Waste Disposal Authority,
Solid Waste Revenue Bonds, 6.00%, 7/1/2007 A 1,008,610
----------
Total 3,008,680
----------
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Description Rating(k) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
MASSACHUSETTS -- 1.6%
$1,000,000 New England Educational Loan Marketing
Corp., Student Loan Revenue Bonds, 6.60%,
(Series F), 9/1/2002 A $1,040,490
----------
MICHIGAN -- 0.8%
500,000 Chelsea, MI, School District, GO UT, 5.25%
(FGIC INS), 5/1/2001 AAA 510,925
----------
MINNESOTA -- 3.7%
2,400,000 Minnesota State, GO UT Bonds, 5.00%, Public
Improvements, 8/1/2003 AA+ 2,436,264
----------
MISSOURI -- 1.7%
1,000,000 Missouri State Environmental Improvement &
Energy Authority, Water Pollution Control
State Revolving Fund Program Revenue Bonds
(Series B), 6.65%, 7/1/2006, Callable
7/1/2004
@ 102 AA 1,113,030
----------
NEBRASKA -- 1.6%
1,000,000 Nebraska Higher Education Loan Program,
Inc., Senior Subordinated Lien Student
Loan Revenue Bonds (Series A-5), 6.65%,
6/1/2008, Mandatory Sinking Fund 6/1/2003
@ 100 AA 1,034,980
----------
NEVADA -- 2.2%
1,500,000 Las Vegas, NV, GO LT Sewer Refunding
Revenue Bonds (Series B), 4.875% (MBIA
INS), 1/1/2006, Callable 1/1/2003
@ 101 AAA 1,463,145
----------
NEW JERSEY -- 0.4%
250,000 New Jersey State, GO UT Bonds, 6.25%,
9/15/2000 AA+ 265,948
----------
NEW YORK -- 2.3%
1,500,000 New York State Environmental Facilities
Corp., Revenue Bonds, 5.70%, 6/15/2006,
Callable 6/15/2004
@ 102 AA 1,540,575
----------
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND (continued)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Description Rating(k) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
OKLAHOMA -- 4.6%
$2,000,000 Oklahoma Housing Finance Agency, Refunding
Revenue Bonds (Series A-3), 5.50%, (FNMA
Collateral), 11/1/2025, Callable 5/1/2005
@ 100, Mandatory Put 11/1/2005 @ 100 AAA $1,994,140
1,000,000 Tulsa, OK, Public Improvements GO UT Bonds,
5.125%, 5/1/2001 AA 1,021,140
----------
Total 3,015,280
----------
OREGON -- 6.2%
1,000,000 Metro, OR, GO UT Bonds (Series A), 5.00%,
(Open Spaces Program), 9/1/2002 AA 1,012,890
3,000,000 Multnomah County, OR, School District, GO
UT Bonds, 5.50%, 6/1/2005 AA- 3,075,000
----------
Total 4,087,890
----------
PUERTO RICO -- 2.7%
1,500,000 Puerto Rico Municipal Finance Agency,
Revenue Bonds (Series A), 5.10%, (FSA
INS), 7/1/2000 AAA 1,522,755
250,000 Puerto Rico Public Building Authority,
Revenue Refunding Bonds (Series K), 6.10%
(FGIC INS), 7/1/2002 AAA 268,020
----------
Total 1,790,775
----------
SOUTH CAROLINA -- 3.8%
1,055,000 South Carolina State, GO UT Bonds, Highway
Improvements (Series B), 5.625%, 7/1/2011,
Callable 7/1/2006
@ 102 AAA 1,059,873
1,000,000 South Carolina State, GO UT Refunding
Bonds, 4.10%, 4/1/2001 AAA 976,740
500,000 South Carolina State, GO UT Refunding
Capital Improvement Bonds, 4.30%, 4/1/2003 AAA 482,750
----------
Total 2,519,363
----------
TENNESSEE -- 3.0%
2,000,000 Memphis, TN, GO UT Refunding Bonds (Series
A), 4.60%, 8/1/2002 AA 1,976,520
----------
TEXAS -- 10.0%
1,000,000 Arlington, TX, ISD, GO UT Refunding Bonds,
6.50%, (PSF GTD), 2/15/2002 AAA 1,082,060
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Description Rating(k) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
TEXAS (continued)
$100,000 Dallas-Fort Worth, TX, Regional Airport,
Refunding Revenue Bonds (Long Opt.
Period/Series A CR
104), 5.875% (FGIC INS), 11/1/2006, Optional
Put 5/1/1998
@ 100, Callable 5/1/2004 @ 102 AAA $102,323
700,000 El Paso, TX, ISD, GO UT Bonds, 7.50%, (PSF
GTD), 8/15/2000 AAA 774,564
500,000 Lewisville, TX, GO UT Refunding Bonds, 4.95%
(FGIC INS), 2/15/2002 AAA 505,450
500,000 Lewisville, TX, GO UT Refunding Bonds, 5.00%
(FGIC INS), 2/15/2003, Callable 8/15/2002
@ 100 AAA 502,025
945,000 San Angelo, TX, Independent School District,
GO UT Bonds, School Improvements, 5.30% (PSF
GTD), 2/15/2007, Callable 2/15/2006 @ 100 AAA 945,662
1,220,000 Tarrant County, TX, Jr. College District, GO
LT Bonds, 5.30%, University and College
Improvements, 2/15/2009, Callable 2/15/2006
@ 100 AA 1,171,627
1,475,000 Texas Water Development Board, Revenue Bonds,
4.40% (State Revolving Fund Program/Sr.
Lien), 7/15/2001 AAA 1,459,041
---------
Total 6,542,752
---------
VIRGINIA -- 6.6%
1,730,000 Chesapeake, VA, GO UT Bonds, 5.60%, School,
Recreational and Public Improvements,
5/1/2006, Callable 5/1/2004 @ 101 AA 1,780,550
1,000,000 Fairfax County, VA, GO UT Refunding Bonds
(Series C), 4.60%, 5/1/2001 AAA 1,004,930
1,500,000 Virginia State Housing Development Authority,
Mortgage Revenue Bonds (Series A), 6.40%,
7/1/2002 AA+ 1,569,360
---------
Total 4,354,840
---------
WASHINGTON -- 6.9%
1,480,000 Clark County, WA, Sewer Revenue Bonds, 5.40%
(MBIA INS), 12/1/2007, Callable 12/01/2006
@ 100 AAA 1,474,924
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
INTERMEDIATE TAX-FREE FUND (continued)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit
Amount Description Rating(k) Value
------------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
WASHINGTON (continued)
$1,125,000 Kitsap County, WA, Sewer Revenue, Revenue
Bonds, 5.90% (MBIA INS), 7/1/2012 AAA $1,121,444
1,000,000 Skagit County, WA, Consolidated School
District #320, GO UT Bonds, Refunding
Bonds, 5.15% (FGIC INS), 12/1/2007,
Callable 12/01/2006
@ 100 AAA 978,230
1,000,000 Washington State Health Care Facility
Authority (Series E), VRDN, 3.80%,
10/1/2005, Sink 10/1/96 @ 100 AA- 1,000,000
----------
Total 4,574,598
----------
WISCONSIN -- 8.0%
1,000,000 Racine County,WI, GO UT Promissory Notes,
4.80%, 6/1/2000 AA 1,006,730
500,000 Wausau, WI, School District, GO UT
Promissory Notes, School Improvements,
4.35%, 3/1/2000 AA 493,950
1,000,000 Wausau, WI, School District, GO UT
Promissory Notes, School Improvements,
4.40%, 3/1/2003 AA 972,480
1,000,000 Wisconsin Housing & Economic Development
Authority, Refunding Revenue Bonds (Series
A), 6.00% (Wisconsin Housing & Economic
Development Authority LOC), 11/1/2000 A 1,031,730
750,000 Wisconsin State Transportation, Revenue
Bonds (Series B), 5.00%, 7/1/2000 AA- 757,470
1,000,000 Wisconsin State, GO UT Bonds (Series C),
5.00%, University and College
Improvements, 5/1/2002 AA 1,009,240
----------
Total 5,271,600
----------
</TABLE>
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Credit
or Shares Description Rating(k) Value
----------------------------------------------------------------------------
<C> <S> <C> <C>
LONG-TERM MUNICIPALS (continued)
WYOMING -- 1.1%
$750,000 (f)Uinta County, WY, PCR Refunding Bonds,
VRDN, 3.80%, 9/3/1996 AA $750,000
-----------
TOTAL LONG-TERM MUNICIPALS
(identified cost,
$63,737,308) 63,983,302
-----------
MUTUAL FUNDS -- 7.1%
1,965,937 Fidelity Tax Exempt Money Market 1,965,937
2,684,827 Goldman Sachs Financial Square Tax Exempt
Money Market 2,684,827
-----------
TOTAL MUTUAL FUND SHARES
(at net asset value) 4,650,764
-----------
(L)TOTAL INVESTMENTS
(identified cost,
$68,388,072) $68,634,066
===========
</TABLE>
August 31, 1996
PORTFOLIO OF INVESTMENTS
(See Notes to Portfolio of Investments)
- ------------------------------------------------------------------------------
MONEY MARKET FUND
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
CERTIFICATES OF DEPOSIT -- 6.2%
BANKING -- 6.2%
$25,000,000 Bankers Trust New York Corp., 5.45%, 6/3/1997 $24,990,897
30,000,000 Sanwa Bank Ltd., New York, Yankee, 5.48%, 9/3/1996 30,000,016
15,000,000 Sumitomo Bank Ltd.,
Osaka, Yankee, 5.38%,
9/20/1996 15,000,000
-----------
TOTAL CERTIFICATE OF DEPOSITS 69,990,913
-----------
(I)COMMERCIAL PAPER -- 18.1%
ASSET-BACKED SECURITIES -- 1.8%
20,000,000 Dakota Certificates Program, 5.31%, 11/20/1996 19,764,000
-----------
BANKING -- 0.9%
10,000,000 Government Development Bank for Puerto Rico, 5.48%,
10/16/1996 9,931,500
-----------
CONSUMER DURABLES -- 4.2%
47,300,000 Whirlpool Corp.,
5.34%-5.55%,
9/23/1996-12/18/1996 46,727,771
-----------
DRUGS -- 0.8%
8,852,000 American Home Food Products Corp., 5.42%, 9/9/1996 8,841,338
-----------
MEDIA -- 1.3%
15,000,000 Gannett Co., Inc., 5.554%, 10/11/1996 14,908,667
-----------
POLLUTION CONTROL -- 1.2%
14,125,000 WMX Technologies, Inc., 5.495%, 9/24/1996 14,076,179
-----------
SHORT-TERM BUSINESS CREDIT-- 7.9%
15,000,000 General Electric Capital Corp., 5.613%, 11/27/1996 14,800,263
50,000,000 Heller Financial, Inc., 5.416%-5.425%, 9/19/1996-
9/23/1996 49,847,183
25,000,000 Sears Roebuck Acceptance Corp., 5.552%-5.556%,
10/28/1996-2/18/1997 24,530,733
-----------
Total 89,178,179
-----------
TOTAL COMMERCIAL PAPER 203,427,634
-----------
CORPORATE BONDS -- 9.6%
BANKING -- 5.7%
15,000,000 First Bank, 5.41%, 9/18/1996 14,999,853
25,260,000 KeyBank, N.A., 6.875%, 10/15/1996 25,292,235
5,000,000 NCNB Corp., 8.50%, 11/1/1996 5,020,605
14,000,000 Security Pacific Corporation, 7.750%, 12/1/1996 14,072,181
5,000,000 Wachovia Bank & Trust Co., 4.25%, 10/15/1996 4,991,950
-----------
Total 64,376,824
-----------
CONSTRUCTION EQUIPMENT -- 0.4%
5,000,000 Caterpillar Financial Services Corp., 4.75%,
2/21/1997 4,995,013
-----------
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS (continued)
INDUSTRIAL -- 1.3%
$14,950,000 Ford Motor Co., 7.875%, 10/15/1996 $14,985,934
-----------
LEASING -- 0.5%
5,000,000 International Lease Finance Corp., 7.90%, 10/1/1996 5,008,544
-----------
OIL -- 0.8%
9,105,000 Texaco Capital, Inc., 9.00%, 11/15/1996 9,166,676
-----------
SHORT-TERM BUSINESS CREDIT -- 0.9%
10,000,000 Sears, Roebuck & Co., 5.24%, 2/25/1997 9,999,773
-----------
TOTAL CORPORATE BONDS 108,532,764
-----------
CORPORATE NOTES -- 15%
BROKER/DEALERS -- 3.1%
10,000,000 Bear, Stearns Cos., Inc., 5.25%, 2/26/1997 10,000,000
25,000,000 Merrill Lynch & Co., Inc., 5.562%, 9/19/1996 24,999,754
-----------
Total 34,999,754
-----------
INSURANCE -- 0.5%
5,000,000 CIT Group Holdings, Inc., 8.00%, 1/13/1997 5,048,326
-----------
PERSONAL CREDIT -- 7.0%
25,000,000 American Honda Finance Corp., 5.50%, 3/3/1997 24,995,014
14,500,000 General Motors Acceptance Corp., 5.05%, 10/18/1996 14,494,429
4,000,000 General Motors Acceptance Corp., 7.55%, 1/14/1997 4,036,088
5,000,000 General Motors Acceptance Corp., 7.75%, 2/20/1997 5,058,668
13,625,000 General Motors Acceptance Corp., 8.00%, 10/1/1996 13,647,965
16,105,000 General Motors Acceptance Corp., 8.00%, 2/3/1997 16,286,369
-----------
Total 78,518,533
-----------
SHORT-TERM BUSINESS CREDIT -- 4.4%
25,000,000 General Electric Capital Corp., 5.12%, 1/27/1997 24,992,962
25,000,000 IBM Credit Corp., 5.68%, 10/30/1996 25,004,929
-----------
Total 49,997,891
-----------
TOTAL CORPORATE NOTES 168,564,504
-----------
(F)VARIABLE RATE NOTES -- 47.5%
BROKER/DEALERS -- 10.9%
30,000,000 Bear, Stearns and Co. Inc., 5.539%, 11/8/1996 30,000,000
52,200,000 (h)J.P. Morgan & Co., Inc., 5.479%, 9/1/1996 52,200,000
10,200,000 Morgan Stanley Group, Inc., 5.86%, 1/20/1997 10,208,128
30,000,000 (h)Republic National Bank of New York, 5.463%,
9/3/1996 30,000,000
-----------
Total 122,408,128
-----------
</TABLE>
MARSHALL FUNDS
(See Notes to Portfolio of Investments)
- --------------------------------------------------------------------------------
MONEY MARKET FUND (continued)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Description Value
------------------------------------------------------------------------------
<C> <S> <C>
(F)VARIABLE RATE NOTES (continued)
CONSUMER ELECTRIC-- 4.4%
$50,000,000 Sony Capital Corp., 5.501%, 11/27/1996 $50,000,000
--------------
DIVERSIFIED MANUFACTURING-- 1.8%
20,000,000 (h)Danaher Corp., 5.413%-5.441%, 9/1/1996 20,000,000
--------------
FOREST PRODUCTS -- 1.8%
20,000,000 (h)Willamette Industries, Inc., 5.39%, 9/3/1996 20,000,000
--------------
INSURANCE -- 16.0%
40,000,000 (h)Commonwealth Life Insurance, 5.76%, 9/1/1996 40,000,000
50,000,000 (h)Jackson National Life Insurance Company,
5.70%, 10/1/1996 50,000,000
40,000,000 (h)Transamerica Life Insurance and Annuity Co.,
5.563%, 10/1/1996 40,000,000
50,000,000 (h)Travelers Insurance Co., 5.648%, 10/1/1996 50,000,000
--------------
Total 180,000,000
--------------
LEASING -- 3.1%
35,000,000 USL Capital Corp., 5.656%, 10/31/1996 35,007,180
--------------
MORTGAGE BANKING -- 2.8%
31,400,000 Fleet Mortgage Group, Inc., 5.468%, 11/20/1996 31,395,875
--------------
OFFICE EQUIPMENT/SUPPLIES-- 1.3%
15,000,000 (h)Haworth, Inc., 5.433%, 9/3/1996 15,000,000
--------------
PERSONAL CREDIT -- 4.5%
5,000,000 American Honda Finance Corp., 5.530%, 11/15/1996 5,000,000
20,000,000 American Honda Finance Corp., 5.665%, 10/23/1996 20,000,000
25,000,000 Beneficial Corp., 5.728%, 10/14/1996 25,012,540
--------------
Total 50,012,540
--------------
UTILITIES -- 0.9%
10,000,000 (h)Wisconsin Public Service, 5.32%, 9/3/1996 10,000,000
--------------
TOTAL -- VARIABLE RATE NOTES 533,823,723
--------------
(B)REPURCHASE AGREEMENT -- 3.1%
34,315,000 Goldman Sachs & Co., 5.25%, dated 8/30/1996, due
9/3/1996 34,315,000
--------------
TOTAL INVESTMENTS
(at amortized cost) $1,118,654,538
==============
</TABLE>
NOTES TO PORTFOLIOS OF INVESTMENTS
(a) Represents a delayed delivery security.
(b) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices at the date of the
portfolio.
(c) Non-income producing.
(d) Certain shares or principal amounts on loan to broker.
(e) Securities purchased with cash collateral proceeds from securities on loan
to brokers.
(f) Current rate and next demand date shown.
(g) 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.
(h) Denotes a restricted security which is subject to restrictions on resale
under Federal and International Securities laws. At the end of the period,
these securities amounted to $3,533,112 and $327,200,000 which represents
2.5% and 29.1% of Marshall International Stock Fund's and Marshall Money
Market Fund's net assets, respectively.
(i) Each issue shows the rate of discount at the time of purchase.
(j) Includes securities subject to dollar roll transactions.
(k) Current credit ratings are unaudited. Please refer to the Statement of
Additional Information for an explanation of the credit ratings.
(l) Securities that are subject to alternative minimum tax represent 8.31% of
Intermediate Tax Free Fund's portfolio as calculated based upon total
portfolio market value.
The following abbreviations are used in these portfolios:
- --------------------------------------------------------------------------------
ACES -- Adjustable Convertible Extendable Securities
ADR -- American Depositary Receipt
AMBAC -- American Municipal Bond Assurance Corporation
CMO -- Collateralized Mortgage Obligation
FGIC -- Financial Guaranty Insurance Company
FNMA -- Federal National Mortgage Association
FSA -- Financial Security Assurance
GO -- General Obligation
GDR--Global Depositary Receipt
GTD -- Guaranteed
INS -- Insured
ISD -- Independent School District
LOC -- Letter of Credit
LT -- Limited Tax
LP -- Limited Partnership
MBIA -- Municipal Bond Investors Assurance
PCR -- Pollution Control Revenue
PLC -- Public Limited Company
PRIDES -- Preferred Redeemable Increased Dividend Equity Securities
PSF -- Permanent School Fund
REMIC -- Real Estate Mortgage Investment Conduit
TBA -- To Be Announced
UT -- Unlimited Tax
VRDN -- Variable Rate Demand Note
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COST OF NET UNREALIZED GROSS GROSS
INVESTMENTS APPRECIATION/ UNREALIZED UNREALIZED
FOR (DEPRECIATION) APPRECIATION DEPRECIATION TOTAL
FEDERAL TAX FOR FEDERAL FOR FEDERAL FOR FEDERAL NET
PURPOSES TAX PURPOSES TAX PURPOSES TAX PURPOSES ASSETS**
MARSHALL FUNDS ------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Equity Income Fund $154,821,785 $19,458,808 $21,420,593 $1,961,785 $173,402,498
Value Equity Fund 244,916,687 2,821,139 13,381,221 10,560,082 195,065,640
Stock Fund 230,730,023 19,407,352 26,789,294 7,381,942 251,583,074
Mid-Cap Stock Fund 153,717,404 21,329,173 23,457,897 2,128,724 143,235,887
International Stock Fund 134,383,535 9,253,638 16,740,676 7,487,038 143,783,031
Short-Term Income Fund 104,403,428 (649,902) 170,972 820,874 100,846,084
Intermediate Bond Fund 572,909,406 (6,731,384) 709,852 7,441,236 403,656,726
Government Income Fund 152,935,781 (2,822,233) 199,505 3,021,738 138,457,855
Intermediate Tax-Free 68,388,072 245,994 599,154 353,160 65,927,251
Fund
Money Market Fund 1,118,654,538* 0 0 0 1,124,370,515
</TABLE>
*At amortized cost.
**The categories of investments are shown as a percentage of net assets at
August 31, 1996.
(See Notes which are an integral part of the Financial Statements)
[This Page Intentionally Left Blank]
August 31, 1996
STATEMENTS OF ASSETS AND LIABILITIES
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
------- ------- ------- ------- -------
EQUITY VALUE MID-CAP INTERNATIONAL
INCOME EQUITY STOCK STOCK STOCK
FUND FUND FUND FUND FUND
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in
securities, at value $149,804,593 $191,131,826 $247,107,375 $153,833,577 $143,637,173
Investments in
repurchase
agreements 24,476,000 32,606,000 3,030,000 6,213,000 --
Repurchase agreements
held as collateral
for securities
lending -- 24,000,000 -- 15,000,000 --
Cash 931 510 979 372 41,672
Cash denominated in
foreign currencies
(at identified cost,
$98,047) -- -- -- -- 99,663
Income receivable 529,417 494,507 554,237 28,372 476,907
Receivable for
investments sold -- 2,104,156 2,314,048 579,230 --
Receivable for
capital stock sold 478,645 227,380 73,472 344,151 368,835
Deferred expenses 11,823 37,016 24,112 12,785 19,323
------------ ------------ ------------ ------------ ------------
Total assets 175,301,409 250,601,395 253,104,223 176,011,487 144,643,573
------------ ------------ ------------ ------------ ------------
LIABILITIES:
Payable to Adviser 108,832 -- 163,428 -- --
Income distribution
payable -- -- -- -- --
Payable for
investments
purchased 1,539,890 1,596,635 647,189 1,262,463 356,523
Payable for capital
stock redeemed 192,515 382,534 657,653 380,789 221,110
Payable on collateral
due to broker -- 53,376,922 -- 30,983,400 --
Payable for daily
variation margin -- -- -- 4,000 --
Payable for Dollar
Roll Transactions -- -- -- -- --
Net payable for
forward foreign
currency exchange
contracts -- -- -- -- 204
Taxes payable -- -- -- -- 23,961
Accrued expenses 57,674 179,664 52,879 144,948 258,744
------------ ------------ ------------ ------------ ------------
Total liabilities 1,898,911 55,535,755 1,521,149 32,775,600 860,542
------------ ------------ ------------ ------------ ------------
NET ASSETS CONSIST OF:
Paid-in-capital 141,966,845 166,006,103 196,686,251 109,679,636 129,170,134
Net unrealized
appreciation
(depreciation) on
investments,
collateral, futures
contracts and
foreign currency
translation 19,474,499 2,843,435 19,462,315 21,401,096 10,340,978
Accumulated net
realized gain (loss)
on investments,
futures contracts
and foreign currency
transactions 11,393,818 25,537,217 34,947,540 12,155,155 1,276,516
Undistributed net
investment income 567,336 678,885 486,968 -- 2,995,403
------------ ------------ ------------ ------------ ------------
Total Net Assets $173,402,498 $195,065,640 $251,583,074 $143,235,887 $143,783,031
------------ ------------ ------------ ------------ ------------
NET ASSET VALUE,
Offering Price, and
Redemption Proceeds
Per Share:
Class A Shares $13.00 $11.98 $12.16 $13.56 $11.08
Class B Shares -- -- -- -- --
------------ ------------ ------------ ------------ ------------
SHARES OUTSTANDING:
Class A Shares 13,338,229 16,286,159 20,696,816 10,564,924 12,979,131
Class B Shares -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total shares
outstanding
($0.0001 par
value) 13,338,229 16,286,159 20,696,816 10,564,924 12,979,131
============ ============ ============ ============ ============
Investments, at
identified cost $154,806,094 $244,894,391 $230,675,060 $153,426,979 $133,301,606
============ ============ ============ ============ ============
Investments, at tax
cost $154,821,785 $244,916,687 $230,730,023 $153,717,404 $134,383,535
============ ============ ============ ============ ============
</TABLE>
MARSHALL FUNDS
<TABLE>
<CAPTION>
- ------------ ------- ------- ------- -------
SHORT-TERM INTERMEDIATE GOVERNMENT INTERMEDIATE MONEY
INCOME BOND INCOME TAX-FREE MARKET
FUND FUND FUND FUND FUND
- ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 94,341,526 $503,453,116 $137,885,548 $68,634,066 $1,084,339,538
9,412,000 22,070,000 12,228,000 -- 34,315,000
-- 40,654,906 -- -- --
325 785 344 -- 789
-- -- -- -- --
680,406 4,770,672 1,079,623 810,821 9,219,338
-- 19,160,326 9,110,129 -- --
15,860 700,897 207,587 -- 54,752
6,809 25,426 11,637 12,354 260,931
- ------------ ------------ ------------ ----------- --------------
104,456,926 590,836,128 160,522,868 69,457,241 1,128,190,348
- ------------ ------------ ------------ ----------- --------------
-- -- -- -- --
299,969 860,667 321,413 209,107 3,443,992
3,169,840 11,985,711 13,433,376 3,099,835 --
79,177 1,162,137 73,514 174,591 39,399
-- 128,909,284 -- -- --
-- -- -- -- --
-- 44,006,846 8,108,961 -- --
-- -- -- -- --
-- -- -- -- --
61,856 254,757 127,749 46,457 336,442
- ------------ ------------ ------------ ----------- --------------
3,610,842 187,179,402 22,065,013 3,529,990 3,819,833
- ------------ ------------ ------------ ----------- --------------
104,753,955 433,018,726 144,225,560 66,183,254 1,124,370,515
(649,902) (6,731,384) (2,822,233) 245,994 --
(3,257,969) (22,630,616) (2,945,472) (501,997) --
-- -- -- -- --
- ------------ ------------ ------------ ----------- --------------
$100,846,084 $403,656,726 $138,457,855 $65,927,251 $1,124,370,515
- ------------ ------------ ------------ ----------- --------------
$9.59 $9.26 $9.27 $9.83 $1.00
-- -- -- -- $1.00
- ------------ ------------ ------------ ----------- --------------
10,516,782 43,581,545 14,933,942 6,704,131 1,039,659,411
-- -- -- -- 84,711,104
============ ============ ============ =========== ==============
10,516,782 43,581,545 14,933,942 6,704,131 1,124,370,515
============ ============ ============ =========== ==============
$104,403,428 $572,909,406 $152,935,781 $68,388,072 $1,118,654,538
============ ============ ============ =========== ==============
$104,403,428 $572,909,406 $152,935,781 $68,388,072 $1,118,654,538
============ ============ ============ =========== ==============
</TABLE>
Year Ended August 31, 1996
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------- ------- ------- ------- --------
EQUITY VALUE MID-CAP INTERNATIONAL
INCOME EQUITY STOCK STOCK STOCK
FUND FUND FUND FUND FUND
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income $ 1,032,576 $ 1,446,601 $ 594,797 $ 396,796 $ 993,464
Dividend income 4,565,441 4,073,755 5,399,747 263,071 3,629,460(a)
----------- ----------- ------------ ----------- -----------
Total income 5,598,017 5,520,356 5,994,544 659,867 4,622,924
----------- ----------- ------------ ----------- -----------
EXPENSES:
Investment advisory
fee 1,101,454 1,556,051 2,003,427 917,068 1,179,310
Directors' fees 2,597 2,876 2,118 2,059 3,007
Administrative
personnel
and services fees 131,196 185,501 238,801 109,258 108,298
Custodian fees 29,372 41,495 51,706 24,455 85,000
Portfolio accounting
fees 49,550 63,612 70,505 47,323 64,000
Transfer and dividend
disbursing agent fees
and expenses 31,468 36,274 68,709 40,015 40,000
Shareholder services
fees 29,372 41,495 53,425 24,455 23,586
Capital stock
registration
costs 21,825 36,892 38,724 19,900 15,876
Auditing fees 11,638 12,756 13,292 10,784 18,632
Legal fees 6,620 7,155 6,649 6,057 6,910
Printing and postage 8,794 6,967 6,804 8,499 28,833
Insurance premiums 4,451 6,486 7,582 3,834 4,009
Distribution services
fees -- -- -- -- --
Taxes 9,556 14,976 21,767 10,474 7,613
Miscellaneous 4,450 21,874 9,670 13,568 1,260
----------- ----------- ------------ ----------- -----------
Total expenses 1,442,343 2,034,410 2,593,179 1,237,749 1,586,334
----------- ----------- ------------ ----------- -----------
DEDUCT--
Waiver of investment
advisory fee -- -- -- -- --
----------- ----------- ------------ ----------- -----------
NET EXPENSES 1,442,343 2,034,410 2,593,179 1,237,749 1,586,334
----------- ----------- ------------ ----------- -----------
NET INVESTMENT INCOME
(LOSS) 4,155,674 3,485,946 3,401,365 (577,882) 3,036,590
----------- ----------- ------------ ----------- -----------
REALIZED AND UNREALIZED
GAIN
(LOSS) ON INVESTMENTS,
COLLATERAL, FOREIGN
CURRENCY
AND FUTURES CONTRACTS:
Net realized gain
(loss) on
investment
transactions
(identified cost
basis) 13,207,077 27,219,156 38,737,034 16,139,633 1,683,883
Net realized gain on
foreign currency
transactions -- -- -- -- 262,327
Net realized gain on
futures
contracts (identified
cost
basis) -- -- -- 344,671 --
Net change in
unrealized
appreciation
(depreciation) on
investments,
collateral,
futures contracts and
foreign currency
translation 8,421,937 (13,487,233) (12,626,510) 3,869,291 7,673,848
----------- ----------- ------------ ----------- -----------
NET REALIZED AND
UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
COLLATERAL, FOREIGN
CURRENCY AND FUTURES
CONTRACTS 21,629,014 13,731,923 26,110,524 20,353,595 9,620,058
----------- ----------- ------------ ----------- -----------
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS $25,784,688 $17,217,869 $ 29,511,889 $19,775,713 $12,656,648
=========== =========== ============ =========== ===========
</TABLE>
(a)Net of Foreign taxes withheld of $562,995
(b)Net of dollar roll interest expense of $1,894,972
(c)Net of dollar roll interest expense of $676,797.
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS
<TABLE>
<CAPTION>
----------- ------- ------- ------- -------
SHORT-TERM INTERMEDIATE GOVERNMENT INTERMEDIATE MONEY
INCOME BOND INCOME TAX-FREE MARKET
FUND FUND FUND FUND FUND
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 6,005,772 $ 25,734,801(b) $ 9,223,208(c) $2,592,938 $63,816,643
-- -- -- -- --
----------- ------------ ----------- ---------- -----------
6,005,772 25,734,801 9,223,208 2,592,938 63,816,643
----------- ------------ ----------- ---------- -----------
540,501 2,253,912 938,027 314,337 5,636,051
1,799 3,239 2,380 2,292 5,112
80,507 335,733 111,760 50,437 1,007,572
18,017 62,565 25,014 10,478 137,721
52,577 92,960 53,955 48,676 122,352
32,120 38,776 76,955 26,510 145,007
18,017 75,130 25,014 10,478 225,442
23,110 57,710 35,646 14,955 64,516
13,889 15,119 15,018 12,240 16,716
7,268 7,860 7,098 2,601 8,859
7,269 7,705 7,110 9,365 2,573
4,020 8,693 5,305 4,811 19,738
-- -- -- -- 205,842
10,026 34,663 11,274 2,807 116,606
8,366 52,260 6,358 3,175 23,804
----------- ------------ ----------- ---------- -----------
817,486 3,046,325 1,320,914 513,162 7,737,911
----------- ------------ ----------- ---------- -----------
357,041 338,087 243,416 196,013 2,930,747
----------- ------------ ----------- ---------- -----------
460,445 2,708,238 1,077,498 317,149 4,807,164
----------- ------------ ----------- ---------- -----------
5,545,327 23,026,563 8,145,710 2,275,789 59,009,479
----------- ------------ ----------- ---------- -----------
(479,042) 2,488,022 (620,860) 148,532 --
-- -- -- -- --
-- -- -- -- --
(793,668) (13,320,804) (3,330,343) (698,763) --
----------- ------------ ----------- ---------- -----------
(1,272,710) (10,832,782) (3,951,203) (550,231) --
----------- ------------ ----------- ---------- -----------
$ 4,272,617 $ 12,193,781 $ 4,194,507 $1,725,558 $59,009,479
=========== ============ =========== ========== ===========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
-------------------------- --------------------------
EQUITY VALUE
INCOME EQUITY
FUND FUND
-------------------------- --------------------------
Year Year Year Year
Ended Ended Ended Ended
August 31, August 31, August 31, August 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS--
Net investment income
(loss) $ 4,155,674 $ 2,689,393 $ 3,485,946 $ 4,197,972
Net realized gain
(loss) on investment
transactions 13,207,077 797,876 27,219,156 13,637,946
Net realized gain
(loss) on foreign
currency transactions -- -- -- --
Net realized gain on
futures contracts -- -- -- --
Net change in
unrealized
appreciation
(depreciation) of
investments,
collateral, futures
contracts and foreign
currency translation 8,421,937 10,665,976 (13,487,233) 8,615,958
------------ ------------ ------------ ------------
Change in net assets
resulting from
operations 25,784,688 14,153,245 17,217,869 26,451,876
------------ ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS--
Dividends to
shareholders from net
investment income (4,048,209) (2,460,822) (3,546,870) (3,775,982)
Distributions to
shareholders from net
realized gain
on investments (2,218,321) -- (14,826,135) (2,160,660)
Distributions to
shareholders in excess
of net investment
income -- -- -- --
------------ ------------ ------------ ------------
Change in net assets
from distributions to
shareholders (6,266,530) (2,460,822) (18,373,005) (5,936,642)
------------ ------------ ------------ ------------
CAPITAL STOCK
TRANSACTIONS--
Proceeds from sale of
shares 78,109,568 71,731,172 43,778,924 67,783,603
Net asset value of
shares issued to
shareholders in
payment
of distributions
declared 2,944,867 1,212,846 10,799,787 2,806,140
Cost of shares redeemed (34,668,773) (26,533,320) (78,793,963) (89,424,324)
------------ ------------ ------------ ------------
Change in net assets
from capital stock
transactions 46,385,662 46,410,698 (24,215,252) (18,834,581)
------------ ------------ ------------ ------------
Change in net assets 65,903,820 58,103,121 (25,370,388) 1,680,653
NET ASSETS:
Beginning of period 107,498,678 49,395,557 220,436,028 218,755,375
------------ ------------ ------------ ------------
End of period $173,402,498 $107,498,678 $195,065,640 $220,436,028
============ ============ ============ ============
Undistributed net
investment income
included in net assets
at end of period $ 567,336 $ 459,871 $ 678,885 $ 739,809
============ ============ ============ ============
Net gain (loss) as
computed for federal
tax purposes $ 13,112,886 $ 556,941 $ 27,161,725 $ 13,549,583
============ ============ ============ ============
</TABLE>
*For the period from September 2, 1994 (date of initial public investment) to
August 31, 1995.
(See Notes which are an integral part of the Financial Statements)
MARSHALL FUNDS
<TABLE>
<CAPTION>
-------------------------- -------------------------- -------------------------- --------------------------
MID-CAP SHORT-TERM
STOCK INTERNATIONAL INCOME
STOCK FUND FUND STOCK FUND FUND
-------------------------- -------------------------- -------------------------- --------------------------
Year Year Year Year Year Period Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1996 1995 1996 1995 1996 1995* 1996 1995
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,401,365 $ 2,119,476 $ (577,882) $ (102,721) $ 3,036,590 $ 1,758,012 $ 5,545,327 $ 5,173,889
38,737,034 14,035,870 16,139,633 5,757,618 1,683,883 (472,259) (479,042) (774,594)
-- -- -- -- 262,327 (178,615) -- --
-- -- 344,671 146,087 -- -- -- --
(12,626,510) 22,181,832 3,869,291 16,659,161 7,673,848 2,667,130 (793,668) 910,517
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
29,511,889 38,337,178 19,775,713 22,460,145 12,656,648 3,774,268 4,272,617 5,309,812
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(3,254,360) (2,156,613) -- (43,289) (2,228,753) (354,783) (5,545,327) (5,299,534)
(14,368,059) -- (8,032,341) -- (281,633) (8,672) -- --
-- -- -- (21,475) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(17,622,419) (2,156,613) (8,032,341) (64,764) (2,510,386) (363,455) (5,545,327) (5,299,534)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
52,242,455 83,952,870 64,585,992 69,072,658 62,521,333 129,883,397 69,199,369 60,772,757
13,817,438 1,642,441 4,740,168 35,263 1,224,349 216,668 3,021,176 2,867,333
(83,385,728) (114,911,373) (46,089,710) (36,889,162) (24,156,467) (39,463,324) (54,374,917) (79,829,347)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(17,325,835) (29,316,062) 23,236,450 32,218,759 39,589,215 90,636,741 17,845,628 (16,189,257)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(5,436,365) 6,864,503 34,979,822 54,614,140 49,735,477 94,047,554 16,572,918 (16,178,979)
257,019,439 250,154,936 108,256,065 53,641,925 94,047,554 -- 84,273,166 100,452,145
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$251,583,074 $257,019,439 $143,235,887 $108,256,065 $143,783,031 $ 94,047,554 $100,846,084 $ 84,273,166
============ ============ ============ ============ ============ ============ ============ ============
$ 486,968 $ 339,963 -- -- $ 2,995,403 $ 1,777,487 -- --
============ ============ ============ ============ ============ ============ ============ ============
$ 38,743,777 $ 10,625,913 $ 16,225,854 $ 4,632,874 $ 1,584,255 $ 8,481 $ (556,158) $ (1,898,650)
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
---------------------------
INTERMEDIATE
BOND FUND
---------------------------
Year Year
Ended Ended
August 31, August 31,
1996 1995
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS--
Net investment income $ 23,026,563 $ 22,151,927
Net realized gain (loss) on investments 2,488,022 (10,004,792)
Net change in unrealized appreciation
(depreciation) of investments,
collateral, futures contracts, and foreign
currency translation (13,320,804) 15,428,567
------------ -------------
Change in net assets resulting from operations 12,193,781 27,575,702
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS--
Dividends to shareholders from net investment
income:
Class A Shares (23,026,563) (22,676,934)
Class B Shares -- --
Distributions to shareholders from net realized
gain on investments -- --
------------ -------------
Change in net assets from distributions to
shareholders (23,026,563) (22,676,934)
------------ -------------
CAPITAL STOCK TRANSACTIONS--
Proceeds from sale of shares 152,140,924 145,019,009
Net asset value of shares issued to shareholders
in payment of dividends declared 14,029,528 13,873,286
Cost of shares redeemed (95,751,626) (177,460,054)
------------ -------------
Change in net assets from capital stock
transactions 70,418,826 (18,567,759)
------------ -------------
Change in net assets 59,586,044 (13,668,991)
NET ASSETS:
Beginning of period 344,070,682 357,739,673
------------ -------------
End of period $403,656,726 $ 344,070,682
============ =============
Undistributed net investment income included in
net assets at end of period -- --
============ =============
Net gain (loss) as computed for federal tax
purposes $ (6,100,494) $ (16,531,233)
============ =============
</TABLE>
MARSHALL FUNDS
<TABLE>
<CAPTION>
-------------------------- ------------------------- --------------------------------
GOVERNMENT INTERMEDIATE MONEY
INCOME TAX-FREE MARKET
FUND FUND FUND
-------------------------- ------------------------- --------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
August 31, August 31, August 31, August 31, August 31, August 31,
1996 1995 1996 1995 1996 1995
------------ ------------ ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 8,145,710 $ 5,539,282 $ 2,275,789 $ 1,768,807 $ 59,009,479 $ 59,092,790
(620,860) 838,530 148,532 (440,633) -- --
(3,330,343) 2,289,136 (698,763) 1,354,952 -- --
------------ ------------ ----------- ------------ --------------- ---------------
4,194,507 8,666,948 1,725,558 2,683,126 59,009,479 59,092,790
------------ ------------ ----------- ------------ --------------- ---------------
(8,145,710) (5,651,424) (2,275,789) (1,768,807) (55,633,616) (57,991,992)
-- -- -- -- (3,375,863) (1,100,798)
-- -- -- -- -- --
------------ ------------ ----------- ------------ --------------- ---------------
(8,145,710) (5,651,424) (2,275,789) (1,768,807) (59,009,479) (59,092,790)
------------ ------------ ----------- ------------ --------------- ---------------
55,044,557 65,993,189 28,270,867 21,065,244 3,908,130,179 3,145,304,448
4,687,901 3,624,389 249,701 141,974 13,501,781 7,699,494
(21,030,976) (33,748,572) (8,093,895) (11,282,666) (3,956,214,914) (2,973,967,126)
------------ ------------ ----------- ------------ --------------- ---------------
38,701,482 35,869,006 20,426,673 9,924,552 (34,582,954) 179,036,816
------------ ------------ ----------- ------------ --------------- ---------------
34,750,279 38,884,530 19,876,442 10,838,871 (34,582,954) 179,036,816
103,707,576 64,823,046 46,050,809 35,211,938 1,158,953,469 979,916,653
------------ ------------ ----------- ------------ --------------- ---------------
$138,457,855 $103,707,576 $65,927,251 $ 46,050,809 $ 1,124,370,515 $ 1,158,953,469
============ ============ =========== ============ =============== ===============
-- -- -- -- -- --
============ ============ =========== ============ =============== ===============
$ (983,300) $ (1,806,126) $ (247,302) $ (254,695) -- --
============ ============ =========== ============ =============== ===============
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Distributions to
shareholders
Net realized from net
and realized gain on
unrealized investment
gain/(loss) on Dividends to transactions, Distributions to
Period Net asset investments, shareholders futures shareholders in
Ended value, Net collateral, futures Total from from net contracts, and excess of net
August beginning investment contracts, and investment investment foreign currency investment
31, of period income/(loss) foreign currency operations income transactions income
------ --------- ------------- ------------------- ---------- ------------ ---------------- ----------------
<S> <C> <C> <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) (0.21)
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) (0.11) --
1996 $12.08 0.21 0.78 0.99 (0.21) (0.88) --
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) (0.66) --
MID-CAP STOCK FUND
1994(b) $10.00 0.02 (0.29) (0.27) (0.01) (0.03) --
1995 $ 9.69 (0.00) 2.62 2.62 (0.01) -- (0.00)
1996 $12.30 (0.06) 2.24 2.18 -- (0.92) --
INTERNATIONAL STOCK FUND
1995(g) $10.00 0.20 0.01 0.21 (0.05) (0.00) --
1996 $10.16 0.21 0.96 1.17 (0.22) (0.03) --
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) (0.17) --
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) (0.14) --
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) -- --
</TABLE>
(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.
(See Notes which are an integral part of the Financial Statements)
(For a share outstanding throughout each period)
MARSHALL FUNDS
<TABLE>
<CAPTION>
Ratios to Average Net Assets
--------------------------------
Net assets,
Net asset Net end of Average Portfolio
Total value, end Total investment Expense 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>
August 31, 1996
NOTES TO FINANCIAL STATEMENTS
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
(individually referred to as the "Fund", or collectively as the "Funds") which
are presented herein:
<TABLE>
<CAPTION>
PORTFOLIO NAME INVESTMENT OBJECTIVE
-------------- --------------------
<S> <C>
Marshall Equity Income Fund ("Equity Income Fund") Above-average dividend income with appreciation of capital.
Marshall Value Equity Fund ("Value Equity Fund") Long-term capital growth and income.
Marshall Stock Fund ("Stock Fund") Growth of capital and income.
Marshall Mid-Cap Stock Fund ("Mid-Cap Stock Fund") Appreciation of capital.
Marshall International Stock Fund ("International Stock Fund") Long-term capital growth.
Marshall Short-Term Income Fund ("Short-Term Income Fund") Maximize total return consistent with current income.
Marshall Intermediate Bond Fund ("Intermediate Bond Fund") Maximize total return consistent with current income.
Marshall Government Income Fund ("Government Income Fund") Current income.
Marshall Intermediate Tax-Free Fund ("Intermediate Tax-Free Fund") Provide as high a level of income that is exempt from federal
income tax as is consistent with preservation of capital.
Marshall Money Market Fund ("Money Market Fund") Current income consistent with stability of principal.
Marshall Small-Cap Stock Fund ("Small-Cap Stock Fund")* Appreciation of capital
</TABLE>
Money Market Fund is offered in two classes of shares: Class A Shares and
Class B Shares. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
*As of August 31, 1996, Small-Cap Stock Fund was effective, but had no public
investment.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant. U.S. government securities, listed corporate
bonds, other fixed income and asset-backed securities, and 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. Listed
equity securities and investments in closed-end investment companies are valued
at the last sale price reported on a national securities exchange. Money Market
Fund uses the amortized cost method to value portfolio securities in accordance
with Rule 2a-7 under the Act. For fluctuating net asset value funds within the
Corporation, short-term securities are valued at the prices provided by an
independent pricing service. However, short-term securities purchased with
remaining maturities of sixty days or less may be valued at amortized cost,
which approximates fair market value. Investments in other open-end regulated
investment companies are valued at net asset value.
Repurchase Agreements--It is the policy of the Funds 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 Funds 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, including accrued interest.
The Funds will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Funds' adviser (or sub-adviser with respect to International Stock Fund) 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 Funds 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. Certain
dividends from foreign securities may be recorded after the ex-dividend date
based upon when information becomes available to the Fund.
Federal Taxes--It is the Funds' policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of their income. Accordingly, no
provisions for federal tax are necessary.
However, federal taxes may be imposed on International Stock Fund upon the
disposition of certain investments in passive foreign investment companies.
Withholding taxes on foreign dividends have been provided for in accordance
with International Stock Fund's understanding of the applicable country's tax
rules and rates.
At August 31, 1996, the following Funds had capital loss carryforwards for
federal tax purposes, which will reduce each Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted by the
Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve each Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforwards will expire
as listed below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL LOSS CAPITAL LOSS CAPITAL LOSS
CARRYFORWARD CARRYFORWARD CARRYFORWARD TOTAL
TO EXPIRE IN TO EXPIRE IN TO EXPIRE IN CAPITAL LOSS
FUND 2002 2003 2004 CARRYFORWARDS
- ---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Short-Term Income Fund $302,405 $ 1,898,650 $ 556,158 $ 2,757,213
Intermediate Bond Fund -- $16,531,233 $6,100,494 $22,631,727
Government Income Fund $155,781 $ 1,806,126 -- $ 1,961,907
Intermediate Tax-Free
Fund -- $ 254,695 $ 247,302 $ 501,997
</TABLE>
- --------------------------------------------------------------------------------
Net realized capital losses on Short-Term Income Fund and Government Income
Fund of $500,756 and $983,300, respectively, attributable to security
transactions incurred after October 31, 1995, are treated as arising on the
first day of the Fund's next taxable year (September 1, 1996).
Net realized losses on International Stock Fund of $77,314, attributable to
foreign currency transactions incurred after October 31, 1995, are treated as
arising on the first day of International Stock Fund's next taxable year
(September 1, 1996).
When-Issued and Delayed Delivery Transactions--The Funds may engage in when-
issued or delayed delivery transactions. The Funds record when-issued
securities on the trade date and maintain security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
Deferred Expenses--The costs incurred by each Fund with respect to
registration of their shares in their first fiscal year, excluding the initial
expense of registering their shares, have been deferred and are being amortized
using the straight-line method over a period of five years from each Fund's
commencement date.
Futures Contracts--Mid-Cap Stock 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 August 31, 1996, Mid-Cap Stock Fund had outstanding futures contracts as
set forth below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXPIRATION CONTRACTS UNREALIZED
DATE TO RECEIVE POSITION DEPRECIATION
---------- ---------- -------- ------------
<S> <C> <C> <C>
September 1996 40 S&P Midcap 400 Futures Long $218,502
</TABLE>
- --------------------------------------------------------------------------------
Foreign Exchange Contracts--International Stock Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk.
The Fund may enter into these contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date as a hedge or cross hedge
against either specific transactions or portfolio positions. The objective of
the Fund's foreign currency hedging transactions is to reduce the risk that the
U.S. dollar value of the Fund's foreign currency denominated securities will
decline in value due to changes in foreign currency exchange rates. All foreign
currency exchange contracts are "marked to market" daily at the applicable
translation rates resulting in unrealized gains or losses. Realized gains or
losses are recorded at the time the foreign currency exchange contract is
offset by entering into a closing transaction or by the delivery or receipt of
the currency. Risks may arise upon entering into these contracts from the
potential inability of counterparties to meet the terms of their contracts and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar. At August 31, 1996, International Stock Fund had outstanding
foreign exchange contracts as set forth below:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SETTLEMENT COMMITMENTS TO CONTRACTS UNREALIZED
DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE DEPRECIATION
---------- ---------------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Contracts Sold:
September 3, 1996 272,847 French Francs $53,731 $53,898 $167
September 3, 1996 55,428 French Francs $10,915 $10,949 34
Contracts Purchased:
September 3, 1996 69,951 Norwegian Krone $ 9,826 $9,823 3
----
Total Unrealized Depreciation on Foreign Exchange Contracts $204
----
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Foreign Currency Translation--The accounting records of International Stock
Fund are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FCs") are translated into U.S. dollars based on the rate
of exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank. The Funds do not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates
on securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Dollar Roll Transactions--The Funds, except for Money Market Fund, may enter
into dollar roll transactions, with respect to mortgage securities issued by
Government National Mortgage Association, Federal National Mortgage Association
and Federal Home Loan Mortgage Corporation, in which the Funds sell mortgage
securities to financial institutions and simultaneously agree to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions are short-term financing
arrangements which will not exceed twelve months. The Funds will use the
proceeds generated from the transactions to invest in short-term investments,
which may enhance current yield and total return.
Securities Lending--The Funds may participate in a securities lending program
providing for the lending of corporate bonds, equity and government securities
to qualified brokers. Collateral is maintained at a minimum level of 100% of
the market value on securities loaned, plus interest, if applicable. The Funds
reimburse the custodian for the costs directly associated with the Funds'
participation in the securities lending program, subject to a maximum.
As of August 31, 1996, collateral held for securities loaned was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE OF MARKET VALUE
FUND SECURITIES LOANED OF COLLATERAL
- ---- ----------------- -------------
<S> <C> <C>
Value Equity Fund $ 51,371,312 $ 53,376,922
Mid-Cap Stock Fund $ 29,975,347 $ 30,983,400
Intermediate Bond Fund $124,298,388 $128,909,284
</TABLE>
- --------------------------------------------------------------------------------
Reclassification--Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are attributable to differing book/tax
treatments for net operating losses, mark to market of Passive Foreign
Investment Companies, and foreign currency transactions. Amounts as of August
31, 1996, have been reclassified to reflect the following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-----------------------------------------
ACCUMULATED
PAID-IN NET REALIZED UNDISTRIBUTED NET
FUND NAME CAPITAL GAIN/LOSS INVESTMENT INCOME
- --------- --------- ------------ -----------------
<S> <C> <C> <C>
International Stock Fund $(620,513) $210,434 $410,079
Mid-Cap Stock Fund ($577,882) $577,882
</TABLE>
- --------------------------------------------------------------------------------
Net investment income, net realized gains/losses, and net assets were not
affected by this change.
Restricted Securities--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another registered
offering of the securities. Many restricted securities may be resold in the
secondary market in transactions exempt from registration. Such restricted
securities may be determined to be liquid under criteria established by the
Directors. The Fund will not incur any registration costs upon such resales.
International Stock Fund's restricted securities are valued at the price
provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined by the Fund's pricing committee.
Money Market Fund's restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Investment Company Act of 1940.
Additional information on each restricted security held by International
Stock Fund at August 31, 1996, is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE(S) ACQUISITION COST
- -------- ------------------- ----------------
<S> <C> <C>
Telefonica De Argentina S.A., ADR 9/7/94 - 8/21/96 $983,996
Qantas Airways, ADR 7/31/95 - 3/7/96 $832,511
Komercni Banka A.S., GDR 5/22/96 - 6/17/96 $316,800
MOL Magyar Olay, ADR 11/22/95 - 5/7/96 $806,418
Philippine Long Distance Telephone Co.,
GDR 9/29/95 $499,980
</TABLE>
- --------------------------------------------------------------------------------
Additional information on each restricted security held by Money Market Fund
at August 31, 1996, is as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE(S) ACQUISITION COST
- -------- ------------------- ----------------
<S> <C> <C>
J.P. Morgan & Co., Inc., 5.479%, 9/1/1996 11/28/94 - 10/23/95 $52,200,000
Republic National Bank of New York,
5.463%, 9/3/1996 2/16/96 - 7/22/96 $30,000,000
Danaher Corp., 5.413%-5.441%, 9/1/1996 10/31/95 - 7/10/96 $20,000,000
Willamette Industries, Inc., 5.36%,
9/3/1996 2/7/96 - 4/25/96 $20,000,000
Commonwealth Life Insurance, 5.76%,
9/1/1996 9/2/94 $40,000,000
Jackson National Life Insurance Company,
5.70%, 10/1/1996 4/8/96 $50,000,000
Transamerica National Life Insurance and
Annuity Co., 5.563%, 10/1/1996 1/15/96 $40,000,000
Travelers Insurance Co., 5.648%,
10/1/1996 1/19/96 $50,000,000
Haworth, Inc., 5.433%, 9/3/1996 6/27/96 $15,000,000
Wisconsin Public Service, 5.32%, 9/3/1996 5/20/94 $10,000,000
</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. At August
31, 1996, the capital paid-in was as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND CAPITAL PAID-IN
- ---- ---------------
<S> <C>
Equity Income Fund $141,966,845
Value Equity Fund $166,006,103
Stock Fund $196,686,251
Mid-Cap Stock Fund $109,679,636
International Stock Fund $129,170,134
Short-Term Income Fund $104,753,955
Intermediate Bond Fund $433,018,726
Government Income Fund $144,225,560
Intermediate Tax-Free Fund $66,183,254
Money Market Fund $1,124,370,515
</TABLE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in capital stock were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------- ------------------------------- -------------------------------
EQUITY INCOME FUND VALUE EQUITY FUND STOCK FUND
------------------------------- ------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 6,255,226 7,087,265 3,603,620 6,271,401 4,298,980 8,136,287
Shares issued to
shareholders in payment
of distributions
declared 238,663 118,743 930,711 268,477 1,144,142 159,631
Shares redeemed (2,740,860) (2,580,728) (6,491,712) (8,276,005) (6,826,659) (11,113,456)
---------- ---------- ---------- ---------- ---------- -----------
Net change resulting
from share transactions 3,753,029 4,625,280 (1,957,381) (1,736,127) (1,383,537) (2,817,538)
========== ========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
------------------------------- -------------------------------- -------------------------------
MID-CAP STOCK FUND INTERNATIONAL STOCK FUND SHORT-TERM INCOME FUND
------------------------------- -------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995* AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 4,934,068 6,886,800 5,874,333 13,379,463 7,157,123 6,280,358
Shares issued to
shareholders in payment
of distributions
declared 406,183 3,751 120,388 23,373 311,379 296,781
Shares redeemed (3,579,779) (3,622,137) (2,273,523) (4,144,903) (5,605,778) (8,263,080)
---------- ---------- ---------- ---------- ---------- ----------
Net change resulting
from share transactions 1,760,472 3,268,414 3,721,198 9,257,933 1,862,724 (1,685,941)
========== ========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE BOND FUND GOVERNMENT INCOME FUND INTERMEDIATE TAX-FREE FUND
------------------------------- ------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 15,992,321 15,646,570 5,753,556 7,182,308 2,848,116 2,185,693
Shares issued to
shareholders in payment
of distributions
declared 1,476,468 1,495,282 494,460 393,550 25,159 14,635
Shares redeemed (10,085,356) (19,146,997) (2,222,851) (3,668,777) (816,031) (1,180,355)
----------- ----------- ---------- ---------- --------- ----------
Net change resulting
from share transactions 7,383,433 (2,005,145) 4,025,165 3,907,081 2,057,244 1,019,973
=========== =========== ========== ========== ========= ==========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET FUND
--------------------------------
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
CLASS A SHARES --------------- ---------------
<S> <C> <C>
Shares sold 3,347,680,311 3,007,907,156
Shares issued to shareholders in payment of 10,071,706 6,704,839
distributions declared
Shares redeemed (3,446,715,442) (2,853,976,863)
--------------- ---------------
Net change resulting from Class A Share (88,963,425) 160,635,132
transactions
=============== ===============
- ------------------------------------------------------------------------------
<CAPTION>
MONEY MARKET FUND
--------------------------------
<S> <C> <C>
YEAR ENDED YEAR ENDED
CLASS B SHARES AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
Shares sold 560,449,868 137,397,292
Shares issued to shareholders in payment of 3,430,075 994,655
distributions declared
Shares redeemed (509,499,472) (119,990,263)
--------------- ---------------
Net change resulting from Class B Share 54,380,471 18,401,684
transactions
--------------- ---------------
Net change resulting from Fund Share (34,582,954) 179,036,816
transactions
=============== ===============
- ------------------------------------------------------------------------------
</TABLE>
* For the period from September 2, 1994 (date of initial public investment) to
August 31, 1995.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee--M&I Investment Management Corp., the Funds'
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee based on a percentage of each Fund's average daily net
assets as listed below. The Adviser may voluntarily choose to waive any portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND ANNUAL RATE
---- -----------
<S> <C>
Equity Income Fund 0.75%
Value Equity Fund 0.75%
Stock Fund 0.75%
Mid-Cap Stock Fund 0.75%
International Stock Fund 1.00%
Short-Term Income Fund 0.60%
Intermediate Bond Fund 0.60%
Government Income Fund 0.75%
Intermediate Tax-Free Fund 0.60%
Money Market Fund 0.50%
</TABLE>
- --------------------------------------------------------------------------------
Templeton Investment Counsel, Inc., is the sub-adviser ("Sub-Adviser") for
International Stock Fund. The Adviser compensates the Sub-Adviser based on the
level of average aggregate daily net assets of International Stock Fund.
Administrative Fee--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Funds with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of the Corporation for the period.
Distribution Services Fee--International Stock Fund and Money Market Fund
have adopted Distribution Plans (the "Plans") pursuant to Rule 12b-1 under the
Act. Under the terms of the Plans, International Stock Fund and Money Market
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of each Fund to finance activities intended to
result in the sale of International Stock Fund's shares and Money Market Fund's
Class B Shares. The Plans provide that each Fund may incur distribution
expenses up to 0.25% and 0.30%, respectively, of the average daily net assets
of International Stock Fund and Money Market Fund's Class B Shares annually, to
compensate FSC. As of August 31, 1996, International Stock Fund paid no
distribution fee.
Shareholder Services Fee--Marshall Funds Investors Services ("MFIS") is the
Funds' shareholder servicing agent. Under the terms of a shareholder service
agreement with MFIS, the Funds will pay MFIS a fee to obtain certain services
for shareholders and for the maintenance of shareholder accounts. The fee is
based on the level of each Fund's average daily net assets for the period.
Transfer and Dividend Disbursing Agent Fees and Expenses--FServ through its
subsidiary, Federated Shareholder Services Company ("FSSC"), serves as transfer
and dividend disbursing agent for the Funds. 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 Funds' accounting records for
which it receives a fee. The fee is based on the level of each Fund's average
daily net assets for the period, plus out-of-pocket expenses.
Custodian Fees--Marshall & Ilsley Trust Co. is the Funds custodian. Marshall
& Illsley Trust Co. receives fees based on the level of each Fund's average
daily net assets for the period. The custodian also charges a fee in connection
with securities lending activities of the Funds.
Organizational Expenses--Organizational expenses were borne initially by
FServ. The Funds have agreed to reimburse FServ for the organizational expenses
during the five year period following each Fund's effective date. For the year
ended August 31, 1996, the following amounts were paid pursuant to this
agreement:
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ORGANIZATIONAL ORGANIZATIONAL
FUND EXPENSES EXPENSES PAID
---- -------------- --------------
<S> <C> <C>
Equity Income Fund $18,857 $3,876
Value Equity Fund $18,485 $3,851
Stock Fund $30,018 $7,251
Mid-Cap Stock Fund $16,434 $3,424
International Stock Fund $18,401 $1,745
Short-Term Income Fund $23,033 $6,093
Intermediate Bond Fund $23,413 $5,408
Government Income Fund $22,735 $5,231
Intermediate Tax-Free Fund $16,416 $3,268
Money Market Fund $59,536 $14,762
</TABLE>
- --------------------------------------------------------------------------------
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
year ended August 31, 1996, were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND PURCHASES SALES
---- ------------ ------------
<S> <C> <C>
Equity Income Fund $112,207,203 $76,934,097
Value Equity Fund $120,638,682 $170,235,747
Stock Fund $376,190,056 $397,279,112
Mid-Cap Stock Fund $234,061,576 $221,106,325
International Stock Fund $65,339,977 $28,191,751
Short-Term Income Fund $131,034,128 $120,438,337
Intermediate Bond Fund $836,422,215 $767,479,932
Government Income Fund $404,984,814 $366,867,374
Intermediate Tax-Free Fund $38,063,307 $21,242,346
</TABLE>
- --------------------------------------------------------------------------------
6. CONCENTRATION OF CREDIT RISK
International Stock Fund invests in equity and fixed income securities of
non-U.S. issuers. Although the Fund maintains a diversified investment
portfolio, the political or economic developments within a particular country
or region may have an adverse effect on the ability of domiciled issuers to
meet their obligations. Additionally, political or economic developments may
have an effect on the liquidity and volatility of portfolio securities and
currency holdings.
7. SUBSEQUENT EVENT
Effective September 6, 1996, Federated Shareholder Services ("FSS") became
the Shareholder servicing agent for all of the Marshall Funds except for the
Money Market Fund. Under the terms of a Shareholder Services Agreement with
FSS, the Funds' 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. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors 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
MARSHALL MONEY MARKET FUND
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolio of investments of the Marshall Equity
Income Fund, the Marshall Value Equity Fund, the Marshall Stock Fund, the
Marshall Mid-Cap Stock Fund, the Marshall International Stock Fund, the
Marshall Short-Term Income Fund, the Marshall Intermediate Bond Fund, the
Marshall Government Income Fund, the Marshall Intermediate Tax-Free Fund, and
the Marshall Money Market Fund (the ten portfolios constituting the Marshall
Funds, Inc., a Wisconsin corporation), as of August 31, 1996, and the related
statements of operations, changes in net assets and the financial highlights
for the periods presented. These financial statements and financial highlights
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1996, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Marshall Funds, Inc., as
identified above, the results of their operations, the changes in their net
assets and their financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Pittsburgh, Pennsylvania,
October 10, 1996
[This Page Intentionally Left Blank]
DIRECTORS OFFICERS
Ody J. Fish Edward C. Gonzales
John DeVincentis Chairman and Treasurer
Edward C. Gonzales
Paul E. Hassett James F. Duca, II
President
Joseph S. Machi
Vice President and Assistant Treasurer
Peter J. Germain
Secretary
C. Todd Gibson
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance
that they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning the Fund's objective and policies, management fees, expenses, and
other information.
[This Page Intentionally Left Blank]
A. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Equity Fund (`Equity
Income Fund') is represented by a solid line, whereas Standard & Poor's
500 Index is represented by a broken line and Lipper Equity Income Funds
Index is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical
investment of $10,000 in the Equity Income Fund and Standard & Poor's 500
Index and Lipper Equity Income Funds Index for the period from September
30, 1993 (start of performance) to August 31, 1996. The `y'' axis reflects
the cost of the investment. The `x'' axis reflects computation periods
from the ending value in the hypothetical investment in the Equity Income
Fund as compared to Standard & Poor's 500 Index and Lipper Equity Income
Funds Index; the ending values are $14,392, $15,326, and $13,974,
respectively. Beneath the list of components that correspond to the line
graph are the following total return data for the Equity Income Fund:
total return figures for the one-year period, start of performance to date
cumulative total return, and start of performance to date average
annualized total return are as follows: 21.20%; 43.93%; and 13.28%,
respectively.
B. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Value Equity Fund
(`Value Equity Fund'') is represented by a solid line, whereas Standard &
Poor's 500 Index is represented by a broken line and Lipper Growth and
Income Funds Index is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a hypothetical
investment of $10,000 in the Value Equity Fund and Standard & Poor's 500
Index and Lipper Growth and Income Funds Index for the period from
September 30, 1993 (start of performance) to August 31, 1996. The `y''
axis reflects the cost of the investment. The `x'' axis reflects
computation periods from the ending value of the hypothetical investment in
the Value Equity Fund as compared to Standard & Poor's 500 Index and Lipper
Growth and Income Funds Index; the ending values are $13,630, $15,326, and
$14,292, respectively. Beneath the list of components that correspond to
the line graph are the following total return data for the Value Equity
Fund: total return figures for the one-year period, start of performance
to date cumulative total return, and start of performance to date average
annualized total return are as follows: 8.53%; 36.31%; and 11.19%,
respectively.
C. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Stock Fund (`Stock
Fund') is represented by a solid line, whereas Standard & Poor's 500 Index
is represented by a broken line and Lipper Growth and Income Funds Index is
represented by a dotted line. The line graph is a visual representation of
a hypothetical investment of $10,000 in the Stock Fund and Standard &
Poor's 500 Index and Lipper Growth and Income Funds Index for the period
from November 20, 1992 (start of performance) to August 31, 1996. The `y''
axis reflects the cost of the investment. The `x'' axis reflects
computation periods from the ending value of the hypothetical investment in
the Stock Fund as compared to Standard & Poor's 500 Index and Lipper Growth
and Income Funds Index; the ending values are $13,311; $16,693; and
$16,267, respectively. Beneath the list of components that correspond to
the line graph are the following total return data for the Stock Fund:
total return figures for the one-year period, start of performance to date
cumulative total return, and start of performance to date average
annualized total return are as follows: 11.56%; 33.12%; and 7.86%,
respectively.
D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Mid-Cap Stock Fund
(`Mid-Cap Stock Fund'') is represented by a solid line, whereas Standard &
Poor's Midcap 400 Stock Price Index is represented by a broken line and
Lipper Mid-Cap Funds Index is represented by a dotted line. The line graph
is a visual representation of a comparison of change in value of a
hypothetical investment of $10,000 in the Mid-Cap Stock Fund and Standard &
Poor's Midcap 400 Stock Price Index and Lipper Mid-Cap Funds Index for the
period from September 30, 1993 (start of performance) to August 31, 1996.
The `y'' axis reflects the cost of the investment. The ``x'' axis reflects
computation periods from the ending value of the hypothetical investment in
the Mid-Cap Stock Fund as compared to Standard & Poor's Midcap 400 Index
and Lipper Mid-Cap Funds Index; the ending values are $14,695; $13,964; and
$14,342, respectively. Beneath the list of components that correspond to
the line graph are the following total return data for the Mid-Cap Stock
Fund: total return figures for the one-year period, start of performance
to date cumulative total return, and start of performance to date average
annualized total return are as follows: 18.92%; 46.96%; and 14.09%,
respectively.
E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall International Stock Fund
(`International Stock Fund'') is represented by a solid line, whereas
Morgan Stanley Capital International Europe, Australia and Far East Index
`EAFE Index'') is represented by a broken line and Lipper International
Funds Index is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a hypothetical
investment of $10,000 in the International Stock Fund andn EAFE Index and
Lipper International Funds Index for the period from September 1, 1994
(start of performance) to August 31, 1996. The `y'' axis reflects the cost
of the investment. The `x'' axis reflects computation periods from the
ending value of the hypothetical investment in the International Stock Fund
as compared to EAFE Index and Lipper International Funds Index; the ending
values are $11,408, $10,841, and $10,813, respectively. Beneath the list of
components that correspond to the line graph are the following total return
data for the International Stock Fund: total return figures for the one-
year period, start of performance to date cumulative total return, and
start of performance to date average annualized total return are as
follows: 11.71%; 14.06%; and 6.81%, respectively.
F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Short-Term Income Fund
(`Short-Term Income Fund'') is represented by a solid line, whereas Lipper
Short-Term Investment Grade Bond Funds Index is represented by a broken
line, IBC/Donoghue's Taxable Money Fund Average is represented by a broken
dotted line, and Short-Term Fund Benchmark is represented by a dotted line.
The line graph is a visual representation of a comparison of change in
value of a hypothetical investment of $10,000 in the Short-Term Income Fund
and Lipper Short-Term Investment Grade Bond Funds Index, IBC/Donoghue's
Taxable Money Fund Average, and Short-Term Fund Benchmark for the period
from November 1, 1992 (start of performance) to August 31, 1996. The `y''
axis reflects the cost of the investment. The `x'' axis reflects
computation periods from the ending value of the hypothetical investment in
the Short-Term Income Fund as compared to Lipper Short-Term Investment
Grade Bond Funds Index, IBC/Donoghue's Taxable Money Fund Average, and
Short-Term Fund Benchmark; the ending values are $11,804, $12,037, $11,675,
and $11,899, respectively. Beneath the list of components that correspond
to the line graph are the following total return data for the Short-Term
Income Fund: total return figures for the one-year period, start of
performance to date cumulative total return, and start of performance to
date average annualized total return are as follows: 4.92%; 18.06%; and
4.43%, respectively.
G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Intermediate Bond Fund
(`Intermediate Bond Fund'') is represented by a solid line, whereas Lehman
Brothers Intermediate Government/Corporate Bond Index is represented by a
broken line and Lipper Intermediate Investment Grade Bond Funds Index is
represented by a dotted line. The line graph is a visual representation of
a comparison of change in value of a hypothetical investment of $10,000 in
the Intermediate Bond Fund and Lehman Brothers Intermediate
Government/Corporate Bond Index for the period from November 20, 1992
(start of performance) to August 31, 1996. The `y'' axis reflects the cost
of the investment. The `x'' axis reflects computation periods from the
ending value of the hypothetical investment in the Intermediate Bond Fund
as compared to Lehman Brothers Intermediate Government/Corporate Bond Index
and Lipper Intermediate Investment Grade Bond Funds Index; the ending
values are $11,894, $12,377, and $12,478, respectively. Beneath the list of
components that correspond to the line graph are the following total return
figures for the one-year period, start of performance to date cumulative
total return, and start of performance to date average annualized total
return are as follows: 3.52%; 18.93%; and 4.70%, respectively.
H. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Government Income Fund
(`Government Income Fund'') is represented by a solid line, whereas Lehman
Brothers Mortgage-Backed Securities Index is represented by a broken line
and Lipper U.S. Mortgage Funds Index is represented by a dotted line. The
line graph is a visual representation of a comparison of change in value of
a hypothetical investment of $10,000 in the Government Income Fund and
Lehman Brothers Mortgage-Backed Securities Index and Lipper U.S. Mortgage
Funds Index for the period from December 13, 1992 (start of performance) to
August 31, 1996. The `y'' axis reflects the cost of the investment. The
`x'' axis reflects computation periods from the ending value of the
hypothetical investment in the Government Income Fund as compared to Lehman
Brothers Mortgage-Backed Securities Index and Lipper U.S. Mortgage Funds
Index; the ending values are $11,989, $12,528, and $11,916, respectively.
Beneath the list of components that correspond to the line graph are the
following total return figures for the one-year period, start of
performance to date cumulative total return, and start of performance to
date average annualized total return are as follows: 4.02%; 19.87%; and
4.99%, respectively.
I. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant of the graphic presentation. The Marshall Intermediate Tax-Free
Fund (`Intermediate Tax-Free Fund'') is represented by a solid line,
whereas Lehman Brothers 5-Year General Obligations Bonds Index is
represented by a broken line and Lipper Intermediate Municipal Funds Index
is represented by a dotted line. The line graph is a visual representation
of a comparison of change in value of a hypothetical investment of $10,000
in the Intermediate Tax-Free Fund and Lehman Brothers 5-Year General
Obligations Bonds Index and Lipper Intermediate Municipal Funds Index for
the period from February 2, 1994 (start of performance) to August 31, 1996.
The `y'' axis reflects the cost of the investment. The ``x'' axis reflects
computation periods from the ending value of the hypothetical investment in
the Intermediate Tax-Free Fund as compared to Lehman Brothers 5-Year
General Obligations Bonds Index and Lipper Intermediate Municipal Funds
Index; the ending values are $10,936, $11,071, and $10,900, respectively.
Beneath the list of components that correspond to the line graph are the
following total return figures for the one-year period, start of
performance to date cumulative total return, and start of performance to
date average annualized total return are as follows: 3.57%; 9.36%; and
3.53%, respectively.
