1933 Act File No. 33-48907
1940 Act File No. 811-7047
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
----
Pre-Effective Amendment No. ..........................
Post-Effective Amendment No. 21 .......................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
----
Amendment No. 21 ............................................ X
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MARSHALL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
__ immediately upon filing pursuant to paragraph (b) X on October 25, 1997
pursuant to paragraph (b) _ 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i)
_ 75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein, Shapiro, Morin, & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of Marshall Funds, Inc.,
which consists of twelve portfolios including: (1)Marshall Equity Income Fund;
(2) Marshall Government Income Fund; (3) Marshall Intermediate Bond Fund; (4)
Marshall Intermediate Tax-Free Fund; (5) Marshall Mid-Cap Growth Fund; (6)
Marshall Money Market Fund, (a) Class A Shares; (b) Class B Shares; (7) Marshall
Short-Term Income Fund; (8) Marshall Large-Cap Growth & Income Fund; (9)
Marshall Mid-Cap Value Fund; (10) Marshall International Stock Fund; and (11)
Marshall Small-Cap Growth Fund; and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
<TABLE>
<CAPTION>
<S> <C> <C>
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page........................(1-11)Cover Page.
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Item 2. Synopsis..........................(1-11)Summary of Fund Expenses.
--------
Item 3. Condensed Financial
Information......................(1-11) Financial Highlights; (1-11) Performance Information.
Item 4. General Description of
Registrant.......................(1-11) Summary of Investment Information; (1-11) Investment Objectives of
each Fund; (1-11) Portfolio Investments and Strategies.
-----------
Item 5. Management of the Fund............(1-11) Marshall Funds, Inc. Information; (1-11) Management
(of Marshall Funds, Inc.); (1-11) Distribution of Fund Shares;
(1-11) Administrative
----------------------
Arrangements; (1-11) Administrative
Services; (1-11) Shareholder
Servicing Arrangements; (1-11)
Brokerage Transactions; (6,10,11)
Distribution Plan; (1-11)
Administration of the Fund(s);
(1-11) Expenses of the Fund(s).
Item 6. Capital Stock and Other
Securities.......................(1-11) Dividends and Capital Gains;
Certificates and Confirmations;
(1-11) Shareholder Information;
(1-11) Common Stock and Voting
Rights; (1-11) Effect of Banking
Laws; (1-11) Tax Information; (1-11)
Federal Income Tax; (1-11) State and
Local Taxes.
Item 7. Purchase of Securities Being
Offered..........................(1-11) Net Asset Value; (1-11) How to Buy Fund Shares; (1-11)
How to Buy Fund Shares; (1-11) Minimum Investments; 1-11) Exchange Privilege;
Telephone Transactions.
Item 8. Redemption or Repurchase..........(1-11) How to Redeem Shares; (1-11) Accounts with Low Balances.
------------------------
Item 9. Pending Legal Proceedings None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page............................(1-11) Cover Page.
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Item 11. Table of Contents.....................(1-11) Table of Contents.
-----------------
Item 12. General Information and
History (1-11) Banking Laws.
Item 13. Investment Objectives and
Policies.............................(1-11) Policies and Acceptable Investments; (1-11) Investment Limitations.
Item 14. Management of the Fund................(1-11) Marshall Funds, Inc. Management; Directors' Compensation.
----------------------
Item 15. Control Persons and
Principal Holders of
Securities Not applicable.
Item 16. Investment Advisory and
Other Services.......................(1-11) Investment Advisory Services; (1-11) Administrative Services;
(1-11) Other Services.
---------------
Item 17. Brokerage Allocation..................(1-11) Brokerage Transactions.
--------------------
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being
Offered..........(1-11)
Purchasing Shares with
Securities; (6, 10, 11)
Distribution Plan; (1-11)
Determining Market Value;
Redemption in Kind.
---------------------------
Item 20. Tax Status............................(1-11) Tax Status.
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Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data.................................(1-11) Yield; Performance Comparisons; (1-5, 7-12) Total Return; (6)
Effective Yield; (4) Tax-Equivalent Yield.
Item 23. Financial Statements..................(1-11) The Financial Statements for the fiscal year ended
August 31, 1997 are hereby incorporated by reference from
the Funds' Annual Report
--------------------
dated August 31, 1997.
</TABLE>
LOGO
LOGO
Marshall Funds, Inc. (the "Corporation") is an open-end, management investment
company (a mutual fund). The Corporation has the following eleven separate
investment portfolios. Each portfolio ("Fund") offers its own shares and has a
distinct investment goal to meet specific investor needs.
<TABLE>
<S> <C>
==========================================================================================================
EQUITY FUNDS TAX-FREE INCOME FUND
- MARSHALL EQUITY INCOME FUND - MARSHALL INTERMEDIATE TAX-FREE FUND
- MARSHALL LARGE-CAP GROWTH &
INCOME FUND
- MARSHALL MID-CAP VALUE FUND
- MARSHALL MID-CAP GROWTH FUND
- MARSHALL INTERNATIONAL STOCK FUND
- MARSHALL SMALL-CAP GROWTH FUND
INCOME FUNDS MONEY MARKET FUND
- MARSHALL SHORT-TERM INCOME FUND - MARSHALL MONEY MARKET FUND
- MARSHALL INTERMEDIATE BOND FUND
- MARSHALL GOVERNMENT INCOME FUND
</TABLE>
This prospectus contains the information you should read and know before you
invest in any of the Funds. Keep this prospectus for future reference.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, MARSHALL & ILSLEY CORPORATION OR ANY OF ITS BANKING
SUBSIDIARIES ("M&I CORP."), AND THE SHARES ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE MONEY MARKET FUND ATTEMPTS TO
MAINTAIN A STABLE $1.00 NET ASSET VALUE PER SHARE, BUT IT CANNOT GUARANTEE THAT
IT WILL ALWAYS BE ABLE TO DO SO. THE INTERNATIONAL STOCK FUND MAY BORROW MONEY
TO INVEST, WHICH MAY BE CONSIDERED A SPECULATIVE ACTIVITY AND MAY INVOLVE
GREATER RISK AND EXPENSE TO THIS FUND.
The Funds have also filed a Statement of Additional Information dated October
31, 1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge, obtain other information, or
make inquiries about the Funds by writing to or calling Marshall Funds Investor
Services at 1-414-287-8555 or 1-800-236-FUND (3863). The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Funds is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus
October 31, 1997
[THIS PAGE INTENTIONALLY LEFT BLANK]
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TABLE OF CONTENTS
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<TABLE>
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PAGE
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<S> <C>
Table of Contents.................................................................................. 3
Summary of Investment Information.................................................................. 4
Who May Want to Invest In the Marshall Funds?................................................. 4
Who Manages the Funds?........................................................................ 4
What About Investment Risks?.................................................................. 4
How to Buy and Sell Shares.................................................................... 5
Summary of Fund Expenses........................................................................... 6
Financial Highlights............................................................................... 8
Fund Objective and Policies........................................................................ 10
The EQUITY FUNDS.............................................................................. 10
The INCOME FUNDS.............................................................................. 12
The INTERMEDIATE TAX-FREE FUND................................................................ 12
The MONEY MARKET FUND......................................................................... 13
How to Buy Fund Shares............................................................................. 14
Net Asset Value............................................................................... 15
How to Redeem Fund Shares.......................................................................... 16
Additional Conditions......................................................................... 17
Exchange Privilege................................................................................. 17
Purchasing, Redeeming, and Exchanging Fund Shares
Through Marshall Funds Online(SM)................................................................ 18
Telephone Transactions............................................................................. 18
Marshall Funds, Inc. Information................................................................... 20
Organization and History...................................................................... 20
Management.................................................................................... 20
Distribution of Fund Shares................................................................... 22
Administration of the Funds........................................................................ 24
Brokerage Transactions........................................................................ 24
Expenses of the Funds......................................................................... 24
Shareholder Information............................................................................ 25
Confirmations and Account Statements.......................................................... 25
Dividends and Capital Gains................................................................... 25
Common Stock and Voting Rights................................................................ 25
Performance Information............................................................................ 26
Portfolio Investments and Strategies............................................................... 26
Additional Investment Risks................................................................... 33
Tax Information.................................................................................... 36
Federal Income Tax............................................................................ 36
State and Local Taxes......................................................................... 36
Effect of Banking Laws............................................................................. 36
Standard & Poor's Corporation...................................................................... 36
Addresses...................................................................................... Back Cover
</TABLE>
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SUMMARY OF INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
================================================================================
WHO MAY WANT TO INVEST IN THE MARSHALL FUNDS?
The Marshall Funds offer investment opportunities to a wide range of investors,
from those who may be investing for the short-term and wish to take little
investment risk to those with long-term goals willing to bear the risks of the
stock market for potentially greater rewards. The Marshall Funds currently offer
the following eleven professionally managed, diversified portfolios:
- MARSHALL EQUITY INCOME FUND ("EQUITY INCOME FUND")--seeks above-average
dividend income and appreciation of capital through investments primarily
in common and preferred stocks of companies with large capitalizations;
- MARSHALL LARGE-CAP GROWTH & INCOME FUND ("LARGE-CAP GROWTH & INCOME
FUND")--seeks growth of capital and income by investing primarily in
common stocks of large-sized companies whose market capitalizations
generally exceed $10 billion (FORMERLY, MARSHALL STOCK FUND);
- MARSHALL MID-CAP VALUE FUND ("MID-CAP VALUE FUND")--seeks long-term
capital growth and income by investing primarily in common and preferred
stocks, and securities convertible into these stocks, of medium-sized
companies selected on the basis of traditional research including
assessment of earnings, dividend growth and risk volatility of the
company's industry (FORMERLY, MARSHALL VALUE EQUITY FUND);
- MARSHALL MID-CAP GROWTH FUND ("MID-CAP GROWTH FUND")--seeks appreciation
of capital by investing primarily in common and preferred stocks issued by
medium-sized companies whose market capitalizations generally range from
$200 million to $7.5 billion (FORMERLY, MARSHALL MID-CAP STOCK FUND);
- MARSHALL INTERNATIONAL STOCK FUND ("INTERNATIONAL STOCK FUND")--seeks
long-term capital growth by investing primarily in stocks and debt
obligations of companies and governments outside the United States;
- MARSHALL SMALL-CAP GROWTH FUND ("SMALL-CAP GROWTH FUND")--seeks
appreciation of capital by investing primarily in common and preferred
stocks issued by small-sized companies whose market capitalizations are
under $1 billion (FORMERLY, MARSHALL SMALL-CAP STOCK FUND);
- MARSHALL SHORT-TERM INCOME FUND ("SHORT-TERM INCOME FUND")--seeks to
maximize total return consistent with current income by investing
primarily in short- to intermediate-term investment grade bonds and notes;
- MARSHALL INTERMEDIATE BOND FUND ("INTERMEDIATE BOND FUND")--seeks to
maximize total return consistent with current income by investing
primarily in intermediate-term investment grade bonds and notes;
- MARSHALL GOVERNMENT INCOME FUND ("GOVERNMENT INCOME FUND")--seeks to
provide current income by investing primarily in securities which are
issued or guaranteed as to payment of principal and interest by the U.S.
government or U.S. government agencies or instrumentalities;
- MARSHALL INTERMEDIATE TAX-FREE FUND ("INTERMEDIATE TAX-FREE FUND")--seeks
to provide as high a level of income which is exempt from federal income
tax as is consistent with preservation of capital by investing in
investment grade municipal securities that generate such income; and
- MARSHALL MONEY MARKET FUND ("MONEY MARKET FUND")--seeks to provide current
income consistent with stability of principal by investing in money market
instruments maturing in 397 days or less. Shares of the MONEY MARKET FUND
are offered in two separate classes: CLASS A SHARES AND CLASS B SHARES.
================================================================================
WHO MANAGES THE FUNDS?
M&I Investment Management Corp. serves as investment adviser (the "Adviser") to
the Funds. The Adviser is owned by Marshall & Ilsley Corporation ("M&I Corp.")
of Milwaukee, Wisconsin. Templeton Investment Counsel, Inc. of Ft. Lauderdale,
Florida serves as subadviser (the "Subadviser") to the INTERNATIONAL STOCK FUND.
================================================================================
WHAT ABOUT INVESTMENT RISKS?
All mutual funds, including the Marshall Funds, take investment risks. The
EQUITY FUNDS must contend with the volatility and unpredictability of the U.S.
stock market. The INTERNATIONAL STOCK FUND may experience additional uncertainty
in foreign markets and with foreign currency transactions. The SMALL-CAP GROWTH
FUND involves special risks since it invests primarily in stocks of
smaller-capitalized companies, which have historically been more volatile than
stocks of larger companies. The INCOME FUNDS invest heavily in debt securities,
whose values move in the opposite direction of prevailing interest rates and
whose exposure to market price fluctuation increases with the length of their
maturities. Some of the Funds may use options and futures contracts to hedge
their investments or increase their income, although the successful use of such
investment techniques cannot be guaranteed and may result in a loss instead.
Each Fund may invest at least some of its assets in mortgage-backed securities
and may lend its portfolio securities to other institutions. The risks
associated with these and other investments are fully explained under "Portfolio
Investments and Strategies."
In all types of investments, reward and risk go hand in hand. If you seek high
investment returns, you must be willing to assume a comparably higher level of
risk. On the other hand, if you are comfortable with only a small amount of
risk, you should not expect a large return. Set forth below is a risk/reward
chart that depicts the investment potential and corresponding risks associated
with different types of mutual funds. The Marshall Funds are listed under the
relevant categories.
At the top of the chart are equity funds, which have historically produced over
the long-term a higher level of return than other types of investments, but also
have the highest potential risk. In the middle of the chart are income funds,
which offer a middle range of potential risk and return. At the bottom of the
chart are money market funds and money market instruments, which have a lower
amount of risk and return. As with any investment, however, past performance
does not predict future performance. Your investment return will vary, and the
redemption value of your mutual fund shares may be lower than their original
purchase price.
HIGHER POTENTIAL RETURN AND RISK
Equity Funds
Marshall Small-Cap Growth Fund
Marshall International Stock Fund
Marshall Mid-Cap Growth Fund
Marshall Mid-Cap Value Fund
Marshall Large-Cap Growth & Income Fund
Marshall Equity Income Fund
Income Funds
Marshall Government Income Fund
Marshall Intermediate Tax-Free Fund
Marshall Intermediate Bond Fund
Marshall Short-Term Income Fund
Money Market Funds
Marshall Money Market Fund
LOWER POTENTIAL RETURN AND RISK
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- --------------------------------------------------------------------------------
HOW TO BUY AND SELL SHARES
You may buy and sell shares of any of the Funds by telephone, by mail or in
person. All shares are both sold and redeemed at net asset value without any
sales charges. Your first purchase in any Fund must be at least $1,000 and your
later purchases must be at least $50 each. These minimums may be waived or
lowered from time to time in certain instances, such as for M&I Corp. employees.
The Corporation also offers you the privilege of exchanging shares of one Fund
for another at net asset value without any sales charge. For more information,
please see "How to Buy Fund Shares," "How to Redeem Fund Shares," "Exchange
Privilege" and "Telephone Transactions."
LOGO
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES
<TABLE>
<CAPTION>
LARGE-CAP
EQUITY GROWTH & MID-CAP MID-CAP
INCOME INCOME VALUE GROWTH
FUND FUND FUND FUND
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES..................... None None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee....................................... 0.75% 0.75% 0.75% 0.75%
12b-1 Fees(2)........................................ None None None None
Total Other Expenses................................. 0.47% 0.48% 0.48% 0.49%
Shareholder Servicing Fee................. 0.25% 0.25% 0.25% 0.25%
Total Annual Fund Operating Expenses (after
waivers)(5)...................................... 1.22% 1.23% 1.23% 1.24%
<CAPTION>
INTERNATIONAL SMALL-CAP
STOCK GROWTH
FUND FUND
-------------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES............. None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee............................... 1.00% 1.00%
12b-1 Fees(2)................................ 0.00% 0.00%
Total Other Expenses......................... 0.59% 0.80%
Shareholder Servicing Fee................. 0.25% 0.25%
Total Annual Fund Operating Expenses (afte
waivers)(5).............................. 1.59% 1.80%
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE GOVERNMENT INTERMEDIATE
INCOME BOND INCOME TAX-FREE
FUND FUND FUND FUND
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES..................... None None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................... 0.24% 0.52% 0.60% 0.29%
12b-1 Fees........................................... None None None None
Total Other Expenses................................. 0.25% 0.20% 0.26% 0.32%
Shareholder Servicing Fee (after
waiver)(3)............................... 0.02% 0.02% 0.02% 0.02%
Total Annual Fund Operating Expenses (after
waivers)(4)...................................... 0.49% 0.72% 0.86% 0.61%
<CAPTION>
MONEY MARKET FUND
CLASS A CLASS B
SHARES SHARES
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<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES............. None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............. 0.24% 0.24%
12b-1 Fees................................... None 0.30%
Total Other Expenses......................... 0.17% 0.17%
Shareholder Servicing Fee (after
waiver)(3)............................... 0.02% 0.02%
Total Annual Fund Operating Expenses (afte
waivers)(4).............................. 0.41% 0.71%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver by the
investment adviser. The adviser may terminate this voluntary waiver at any time
at its sole discretion. The maximum management fee is 0.75% for the Government
Income Fund, 0.60% for the Short-Term Income Fund, Intermediate Bond Fund and
Intermediate Tax-Free Fund; and 0.50% for the Money Market Fund--Class A and
Class B Shares.
(2) The International Stock Fund and Small-Cap Growth Fund have no present
intention of paying or accruing 12b-1 fees during the fiscal year ending August
31, 1998. If the International Stock Fund or Small-Cap Stock Fund were paying or
accruing 12b-1 fees, the International Stock Fund and Small-Cap Growth Fund
would be able to pay up to 0.25% of their average daily net assets for 12b-1
fees. See "Marshall Funds, Inc. Information."
(3) The Shareholder Servicing Fee for Short-Term Income Fund, Intermediate Bond
Fund, Government Income Fund, and Intermediate Tax-Free Fund has been reduced to
reflect a voluntary waiver by the shareholder servicing agent. The shareholder
servicing agent may terminate this waiver at any time at its sole discretion.
The maximum Shareholder Servicing Fee is 0.25% for all funds except Money Market
Fund--Class A and Class B, which has a 0.02% maximum for each class.
(4) Total Fund Operating Expenses were 1.08% for the Short-Term Income Fund,
1.03% for the Intermediate Bond Fund, 1.24% for the Government Income Fund,
1.15% for the Intermediate Tax-Free Fund, 0.67% for the Marshall Money
Market--Class A Shares, and 0.97% for the Marshall Money Market--Class B Shares
absent the voluntary waivers described in Notes 1 and 3.
(5) The Total Fund Operating Expenses in the table above for the Small-Cap
Growth Fund are based on expenses incurred during the period from September 3,
1996 to August 31, 1997 and are expected to be 1.60% for the fiscal year ending
August 31, 1998.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Funds will bear either directly or
indirectly. For more complete descriptions of the various costs and expenses,
see "Marshall Funds, Inc. Information." Wire-transferred redemptions may be
subject to an additional fee.
LONG-TERM SHAREHOLDERS INVESTED IN THE INTERNATIONAL STOCK FUND, SMALL-CAP
GROWTH FUND AND MONEY MARKET FUND--CLASS B SHARES MAY PAY MORE THAN THE ECONOMIC
EQUIVALENT TO THE MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF
THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD"). HOWEVER, IN ORDER
FOR A CLASS B SHAREHOLDER OF THE MONEY MARKET FUND TO EXCEED THE NASD'S MAXIMUM
FRONT-END SALES CHARGE OF 6.25%, A CONTINUOUS INVESTMENT IN THE CLASS B SHARES
FOR 89.3 YEARS WOULD BE REQUIRED.
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return and (2) redemption at the end of each time period. The Funds
charge no redemption fees.
<TABLE>
<CAPTION>
LARGE-CAP
EQUITY GROWTH & MID-CAP MID-CAP INTERNATIONAL SMALL-CAP
INCOME INCOME VALUE GROWTH STOCK GROWTH
FUND FUND FUND FUND FUND FUND
------------ ------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Year.......................... $12 $13 $13 $13 $16 $18
3 Years......................... $39 $39 $39 $39 $50 $57
5 Years......................... $67 $68 $68 $68 $87 $97
10 Years........................ $148 $149 $149 $150 $189 $212
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INTERMEDIATE GOVERNMENT INTERMEDIATE MONEY MARKET FUND
INCOME BOND INCOME TAX-FREE CLASS A CLASS B
FUND FUND FUND FUND SHARES SHARES
------------ ------------- ----------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Year.......................... $5 $7 $9 $6 $4 $7
3 Years......................... $16 $23 $27 $20 $13 $23
5 Years......................... $29 $40 $48 $34 $23 $40
10 Years........................ $64 $89 $106 $76 $52 $88
</TABLE>
The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
[THIS PAGE INTENTIONALLY LEFT BLANK]
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FINANCIAL HIGHLIGHTS
The following table has been audited by Arthur Andersen LLP, the Funds'
independent public accountants. Their report dated October 17, 1997 is included
in the Annual Report for the Funds, which is incorporated by reference. This
table should be read in conjunction with the Funds' financial statements and
notes thereto, which may be obtained free of charge from the Funds.
Further information about the performance of the Funds is contained in the
Funds' Annual Report dated August 31, 1997 which may be obtained free of charge.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED
GAIN/(LOSS)
ON INVESTMENTS, DIVIDENDS TO
NET ASSET NET COLLATERAL, SHAREHOLDERS
VALUE, INVESTMENT FUTURES TOTAL FROM FROM NET
PERIOD ENDED BEGINNING INCOME/ CONTRACTS, AND INVESTMENT INVESTMENT
AUGUST 31, OF PERIOD (LOSS) FOREIGN CURRENCY OPERATIONS INCOME
- ------------------------------------ ---------- ---------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
EQUITY INCOME FUND
1994(a)............................ $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)
1997............................... $13.00 0.33 3.51 3.84 (0.34)
<CAPTION>
DISTRIBUTIONS TO
SHAREHOLDERS FROM
NET REALIZED GAIN
ON INVESTMENT
TRANSACTIONS, DISTRIBUTIONS TO
FUTURES CONTRACTS, SHAREHOLDERS IN
AND FOREIGN EXCESS OF
PERIOD ENDED CURRENCY NET INVESTMENT
AUGUST 31, TRANSACTIONS INCOME
- ------------------------------------ ------------------- -------------------
<S> <C><C> <C>
EQUITY INCOME FUND
1994(a)............................ -- --
1995............................... -- --
1996............................... (0.21) --
1997............................... (0.86) --
LARGE-CAP GROWTH & INCOME FUND (FORMERLY, STOCK FUND)
1993(b)............................ $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)
1997............................... $12.16 0.10 3.76 3.86 (0.12)
MID-CAP VALUE FUND (FORMERLY, VALUE EQUITY FUND)
1994(a)............................ $10.00 0.12 0.93 1.05 (0.10)
1995............................... $10.95 0.22 1.22 1.44 (0.20)
1996............................... $12.08 0.21 0.78 0.99 (0.21)
1997............................... $11.98 0.15 3.05 3.20 (0.15)
MID-CAP GROWTH FUND (FORMERLY, MID-CAP STOCK FUND)
1994(a)............................ $10.00 0.02 (0.29) (0.27) (0.01)
1995............................... $ 9.69 (0.00) 2.62 2.62 (0.01)
1996............................... $12.30 (0.06) 2.24 2.18 --
1997............................... $13.56 (0.08) 2.56 2.48 --
INTERNATIONAL STOCK FUND
1995(c)............................ $10.00 0.20 0.01 0.21 (0.05)
1996............................... $10.16 0.21 0.96 1.17 (0.22)
1997............................... $11.08 0.18 2.29 2.47 (0.26)
SMALL-CAP GROWTH FUND (FORMERLY, SMALL-CAP STOCK FUND)
1997(d)............................ $10.00 (0.08) 2.27 2.19 --
SHORT-TERM INCOME FUND
1993(e)............................ $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)
1997............................... $ 9.59 0.63 0.04 0.67 (0.62)
INTERMEDIATE BOND FUND
1993(b)............................ $10.00 0.46 0.33 0.79 (0.39)
1994............................... $10.40 0.61 (0.81) (0.20) (0.67)
1995............................... $ 9.36 0.61 0.16 0.77 (0.62)
1996............................... $ 9.51 0.58 (0.25) 0.33 (0.58)
1997............................... $ 9.26 0.58 0.18 0.76 (0.58)
GOVERNMENT INCOME FUND
1993(f)............................ $10.00 0.47 0.16 0.63 (0.41)
1994............................... $10.22 0.64 (0.78) (0.14) (0.68)
1995............................... $ 9.26 0.60 0.26 0.86 (0.62)
1996............................... $ 9.51 0.62 (0.24) 0.38 (0.62)
1997............................... $ 9.27 0.62 0.22 0.84 (0.62)
INTERMEDIATE TAX-FREE FUND
1994(g)............................ $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)
1997............................... $ 9.83 0.43 0.21 0.64 (0.43)
MONEY MARKET FUND--CLASS A SHARES
1993(b)............................ $ 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)
1997............................... $ 1.00 0.05 -- 0.05 (0.05)
MONEY MARKET FUND--CLASS B SHARES
1993(h)............................ $ 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)
1997............................... $ 1.00 0.05 -- 0.05 (0.05)
<CAPTION>
LARGE-CAP GROWTH & INCOME FUND (FORM
<S> <C><C> <C>
1993(b)............................ -- --
1994............................... -- --
1995............................... -- --
1996............................... (0.66) --
1997............................... (1.94) --
MID-CAP VALUE FUND (FORMERLY, VALUE
1994(a)............................ -- --
1995............................... (0.11) --
1996............................... (0.88) --
1997............................... (1.89) --
MID-CAP GROWTH FUND (FORMERLY, MID-C
1994(a)............................ (0.03) --
1995............................... -- (0.00)
1996............................... (0.92) --
1997............................... (1.22) --
INTERNATIONAL STOCK FUND
1995(c)............................ -- --
1996............................... (0.03) --
1997............................... (0.09) --
SMALL-CAP GROWTH FUND (FORMERLY, SMA
1997(d)............................ -- --
SHORT-TERM INCOME FUND
1993(e)............................ -- --
1994............................... -- --
1995............................... -- --
1996............................... -- --
1997............................... -- --
INTERMEDIATE BOND FUND
1993(b)............................ -- --
1994............................... (0.17) --
1995............................... -- --
1996............................... -- --
1997............................... -- --
GOVERNMENT INCOME FUND
1993(f)............................ -- --
1994............................... (0.14) --
1995............................... -- --
1996............................... -- --
1997............................... -- --
INTERMEDIATE TAX-FREE FUND
1994(g)............................ -- --
1995............................... -- --
1996............................... -- --
1997............................... -- --
MONEY MARKET FUND--CLASS A SHARES
1993(b)............................ -- --
1994............................... -- --
1995............................... -- --
1996............................... -- --
1997............................... -- --
MONEY MARKET FUND--CLASS B SHARES
1993(h)............................ -- --
1994............................... -- --
1995............................... -- --
1996............................... -- --
1997............................... -- --
(a) Reflects operations for the period from October 1, 1993 (date of initial
public investment) to August 31, 1994.
(b) Reflects operations for the period from November 23, 1992 (date of initial
public investment) to August 31, 1993.
(c) Reflects operations for the period from September 2, 1994 (date of initial
public investment) to August 31, 1995.
(d) Reflects operations for the period from September 3, 1996 (date of initial
public investment) to August 31, 1997.
(e) Reflects operations for the period from November 2, 1992 (date of initial
public investment) to August 31, 1993.
(f) Reflects operations for the period from December 14, 1992 (date of initial
public investment) to August 31, 1993.
(g) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to August 31, 1994.
(h) Reflects operations for the period from December 17, 1992 (date of
initial public investment) to August 31, 1993.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
---------------------------------------- NET ASSETS, AVERAGE
NET ASSET NET END OF PERIOD COMMISSION
TOTAL VALUE, END TOTAL INVESTMENT EXPENSE (000 RATE
DISTRIBUTIONS OF PERIOD RETURN(I) EXPENSES INCOME WAIVER(K) OMITTED) PAID(L)
- ------------- ----------- --------- -------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.23) $ 9.96 2.02% 1.01%(j) 3.30%(j) 0.16%(j) $ 49,396 --
(0.33) $ 11.22 16.40% 1.01% 3.45% 0.09% $ 107,499 --
(0.56) $ 13.00 21.20% 0.98% 2.83% -- $ 173,402 $ 0.0450
(1.20) $ 15.64 30.95% 1.22% 2.31% -- $ 331,730 $ 0.0598
<CAPTION>
PORTFOLIO
TOTAL TURNOVER
DISTRIBUTIONS RATE
- ------------- ----------
<S> <C>
(0.23) 44%
(0.33) 43%
(0.56) 60%
(1.20) 61%
(0.09) $ 10.08 1.67% 0.94%(j) 1.39%(j) 0.03%(j) $ 309,128 --
(0.07) $ 10.05 0.44% 0.99% 0.77% 0.01% $ 250,155 --
(0.09) $ 11.64 16.85% 0.98% 0.88% 0.01% $ 257,019 --
(0.81) $ 12.16 11.56% 0.97% 1.28% -- $ 251,583 $ 0.0600
(2.06) $ 13.96 34.50% 1.23% 0.78% -- $ 269,607 $ 0.0612
(0.10) $ 10.95 10.59% 1.00%(j) 1.82%(j) 0.15%(j) $ 218,755 --
(0.31) $ 12.08 13.57% 0.96% 1.98% -- $ 220,436 --
(1.09) $ 11.98 8.53% 0.98% 1.68% -- $ 195,066 $ 0.0591
(2.04) $ 13.14 30.20% 1.23% 1.20% -- $ 145,143 $ 0.0593
(0.04) $ 9.69 (2.74%) 1.01%(j) 0.23%(j) 0.28%(j) $ 53,642 --
(0.01) $ 12.30 27.06% 1.01% (0.13%) 0.08% $ 108,256 --
(0.92) $ 13.56 18.92% 1.01% (0.47%) -- $ 143,236 $ 0.0598
(1.22) $ 14.82 19.14% 1.24% (0.52%) -- $ 196,983 $ 0.0600
(0.05) $ 10.16 2.11% 1.54%(j) 2.42%(j) 0.04%(j) $ 94,048 --
(0.25) $ 11.08 11.71% 1.35% 2.58% -- $ 143,783 $ 0.0059
(0.35) $ 13.20 22.73% 1.59% 1.80% -- $ 226,849 $ 0.0216
-- $ 12.19 21.90% 1.80%(j) (0.94%)(j) -- $ 56,425 $ 0.0600
(0.40) $ 9.95 3.57% 0.50%(j) 4.91%(j) 0.51%(j) $ 74,742 --
(0.44) $ 9.71 2.05% 0.50% 4.58% 0.39% $ 100,452 --
(0.58) $ 9.74 6.47% 0.51% 5.78% 0.40% $ 84,273 --
(0.62) $ 9.59 4.92% 0.51% 6.16% 0.40% $ 100,846 --
(0.62) $ 9.64 7.20% 0.49% 6.46% 0.59% $ 148,781 --
(0.39) $ 10.40 7.99% 0.70%(j) 6.08%(j) 0.10%(j) $ 346,808 --
(0.84) $ 9.36 (2.02%) 0.71% 6.26% 0.11% $ 357,740 --
(0.62) $ 9.51 8.58% 0.71% 6.50% 0.08% $ 344,071 --
(0.58) $ 9.26 3.52% 0.72% 6.14% 0.09% $ 403,657 --
(0.58) $ 9.44 8.42% 0.72% 6.17% 0.31% $ 398,234 --
(0.41) $ 10.22 6.40% 0.85%(j) 6.56%(j) 0.33%(j) $ 57,822 --
(0.82) $ 9.26 (1.34%) 0.86% 6.58% 0.40% $ 64,823 --
(0.62) $ 9.51 9.78% 0.86% 6.54% 0.26% $ 103,708 --
(0.62) $ 9.27 4.02% 0.86% 6.51% 0.19% $ 138,458 --
(0.62) $ 9.49 9.35% 0.86% 6.62% 0.38% $ 203,642 --
(0.19) $ 9.71 (0.94%) 0.62%(j) 3.58%(j) 0.59%(j) $ 35,212 --
(0.42) $ 9.91 6.58% 0.61% 4.35% 0.47% $ 46,051 --
(0.43) $ 9.83 3.57% 0.61% 4.34% 0.37% $ 65,927 --
(0.43) $ 10.04 6.67% 0.61% 4.35% 0.54% $ 88,108 --
(0.02) $ 1.00 2.33% 0.40%(j) 2.97%(j) 0.28%(j) $ 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 --
(0.05) $ 1.00 5.35% 0.41% 5.22% 0.26% $1,290,659 --
(0.02) $ 1.00 1.89% 0.72%(j) 2.72%(j) 0.28%(j) $ 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 --
(0.05) $ 1.00 5.04% 0.71% 4.93% 0.26% $ 89,485 --
<CAPTION>
(0.09) 98%
(0.07) 86%
(0.09) 79%
(0.81) 147%
(2.06) 43%
(0.10) 39%
(0.31) 78%
(1.09) 67%
(2.04) 55%
(0.04) 113%
(0.01) 157%
(0.92) 189%
(1.22) 211%
(0.05) 61%
(0.25) 26%
(0.35) 26%
-- 183%
(0.40) 79%
(0.44) 185%
(0.58) 194%
(0.62) 144%
(0.62) 101%
(0.39) 220%
(0.84) 228%
(0.62) 232%
(0.58) 201%
(0.58) 144%
(0.41) 218%
(0.82) 175%
(0.62) 360%
(0.62) 268%
(0.62) 299%
(0.19) 45%
(0.42) 105%
(0.43) 41%
(0.43) 53%
(0.02) --
(0.03) --
(0.05) --
(0.05) --
(0.05) --
(0.02) --
(0.03) --
(0.05) --
(0.05) --
(0.05) --
(i) Based on net asset value. (j) Computed on an annualized basis.
(k) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above. (l) Represents total commissions paid on
portfolio securities divided by total portfolio shares purchased or sold on
which commissions were charged. This disclosure is required for fiscal years
beginning on or after September 1, 1995. </TABLE>
(See Notes which are an integral part of the Financial Statements)
- -------------------------------------------------------------
FUND OBJECTIVE AND
POLICIES
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without shareholder approval. While a Fund
cannot assure that it will achieve its investment objective, it attempts to do
so by following the investment policies described below.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Directors ("Directors") without shareholder approval. However,
shareholders will be notified before any material change in these policies
becomes effective. For purposes of each EQUITY FUND'S respective 65% investment
policy, total assets shall be determined without regard to collateral held for
any securities lending activity. Additional information about investments,
investment limitations and strategies, and certain investment policies appears
in the "Portfolio Investments and Strategies" section of this prospectus.
For additional information about investment limitations, strategies that one or
more Funds may employ, and certain investment policies, please refer to the
"Portfolio Investments and Strategies" section of this prospectus.
-------------------------------------------------------------
THE EQUITY FUNDS
MARSHALL EQUITY INCOME FUND
The investment objective of the EQUITY INCOME FUND is to provide above-average
dividend income with appreciation of capital. The Fund pursues this objective by
investing in a broadly diversified portfolio of common and preferred stocks.
Under normal market conditions, the Fund intends to invest at least 65% of its
total assets in equity securities that generate dividend income. As a secondary
non-fundamental objective, the Fund will seek to achieve dividend income (before
fees and expenses) at a level of 100 basis points (or 1%) above that earned on
the stocks that comprise the Standard & Poor's Daily Stock Price Index of 500
Common Stocks ("S&P 500"). While there is no assurance that the Fund can achieve
this goal, the Fund's Adviser believes it possible to achieve a dividend level
above stocks comprising the S&P 500 by concentrating or overweighing the Fund's
investments in stocks or sectors of the stock market that have higher yields
than the stocks in the S&P 500 as a whole, such as utilities, financial
institutions, and energy.
MARSHALL LARGE-CAP GROWTH & INCOME FUND
The investment objective of the LARGE-CAP GROWTH & INCOME FUND is to provide
growth of capital and income. The Fund pursues this objective by investing
primarily in a professionally managed and diversified portfolio of common stocks
of companies with an established market and a history of stable earnings and/or
growing dividends. Under normal market conditions, the Fund intends to invest at
least 65% of its total assets in equity securities (i.e., common stocks and
preferred stocks) of large-sized companies whose market capitalizations
generally exceed $10 billion. As a general matter, the Fund expects these
investments to generate income. The Fund's investment approach is based on the
conviction that over the long-term the economy will continue to expand and that
this economic growth will be reflected in the growth of revenues and earnings of
major corporations.
MARSHALL MID-CAP VALUE FUND
The investment objective of the MID-CAP VALUE FUND is to provide long-term
capital growth and income. The Fund pursues this objective through the
application of a value-oriented approach by investing in a broadly diversified
portfolio of common stocks, securities convertible into common stocks and
preferred stocks of medium-sized companies, whose market capitalizations
generally range from $200 million to $7.5 billion, selected on the basis of
traditional research including assessment of earnings, dividend growth and
risk/volatility of the company's industry. Under normal market conditions, the
Fund intends to invest at least 65% of its total assets in these mid-cap equity
securities. In most market conditions, the stocks comprising the Fund's assets
will exhibit traditional value characteristics such as having a price/ earnings
ratio less than the S&P 500, higher than average dividend yields, lower than
average price to book value, and stocks of companies with unrecognized or
undervalued assets.
MARSHALL MID-CAP GROWTH FUND
The investment objective of the MID-CAP GROWTH FUND is to seek appreciation of
capital. The Fund will pursue this objective by investing, under normal market
conditions, at least 65% of its total assets in common and preferred stocks
issued by medium-sized companies whose market capitalizations generally range
from $200 million to $7.5 billion. The Fund's Adviser will invest primarily in
equity securities of companies with above-average earnings growth prospects or
in companies where significant fundamental changes are taking place. These
changes could include significant new products, services, or methods of
distribution; restructuring or reallocating business; or significant share price
appreciation.
MARSHALL INTERNATIONAL STOCK FUND
The investment objective of the INTERNATIONAL STOCK FUND is long-term capital
growth. The Fund pursues
this objective through a flexible policy of investing in stocks and debt
obligations of companies and governments outside the United States. Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
securities of issuers domiciled in at least three different nations outside the
United States, and at least 65% of the Fund's total assets will be invested in
equity securities, i.e., common stocks and preferred stocks. The Fund may also
invest up to 35% of its total assets in debt securities, warrants or rights to
subscribe to or purchase equity securities, or securities convertible into
common or preferred stocks when, in the judgment of the Fund's Subadviser, the
capital appreciation available through such investments outweigh the potential
for capital growth through investment in equity securities. Certain debt
securities can provide the potential for capital appreciation based on various
factors such as changes in interest rates, economic and market conditions,
improvement in an issuer's ability to repay principal and pay interest, and
ratings upgrades. The Fund may invest in debt or preferred securities which have
equity features, such as conversion or exchange rights, or which carry warrants
to purchase common stock or other equity interests. Such equity features enable
the holder of the bond or preferred security to benefit from increases in the
market price of the underlying equity security. Any income realized by the Fund
will be incidental to its investment objective of long-term capital growth. In
selecting securities, the Fund's Subadviser attempts to identify those companies
in various countries and industries where economic and political factors,
including currency movements, are likely to produce above-average opportunities
for capital appreciation.
MARSHALL SMALL-CAP GROWTH FUND
The investment objective of the SMALL-CAP GROWTH FUND is to seek appreciation of
capital. The Fund will pursue this objective by investing, under normal market
conditions, at least 65% of its total assets in common and preferred stocks
issued by small-sized companies whose market capitalizations are under $1
billion. The Fund's Adviser will invest primarily in equity securities of
companies with above-average earnings growth prospects or in companies where
significant fundamental changes are taking place. These changes could include
significant new products, services, or methods of distribution; restructuring or
reallocating business; or significant share price appreciation.
THE EQUITY FUNDS' ACCEPTABLE INVESTMENTS. Acceptable investments include the
following:
- common stocks of U.S. companies that are listed on the New York or American
Stock Exchange, or other domestic exchange, or traded in over-the-counter
markets; the INTERNATIONAL STOCK FUND may also invest in common stocks of
foreign companies;
- preferred stocks;
- convertible securities rated "investment grade" by a nationally recognized
statistical rating organization ("NRSRO") (such as BBB or better by Standard
& Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"),
or Baa or better by Moody's Investors Service, Inc. ("Moody's")) or, if
unrated, of comparable quality as determined by the Fund's Adviser or
Subadviser (see "Convertible Securities" in the "Portfolio Investments and
Strategies" section);
- U.S. government securities, including certain Mortgage-Backed Securities (as
defined under "Portfolio Investments and Strategies");
- debt obligations (including bonds, notes and debentures); except for
INTERNATIONAL STOCK FUND, these must be issued by U.S. corporations and
rated in the top four categories by an NRSRO (such as BBB or better by S&P
or Fitch, or Baa or better by Moody's) or, if unrated, the Fund's Adviser
must determine them to be of comparable quality; the INTERNATIONAL STOCK
FUND may purchase debt obligations issued by foreign corporations and
governments that are rated investment grade by an NRSRO (such as BBB or
better by S&P or Fitch, or Baa or better by Moody's) or, if unrated, are
determined by the Fund's Subadviser to be of comparable quality;
- American Depositary Receipts ("ADRs"); except for INTERNATIONAL STOCK FUND,
each Fund is limited to 20% of its net assets;
- Global Depositary Receipts ("GDRs") and European Depositary Receipts
("EDRs") (only the INTERNATIONAL STOCK FUND);
- Asset-Backed Securities (as defined under "Portfolio Investments and
Strategies");
- put and call options on securities and indices and futures contracts;
- swap transactions, including interest rate and index-based swaps;
- Prime Commercial Paper (as defined under "Portfolio Investments and
Strategies"); the SMALL-CAP GROWTH FUND may purchase commercial paper rated
"investment grade" by an NRSRO, or, if unrated, of comparable quality as
determined by the Fund's Adviser;
- foreign and domestic Bank Instruments (as defined under "Portfolio
Investments and Strategies");
- warrants;
- repurchase agreements; and
- shares of other investment companies.
Notwithstanding the limits set forth above, each EQUITY FUND (except the
INTERNATIONAL STOCK FUND, which has no limit) may invest up to 5% of its net
assets in foreign securities other than ADRs.
The SMALL-CAP GROWTH FUND has special risks since it invests primarily in small
capitalization stocks. These risks are fully explained under "Portfolio
Investments and Strategies" and "Additional Investment Risks."
-------------------------------------------------------------
THE INCOME FUNDS
MARSHALL SHORT-TERM INCOME FUND
The investment objective of the SHORT-TERM INCOME FUND is to maximize total
return consistent with current income. The Fund pursues this objective by
investing in a diversified portfolio of short- to intermediate-term investment
grade bonds and notes. The Fund will maintain an average dollar-weighted
maturity of six months to three years.
MARSHALL INTERMEDIATE BOND FUND
The investment objective of the INTERMEDIATE BOND FUND is to maximize total
return consistent with current income. The Fund pursues this objective by
investing in a diversified portfolio of intermediate-term investment grade bonds
and notes. The Fund will maintain an average dollar-weighted maturity of three
to ten years. The Fund will invest, under normal circumstances, at least 65% of
the value of its total assets in bonds. For purposes of this investment policy,
"bonds" shall include all permitted types of debt instruments, including debt
held as collateral for repurchase agreements.
MARSHALL GOVERNMENT INCOME FUND
The investment objective of the GOVERNMENT INCOME FUND is to provide current
income. The Fund pursues this objective by investing primarily in U.S.
government securities, including those issued by U.S. government agencies and
instrumentalities. While seeking to achieve the Fund's objective of current
income, as a matter of operating policy the Adviser will attempt to maximize
performance. Under normal circumstances, the Fund will invest at least 65% of
the value of its total assets in U.S. government securities (not including
privately issued mortgage-related securities).
THE INCOME FUNDS' ACCEPTABLE INVESTMENTS. Acceptable investments include the
following:
- domestic issues of corporate debt obligations (including bonds, notes and
debentures) rated in the top four investment grade categories by an NRSRO
(such as BBB or better by S&P or Fitch, or Baa or better by Moody's) or, if
unrated, determined by the Funds' Adviser to be of comparable quality;
- U.S. government securities (as defined under "Portfolio Investments and
Strategies");
- Prime Commercial Paper (as defined under "Portfolio Investments and
Strategies");
- domestic Bank Instruments (as defined under "Portfolio Investments and
Strategies");
- repurchase agreements;
- master demand notes;
- Mortgage-Backed Securities (as defined under "Portfolio Investments and
Strategies");
- Asset-Backed Securities (as defined under "Portfolio Investments and
Strategies");
- Municipal Securities (except the GOVERNMENT INCOME FUND) (as defined under
"Portfolio Investments and Strategies");
- swap transactions, including interest rate and index-based swaps; and
- securities of other investment companies.
The GOVERNMENT INCOME FUND may also engage in options, futures and options on
futures for bona fide hedging purposes. Additional information about
investments, investment limitations and strategies, and certain investment
policies appears in the "Portfolio Investments and Strategies" section of this
prospectus.
-------------------------------------------------------------
THE INTERMEDIATE TAX-FREE FUND
MARSHALL INTERMEDIATE TAX-FREE FUND
The investment objective of the INTERMEDIATE TAX-FREE FUND is to provide as high
a level of income that is exempt from federal income tax as is consistent with
preservation of capital. Under normal circumstances, the INTERMEDIATE TAX-FREE
FUND will maintain an average dollar-weighted portfolio maturity of three to ten
years.
THE INTERMEDIATE TAX-FREE FUND'S ACCEPTABLE INVESTMENTS. The INTERMEDIATE
TAX-FREE FUND pursues its objective by investing in a diversified portfolio of
investment grade Municipal Securities (as defined under "Portfolio Investments
and Strategies"). As a matter of investment policy that cannot be changed
without shareholder approval, under normal market conditions, at least 80% of
the INTERMEDIATE TAX-FREE FUND'S net assets will be invested in Municipal
Securities, the income from which is exempt from federal income tax (including
the federal alternative minimum tax). Interest income of the INTERMEDIATE
TAX-FREE FUND that is exempt from federal income tax retains its tax-free status
when distributed to shareholders.
Municipal Securities are debt obligations issued by or on behalf of states,
territories and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of these,
the income from which is, in the opinion of
qualified legal counsel or the INTERMEDIATE TAX-FREE FUND'S Adviser, exempt from
federal income tax. These securities will be:
- rated in the top four categories by an NRSRO (such as BBB or better by S&P
or Fitch, or Baa or better by Moody's);
- guaranteed at the time of purchase by the U.S. government as to the payment
of principal and interest;
- fully collateralized by an escrow of U.S. government securities or other
securities acceptable to the INTERMEDIATE TAX-FREE FUND'S Adviser, including
certain Mortgage-Backed Securities (as defined under "Portfolio Investments
and Strategies");
- rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial paper
rating (P-1) or S&P's highest municipal commercial paper rating (SP-1) or
Fitch's highest short-term municipal obligations rating (F-1+ or F-1) or the
highest rating by another NRSRO;
- unrated if, at the time of purchase, other Municipal Securities of that
issuer are rated the same quality as described above by an NRSRO; or
- unrated if determined to be of comparable quality to one of the foregoing
rating categories by the INTERMEDIATE TAX-FREE FUND'S Adviser.
The INTERMEDIATE TAX-FREE FUND may also engage in options, futures and options
on futures for bona fide hedging purposes. The INTERMEDIATE TAX-FREE FUND may
also invest in swap transactions, including interest rate and index-based swaps.
Additional information about investments, investment limitations and strategies,
and certain investment policies appears in the "Portfolio Investments and
Strategies" section of this prospectus.
-------------------------------------------------------------
THE MONEY MARKET FUND
The investment objective of the MONEY MARKET FUND is to provide current income
consistent with stability of principal. The Fund pursues this objective by
investing exclusively in a portfolio of money market instruments maturing in 397
days or less. The average maturity of securities in the Fund's portfolio,
computed on a dollar-weighted basis, will be 90 days or less. While there is no
assurance that the MONEY MARKET FUND will achieve its investment objective, it
endeavors to do so by complying with the diversification and other various
requirements of Rule 2a-7 under the Investment Company Act of 1940 which
regulates money market mutual funds and by following the investment policies
described in this prospectus.
Shares of the MONEY MARKET FUND are offered in two classes of shares: CLASS A
SHARES and CLASS B SHARES. CLASS A SHARES are sold to customers of M&I Corp. and
its affiliates or retail customers of institutions that have not entered into a
marketing arrangement or do not provide sales and/or administrative services for
the sale of MONEY MARKET FUND shares. CLASS B SHARES are sold through
institutions and other entities that have entered into marketing arrangements to
make MONEY MARKET FUND shares available to their clients, customers or other
specified groups of investors, or that have agreed to provide sales and/or
administrative services as agents for holders of CLASS B SHARES.
THE MONEY MARKET FUND'S ACCEPTABLE INVESTMENTS. The MONEY MARKET FUND invests in
high-quality money market instruments that are denominated and payable in U.S.
dollars and are either rated in the highest short-term rating category by NRSROs
or are of comparable quality to securities having such ratings. Examples of
these instruments include, but are not limited to:
- issues of domestic and foreign corporate debt obligations, including bonds,
notes, and debentures;
- commercial paper, including Eurodollar commercial paper ("Europaper");
- domestic and foreign Bank Instruments (as defined under "Portfolio
Investments and Strategies");
- demand master notes;
- U.S. government securities, except for Mortgage-Backed Securities (as
defined under "Portfolio Investments and Strategies");
- repurchase agreements;
- guaranteed investment contracts;
- funding agreements; and
- short-term tranches of Asset-Backed Securities (as defined under "Portfolio
Investments and Strategies").
- -------------------------------------------------------------
HOW TO BUY FUND
SHARES
You can buy shares of a Fund at net asset value, without a sales charge, on any
day the New York Stock Exchange is open for business. Your order must be
received by the Fund by 12:00 p.m. (Central Time) for the MONEY MARKET FUND or
3:00 p.m. (Central Time) for all other Funds to get that day's net asset value.
See "Net Asset Value" below. Each Fund reserves the right to reject any purchase
request. Investors may purchase Fund shares by contacting Marshall Funds
Investor Services ("MFIS") at 1-800-236-FUND (3863), or by any of the following
methods.
You may also place a purchase order through any authorized broker-dealer or
financial institution, including a broker-dealer or institution that may charge
a transaction fee for this service. If you purchase shares of a Fund through a
program of services offered or administered by a broker-dealer, financial
institution, or other service provider, you should read the program materials,
including information relating to fees, in conjunction with the Funds'
prospectus. Certain features of a Fund may not be available or may be modified
in connection with the program of services provided.
Trust customers of Marshall & Ilsley Trust Company ("M&I Trust Company"), M&I
Marshall & Ilsley Trust Company of Arizona and Marshall & Ilsley Trust Company
of Florida (these companies will be referred to as "M&I Trust Companies") may
contact their account officer in order to make purchase requests. Texas
residents must purchase shares through M&I Brokerage Services, Inc. ("M&I
Brokerage Services") at 1-800-236-FUND (3863), or through any authorized
broker-dealer.
<TABLE>
<S> <C>
MINIMUM INVESTMENTS
$1,000 To open an Account
$50 To add to an Account
(including through a
Systematic Investment
Program)
</TABLE>
The Funds may waive or lower these minimums from time to time, such as for M&I
Corp. employees.
<TABLE>
<S> <C>
PHONE Contact MFIS. Complete an
1-800-236-FUND application for a new account.
(3863) If you authorized telephone
LOGO exchange privileges in your
account application or by sub-
sequent authorization form,
you may exchange shares from another Fund having an
identical shareholder registration. See "Telephone
Transactions" on page 18 for more information.
MAIL To open a new Fund account, send
LOGO in your completed account
application and a check payable
to "Marshall Funds" to:
Marshall Funds Investor
Services
P.O. Box 1348
Milwaukee, WI 53201-1348
To add to your existing Fund Account, send in your check, payable to the Fund,
to the same address. Indicate your Fund account number on the check. PERSON
Bring in your completed account LOGO application (for new accounts)
and a check to Marshall Funds Investor Services, 1000 N.
Water Street (M-F 8-5 Central Time), to any M&I Bank
employing a representative of M&I Brokerage Services, or to
any authorized broker or dealer.
WIRE -First notify MFIS at
LOGO 1-800-236-FUND (3863) by 12:00
p.m. (Central Time) for the MONEY
MARKET FUND and 3:00 p.m.
(Central Time) for the other
Funds.
- Then wire the money to:
M&I Marshall & Ilsley Bank
ABA Number 075000051
Credit to: Federated Shareholder
Services Company Deposit
Account Number 27480
Further credit to:
[Identify name of Fund]
Re: [Shareholder name and
account number]
- If a new Account, fax to
Marshall Funds Investor Services at 1-414-287-8511 and mail a
completed account application to the Fund at the address
above under "Mail."
</TABLE>
<TABLE>
<S> <C>
SYSTEMATIC You can have money automati-
INVESTMENT cally withdrawn from your
PROGRAM checking account on predeter-
mined dates and invest it in a
Fund at the next Fund share
price determined after MFIS
receives the order. Investors purchasing shares through the Systematic
Investment Program are not subject to the $1,000 minimum investment
requirement. Call MFIS at 1-800-236-FUND (3863) to apply for this program.
MARSHALL FUNDS You may purchase Fund shares ONLINE(SM) via the Internet through
LOGO Marshall Funds Online(SM).
See page 18, "Purchasing, Re-
deeming, and Exchanging
Fund Shares Through Marshall Funds Online(SM)."
</TABLE>
ADDITIONAL INFORMATION ABOUT ORDERS BY:
<TABLE>
<S> <C>
CHECK If your check does not clear,
LOGO your purchase will be can-
celed and you will be charged
a $15 fee. Purchase orders by
check are considered received after your check is
converted by MFIS into federal funds, which is
generally the next business day after MFIS
receives your check.
WIRE Your bank may charge a fee
LOGO for wiring funds. Wire orders
are accepted only on days
when the Funds and the Federal Reserve wire system are open for business. If
your purchase order for the MONEY MARKET FUND is received by 12:00 p.m.
(Central Time) and your wire is received by M&I Bank by 3:00 p.m. (Central
Time), you will begin receiving dividends on that day.
</TABLE>
-------------------------------------------------------------
NET ASSET VALUE
Shares of a Fund are sold at their share price, which is the net asset value
without any sales charge, next determined after your order is received. The net
asset value is determined for the MONEY MARKET FUND at 12:00 p.m. (Central Time)
and 3:00 p.m. (Central Time), and for all other Funds at or after the close of
the New York Stock Exchange, Monday through Friday, except on: (i) days on which
there are not sufficient changes in the value of a Fund's portfolio securities
that its net asset value might be materially affected; (ii) days during which no
shares are tendered for redemption and no orders to purchase shares are
received; and (iii) the following holidays: New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
It is the responsibility of MFIS, any authorized broker-dealer, financial
institution or other service provider that has entered into an agreement with
the Funds, its distributor, or administrative or shareholder services agent, to
promptly submit purchase orders to the Funds. Orders placed through one of these
entities are considered received when the Funds are notified of the purchase or
redemption order.
Each Fund's share price fluctuates, except that the MONEY MARKET FUND attempts
to maintain a stable $1 share price, although this cannot be guaranteed. The net
asset value of many of the Funds are listed daily in your newspaper's mutual
fund quotations section under the bold heading "MARSHALL FUNDS." A Fund's net
asset value is determined by adding the market value of all portfolio securities
and other assets, subtracting liabilities, and dividing by the number of
outstanding shares. Like most other money market funds, the MONEY MARKET FUND
uses the amortized cost method to value its portfolio securities in order to
help maintain a stable $1 share price.
- -------------------------------------------------------------
HOW TO REDEEM FUND
SHARES
You may redeem your Fund shares at their net asset value next determined after
the Fund receives the redemption request. Redemptions will be made on days when
the Fund computes its net asset value. See "Net Asset Value" above. Investors
may be charged a fee if they redeem Fund shares through a broker-dealer,
financial institution or other service provider (other than MFIS or the M&I
Trust Companies). Consult your broker-dealer, financial institution or service
provider for more information, including applicable fees. Telephone or written
requests for redemptions must be received in proper form as described below and
can be made through MFIS or any authorized broker-dealer, financial institution,
or service provider to promptly submit redemption requests to the Funds. It is
the responsibility of MFIS, and any authorized broker-dealer, financial
institution, or service provider to promptly submit redemption requests to a
Fund. Trust customers of M&I Trust Companies should contact their account
officer in order to make redemption requests. Redemption requests for the Funds
must be received by 12:00 p.m. (Central Time) for the MONEY MARKET FUND or 3:00
p.m. (Central Time) for all Funds in order for shares to be redeemed at that
day's net asset value. Redemption proceeds will normally be mailed, or wired if
by written request, the following business day, but in no event more than seven
days, after the request is made. See "Wire/Electronic Transfer" below.
<TABLE>
<S> <C>
PHONE If you have authorized the
1-800-236-FUND telephone redemption privi-
(3863) lege in your account appli-
(EXCEPT RETIREMENT cation or by a subsequent
ACCOUNTS) authorization form, you may
LOGO redeem shares by tele-
phone. If you are a cus-
tomer of an authorized
broker-dealer, you must contact your account
representative. See "Telephone Transactions" for
more information.
MAIL Send in your written request
LOGO to the following address,
indicating your name, the
Fund
name, your account number, and the number of shares or the dollar amount you
want to redeem to:
Marshall Funds Investor Services
P.O. Box 1348
Milwaukee, WI 53201-1348
If you want to redeem shares held in certificate form, you must properly
endorse the certificated shares and send them by registered or certified mail.
Additional documentation may be required from corporations, executors,
administrators, trustees, or guardians. For additional assistance, call
1-800-236-FUND (3863). PERSON Bring in the written redemp- LOGO tion request
with the
information described in
"Mail" above
to any M&I Bank employing a representative of M&I
Brokerage Services, Marshall Funds Investor
Services, 1000 N. Water Street. (M-F 8-5 Central
Time), or to any authorized broker-dealer.
WIRE/ELECTRONIC Upon written request, re-
TRANSFER demption proceeds can be
LOGO directly deposited by Elec-
tronic Funds Transfer or
wired directly to a domestic commercial bank previously designated by you in
your account application or by subsequent form. Wire payments of redemption
orders will only be accepted on days on which the Funds and the Federal Reserve
wire system are open for business. Wire-transferred redemptions may be subject
to an additional fee. Redemption requests for the MONEY MARKET FUND must be
received by 12:00 p.m. (Central Time) if you want the proceeds to be wired the
same day. SYSTEMATIC If you have a Fund account WITHDRAWAL balance of at least
PROGRAM $10,000, you can have (EXISTING predetermined amounts of at ACCOUNTS
ONLY) least $100 automatically
redeemed from your Fund
account on predetermined dates on a monthly or
quarterly basis. Contact MFIS to apply for this
program.
</TABLE>
<TABLE>
<S> <C>
CHECKWRITING You can redeem shares of
(MONEY MARKET the MONEY MARKET FUND by
FUND ONLY) writing a check in amounts
LOGO of at least $250. You must
have completed the check-
writing section of your account application and the attached signature card, or
have completed a subsequent application form, which you can obtain from MFIS.
The Fund will then provide you with the checks. Your check is treated as a
redemption order for Fund shares equal to the amount of the check. A check for
an amount in excess of your available Fund account balance will be returned
marked "insufficient funds." See "Redemption Before Purchase Instruments Clear"
below. Checks cannot be used to close your Fund account balance. MARSHALL FUNDS
You may redeem Fund shares ONLINE(SM) via the Internet through LOGO Marshall
Funds Online(SM).
See page 18, "Purchasing,
Redeeming, and Exchanging
Fund Shares Through Marshall Funds Online(SM)."
</TABLE>
-------------------------------------------------------------
ADDITIONAL CONDITIONS
SIGNATURE GUARANTEES. In the following instances, you must have a signature
guarantee on written redemption requests:
- when you are requesting a redemption of $50,000 or more;
- when you want a redemption to be sent to an address other than the one you
have on record with the Fund; or
- when you want the redemption payable to someone other than the shareholder
of record.
Notaries do not guarantee signatures. A notary public seal is not an acceptable
replacement for a signature guarantee. Instead, the signatures must be
guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Corporation and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Corporation may elect in
the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Corporation and its transfer agent
reserve the right to amend these standards at any time without notice.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR. When you purchase Fund shares by
check or through the Automated Clearing House system, the proceeds from the
redemption of those shares (whether redeemed by mail, by telephone or by
checkwriting) are not available, and the shares may not be exchanged, until MFIS
is reasonably certain that the purchase check has cleared, which could take up
to seven calendar days.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, a Fund may redeem shares in your account and pay you the proceeds
if your account balance falls below the required minimum value of $1,000.
Before shares are redeemed to close an account, you will be notified in writing
and allowed 30 days to purchase additional shares to meet the minimum account
balance requirement.
-------------------------------------------------------------
EXCHANGE PRIVILEGE
You may exchange shares of a Fund for shares of any of the other Funds at net
asset value without a sales charge, provided you meet the investment minimum of
the Fund.
Upon receipt of proper instructions and all necessary supporting documents, the
Fund shares you submit for exchange will be redeemed at the next-determined net
asset value. Written exchange instructions may require a signature guarantee.
See "Signature Guarantees" above. An exchange is treated as a sale for federal
income tax purposes and, depending on the circumstances, you may realize a short
or long-term capital gain or loss. The exchange privilege may be terminated at
any time, and you will be notified of such termination. You may obtain further
information on the exchange privilege by calling MFIS.
-------------------------------------------------------------
PURCHASING, REDEEMING,
AND EXCHANGING
FUND SHARES THROUGH
MARSHALL FUNDS ONLINE (SM)
Shareholders who have previously established an account with the Funds may
purchase or redeem shares, and the exchange privilege may be exercised, through
the Marshall Funds Internet Site on the World Wide Web
(http://www.marshallfunds.com) (the "Web Site"). You may also check your Fund
account balance(s) and historical transactions through the Web Site. You cannot,
however, establish a new Fund account through the Web Site--you may only
establish a new Fund account under the methods described in this prospectus (see
"How to Buy Fund Shares"). Trust customers of M&I Trust Companies should contact
their account officer for information on the availability of transactions over
the Internet.
Once you have established a new Fund account (see "How to Buy Fund Shares"), you
should contact MFIS to initiate trading throughout the Web Site. MFIS will
provide instructions on how to create and activate your Personal Identification
Number ("PIN"). If you forget or lose your PIN number, contact MFIS.
CONDITIONS. Purchases, redemptions, and exchanges through the Web Site are
subject to the following daily minimum and maximum transaction amounts:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
---------------- -----------------
<S> <C> <C>
Purchases $50 $100,000
Redemptions By ACH: $50 By ACH: $50,000
By wire: $1,000 By wire: $50,000
Exchanges $50 $100,000
</TABLE>
Shares may be redeemed or exchanged based on either: (1) a dollar amount; or (2)
number of shares. If you are redeeming or exchanging based upon number of Fund
shares, you must redeem or exchange enough shares to meet the minimum dollar
amounts described above, but not so much as to exceed the maximum dollar
amounts.
Your orders for purchases, redemptions or exchanges through the Web Site are
effective at the time they are received by the Fund, and are subject to all of
the conditions and procedures described above under "How to Buy Fund Shares",
"How to Redeem Fund Shares", "Net Asset Value", and "Certificates and
Confirmations".
Shareholders may not change their address of record, registration, or wiring
instructions through the Web Site. The Web Site privilege may be modified at any
time, but you will be notified in writing of any termination of the privilege.
RISKS. Shareholders that utilize the Web Site for purchasing, redeeming, or
exchanging shares, or reviewing account balances or historical transactions,
should be aware that the Internet is an unsecured, unstable, unregulated, and
unpredictable environment, and the ability of shareholders to use the Web Site
for fund transactions is dependent upon the Internet and equipment, software,
systems, data and services provided by various vendors and third parties
(including telecommunications carriers, equipment manufacturers, firewall
providers and encryption system providers). While the Corporation and its
service providers have established certain security procedures, the Corporation,
its distributor and transfer agent cannot assure you that inquiries or trading
activity will be completely secure, or that your use of the Web Site will be
free from delays, malfunction, or other inconveniences generally associated with
this medium. Furthermore, there may be times when the Web Site is unavailable
for fund transactions, which may be due to the Internet or the actions or
omissions of any third party--should this happen, shareholders should consider
purchasing, redeeming or exchanging shares by another method. The Corporation,
its transfer agent, distributor and MFIS are not responsible for any such delays
or malfunctions, and are not responsible for wrongful acts by third parties, as
long as reasonable security procedures are followed.
- -------------------------------------------------------------
TELEPHONE
TRANSACTIONS
If you have completed a telephone authorization section in your account
application or have completed an authorization form obtained through MFIS, you
may telephone instructions to MFIS to redeem Fund shares or to request a
purchase of Fund shares by exchanging between Fund accounts that have identical
shareholder registrations. Customers of other broker-dealers, financial
institutions, or service providers should contact their account representative.
Telephone exchange instructions must be received before 3:00 p.m. (Central Time)
for shares to be exchanged the same day. However, you will not receive a
dividend of the Fund into which you exchange on the date of the exchange.
Telephone redemption requests are subject to the time requirements explained
above in "How to Redeem Shares."
Shares held in certificate form cannot be exchanged or redeemed by telephone.
Instead, you must forward the certificates to the transfer agent through MFIS
for credit to your mutual fund account before they can be exchanged or redeemed.
Shareholders requesting a telephone exchange or redemption service authorize a
Fund and its agents to act upon their telephonic instructions to exchange or
credit to your mutual fund account before they can be exchanged or redeemed.
Shareholders requesting a telephone exchange or redemption service authorize a
Fund and its agents to act upon their telephonic instructions to exchange or
redeem shares from any account for which they have authorized such services.
Telephone instructions may be recorded. If reasonable procedures are not
followed by the Funds, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
The telephone privileges may be modified or terminated at any time. You will be
notified of such modification or termination. During times of drastic economic
or market changes, you may experience difficulty in making exchanges or
redemptions by telephone through banks, brokers, and other financial
institutions. In such cases, you should make the exchange or redemption request
in writing and send it by overnight mail.
- -------------------------------------------------------------
MARSHALL FUNDS, INC.
INFORMATION
-------------------------------------------------------------
ORGANIZATION AND HISTORY
The Corporation was incorporated under the laws of Wisconsin on July 31, 1992.
The Corporation may offer separate series of shares representing interests in
separate portfolios of securities, and the shares in any one portfolio may be
offered in separate classes.
-------------------------------------------------------------
MANAGEMENT
BOARD OF DIRECTORS. The Directors are responsible for managing the business
affairs of the Corporation and for exercising all of the powers of the
Corporation except those reserved for the shareholders.
INVESTMENT ADVISER AND SUBADVISER. Pursuant to an investment advisory contract
with the Corporation, M&I Investment Management Corp. serves as the investment
adviser (the "Adviser") to each Fund, subject to direction by the Directors.
With respect to the INTERNATIONAL STOCK FUND, the Adviser has entered into a
Subadvisory Contract with Templeton Investment Counsel, Inc. ("TICI" or
"Subadviser"), which gives TICI complete discretion to purchase, manage and sell
portfolio securities for the INTERNATIONAL STOCK FUND, subject to the Fund's
investment objective, policies and limitations. Although the Corporation's
Directors and officers, and the Adviser do not evaluate the investment merits of
TICI's individual security selections, TICI's activities are subject to their
oversight.
The Corporation, the Adviser, and the Funds' distributor have adopted strict
codes of ethics governing the conduct of all employees who manage the
Corporation and its portfolio securities. These codes recognize that such
persons owe a fiduciary duty to the Corporation's shareholders and must place
the interests of shareholders ahead of the employees' own interests. Among other
things, the codes: require preclearance and periodic reporting of personal
securities transactions; prohibit personal transactions in securities being
purchased or sold, or being considered for purchase or sale, by the Corporation;
prohibit purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the codes are
subject to review by the Board of Directors, and could result in severe
penalties.
ADVISORY FEES. The Adviser is entitled to receive an annual investment advisory
fee equal to a percentage of each Fund's average daily net assets as follows:
0.50% of MONEY MARKET FUND; 0.60% of SHORT-TERM INCOME FUND, INTERMEDIATE BOND
FUND and INTERMEDIATE TAX-FREE FUND; 0.75% of GOVERNMENT INCOME FUND, LARGE-CAP
GROWTH & INCOME FUND, MID-CAP VALUE FUND, EQUITY INCOME FUND and MID-CAP GROWTH
FUND; and 1.00% of INTERNATIONAL STOCK FUND and SMALL-CAP GROWTH FUND. Out of
the fee paid by the INTERNATIONAL STOCK FUND to the Adviser, TICI is entitled to
receive an annual fee equal to 0.50% of the INTERNATIONAL STOCK FUND'S daily net
assets up to $70 million and 0.40% of such assets in excess thereof. The fees of
0.75% or more may be higher than the advisory fees paid by mutual funds in
general but is comparable to the fee paid by many mutual funds with objectives
and policies similar to the Funds. The investment advisory contract allows the
voluntary waiver in whole or in part of the investment advisory fees or the
reimbursement of expenses by the Adviser from time to time. The Adviser can
terminate any voluntary waiver of its fees or reimbursement of expenses at any
time in its sole discretion.
Investment decisions for the Funds will be made independently from those of any
fiduciary or other accounts that may be managed by the Adviser, Subadviser or
their affiliates. If, however, such accounts, a Fund, or the Adviser or
Subadviser for its own account, are simultaneously engaged in transactions
involving the same securities, the transactions may be combined and allocated to
each account. Although this system may adversely affect the price the Funds pay
or receive, or the size of the position they obtain, it may also enable the
Funds to benefit from lower transaction costs.
ADVISER'S BACKGROUND. M&I Investment Management Corp. is a registered investment
adviser and a wholly owned subsidiary of Marshall & Ilsley Corp., a registered
bank holding company headquartered in Milwaukee, Wisconsin. As of October 1,
1997, M&I Investment Management Corp. had approximately $8.4 billion in assets
under management and has managed investments for individuals and institutions
since its inception in 1973. The Adviser has managed the Corporation's
portfolios since 1992, and managed the Newton Funds (predecessors to certain of
these portfolios) since 1985. As part of its regular banking operations,
affiliates of the Adviser may make loans to public companies. Thus, it may be
possible, from time to time, for the Funds to hold or acquire securities of
issuers which are also lending clients of the Adviser's affiliates. The lending
relationship will not be a factor in the selection of securities.
SUBADVISER'S BACKGROUND. TICI is a registered investment adviser and a
professional investment counseling firm which has been handling investment
services since 1979. As of October 1, 1997, TICI had discretionary investment of
approximately $24.1 billion in assets. TICI is indirectly owned by Franklin
Resources, Inc., which engages in various aspects of the financial services
industry through its subsidiaries.
TICI and its affiliates serve as advisers for a wide variety of mutual funds and
private clients in many nations. TICI, its affiliates and their predecessors
have been investing globally over the past 53 years and provide investment
management and advisory services to a worldwide client base, including mutual
fund shareholders, foundations and endowments, employee benefit plans and
individuals. TICI and its affiliates have approximately 4,100 employees in 18
different countries and a global network of over 50 investment research sources.
TICI is supported by the Templeton organization's large staff of research
analysts, traders and other investment specialists and support staff based in
Fort Lauderdale, Nassau, New York, Edinburgh, Toronto, Hong Kong, Melbourne,
Milan, Paris, Frankfurt, and Luxembourg. Templeton's research analysts use a
disciplined, long-term approach to value-oriented global and international
investing. Securities are selected for the INTERNATIONAL STOCK FUND'S portfolio
from a list of eligible securities maintained and constantly updated by
Templeton's analysts on the basis of fundamental analysis, which utilizes a
global database of information on issuers. TICI believes that the Templeton
organization's team approach benefits INTERNATIONAL STOCK FUND investors by
bringing together many disciplines and leveraging the organization's extensive
resources.
PORTFOLIO MANAGEMENT TEAM. The EQUITY INCOME FUND is managed by Bruce P. Hutson,
who has been a Vice President of M&I Investment Management Corp. since 1973 and
has been a member of the Equity Policy Group since January 1990. Mr. Hutson
holds a B.B.A. degree from the University of Wisconsin-Whitewater.
The LARGE-CAP GROWTH & INCOME FUND is managed by William J. O'Connor. Mr.
O'Connor has been a Vice President of M&I Investment Management Corp. since
February 1995 when he rejoined the firm after serving as Vice President and
Director of Equity Research for Arnold Investment Counsel. Prior to joining
Arnold, he had been a Vice President, portfolio manager, and research analyst
with M&I Investment Management Corp. from 1979 to 1991. Mr. O'Connor is a
Chartered Financial Analyst and holds a bachelor's degree in commerce from Santa
Clara University and an M.B.A. in finance from the University of Wisconsin-
Madison.
The MID-CAP VALUE FUND is co-managed by Matthew B. Fahey and John C. Potter. Mr.
Fahey has been a Vice President of M&I Investment Management Corp. since 1988.
He earned a B.A. degree in Business Administration from the University of
Wisconsin-Milwaukee and holds an M.B.A. degree from Marquette University. Mr.
Potter is an Investment Officer of M&I Investment Management Corp. Since 1994,
Mr. Potter has been Senior Securities Analyst for the EQUITY INCOME FUND. He
joined M&I Corp. in 1991 as a Corporate Auditor/Consultant. Mr. Potter is a
Chartered Financial Analyst and holds a B.B.A. degree in Investment, Banking and
Finance from the University of Wisconsin-Madison.
The MID-CAP GROWTH FUND is managed by Steve D. Hayward. Prior to joining M&I
Investment Management Corp. as a Vice President in December 1993, Mr. Hayward
served as Senior Portfolio Manager of AMOCO Corporation. Mr. Hayward, who is a
Chartered Financial Analyst, received a B.A. in Economics from North Park
College, and an M.B.A. in Finance from Loyola University.
The INTERNATIONAL STOCK FUND is managed by Gary R. Clemons, Senior Vice
President, Portfolio Management/Research, TICI. Mr. Clemons joined the Templeton
organization in 1993 as a Portfolio Manager/ Research Analyst with
responsibility for the telecommunications industries, as well as country
coverage of Columbia, Peru, Sweden and Norway. Prior to joining TICI, Mr.
Clemons worked as a Portfolio Manager/Research Analyst for Structured Asset
Management in New York, a subsidiary of Templeton Global Investors, Inc. His
duties included management of a small capitalization fund. Upon relocating to
Templeton's Fort Lauderdale office, Mr. Clemons also managed global and
international portfolios for Templeton Portfolio Advisory, Templeton's division
serving the wrap-fee market. Mr. Clemons holds a master of business
administration degree with emphasis in finance/investment/banking from the
University of Wisconsin-Madison and a bachelor of science degree from the
University of Nevada-Reno.
The SMALL-CAP GROWTH FUND is co-managed by Steve D. Hayward and David
Lettenberger. Prior to joining M&I Investment Management Corp. as Vice President
in December 1993, Mr. Hayward served as Senior Portfolio Manager of AMOCO
Corporation and managed two aggressive growth-oriented mutual funds for American
Asset Capital Management. Mr. Hayward, who is a Chartered Financial Analyst,
received a B.A. in Economics from North Park College, and an M.B.A. in Finance
from Loyola University. Prior to joining M&I Investment Management Corp. in
October 1993, Mr. Lettenberger was employed by M&I Marshall & Ilsley Bank. He
has been an analyst for the MARSHALL MID-CAP GROWTH FUND since the Fund's
inception during 1993. Mr. Lettenberger holds a B.B.A. degree in Finance and
Economics from Marquette University and has completed the Chartered Financial
Analyst program.
The SHORT-TERM INCOME FUND and INTERMEDIATE BOND FUND, are managed by Mark
Pittman. Mr. Pittman is a Vice President of M&I Investment Management Corp.,
which he joined in June 1994. Prior to that time, he spent five years with
Valley Trust Company managing fixed income portfolios and common trust funds. In
addition, he was a member of the Valley Trust Company Investment Committee and
Asset Allocation Committee. Mr. Pittman is a Chartered Financial Analyst and
holds M.B.A. and B.B.A. degrees in Finance from the University of
Wisconsin-Madison.
The GOVERNMENT INCOME FUND is managed by Lawrence J. Pavelec. Mr. Pavelec is a
Vice President and the Director of Fixed Income for M&I Investment Management
Corp. Mr. Pavelec joined Marshall & Ilsley Bank in 1982 and M&I Investment
Management Corp. in September 1985. Since 1988, he has been managing total
return fixed income portfolios. He has been a member of M&I Investment
Management Corp.'s Fixed Income Policy Group since 1985 and became Chairman in
August 1993. He has managed the GOVERNMENT INCOME FUND since August 1993. Mr.
Pavelec is a Chartered Financial Analyst and holds a B.S. degree from the
University of Wisconsin-LaCrosse.
The INTERMEDIATE TAX-FREE FUND is managed by John D. Boritzke, who is a Vice
President of M&I Investment Management Corp. responsible for tax-exempt fixed
income portfolio management. He joined M&I Investment Management Corp. in
November 1983. Since 1985, he has been managing tax-exempt fixed income
portfolios. In addition, he has managed the M&I Municipal Bond Fund since 1985
and continues to manage the M&I Arizona Municipal Bond Fund, which he has
managed since its inception in 1989. Both of these funds are common trust funds
of Marshall & Ilsley Trust Company. Mr. Boritzke has been a member of M&I
Investment Management Corp.'s Fixed Income Policy Group since 1985. He is a
Chartered Financial Analyst and holds M.B.A. and B.S. degrees from Marquette
University.
The MONEY MARKET FUND is managed by Richard M. Rokus, who is a Vice President of
M&I Investment Management Corp. Mr. Rokus has managed the MONEY MARKET FUND
since January 1, 1994, and has been employed by M&I Investment Management Corp.
since January 1993. Mr. Rokus is a Chartered Financial Analyst and holds a
B.B.A. in Finance from the University of Wisconsin-Whitewater.
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DISTRIBUTION OF FUND SHARES
Federated Securities Corp., a subsidiary of Federated Investors, is the
principal distributor for shares of the Funds and a number of other investment
companies. The distributor may offer certain items of nominal value from time to
time to any shareholder or investor in connection with the sale of Fund shares.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers, dealers and
administrators (including depository or other institutions such as commercial
banks and savings associations) to provide distribution and/or administrative
services for which they will receive fees from the distributor based upon shares
owned by their clients or customers. These administrative services include
distributing prospectuses and other information, providing account assistance,
and communicating or facilitating purchases and redemptions of the Funds'
shares. The fees are calculated as a percentage of the average aggregate net
asset value of shareholder accounts held during the period for which the
brokers, dealers, and administrators provide services. Any fees paid for these
services by the distributor will be reimbursed by the Adviser and not the Funds.
DISTRIBUTION PLAN. Under a Rule 12b-1 Plan (the "Plan"), the MONEY MARKET FUND
will pay to the distributor on behalf of CLASS B SHARES an amount computed at an
annual rate of 0.30% of the average daily net asset value of CLASS B SHARES, and
INTERNATIONAL STOCK FUND and SMALL-CAP GROWTH FUND may pay the distributor an
amount computed at an annual rate of 0.25% of the INTERNATIONAL STOCK FUND'S and
SMALL-CAP GROWTH FUND'S average daily net assets, in each case to finance any
activity which is principally intended to result in the sale of the shares
subject to the Plan ("Plan Shares"). The INTERNATIONAL STOCK FUND and SMALL-CAP
GROWTH FUND have no present intention of paying or accruing 12b-1 fees during
the fiscal year ending August 31, 1998. The distributor may, from time to time
and for such periods as it deems appropriate, voluntarily reduce its
compensation under the Plan.
The distributor may select certain entities to provide sales and/or
administrative services as agents for holders of Plan Shares. Administrative
services may include, but are not limited to, the following functions: providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Plan Shares; assisting
clients in changing dividend options, account designations, and addresses; and
providing such other services as these Funds reasonably request. Such entities
will receive fees from the distributor based upon Plan Shares owned by their
clients or customers. The schedules of such fees and the basis upon which such
fees will be paid will be determined from time to time by the distributor.
The Funds' Plan is a compensation type plan. As such, the Funds make no payments
to the distributor except as described above. Therefore, the Funds do not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's
overhead expenses. However, the distributor may be able to recover such amounts
or may earn a profit from future payments made by the Funds under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings association) from being an underwriter or distributor of most
securities. In the event the Glass-Steagall Act is deemed to prohibit depository
institutions from acting in the administrative capacities described above or
should Congress relax current restrictions on depository institutions, the
Directors will consider appropriate changes in the services.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. The distributor, the Adviser or their
affiliates, at their own expense and out of their own assets, may also provide
other compensation to institutions in connection with sales of Fund shares or as
financial assistance for providing substantial marketing, sales and operational
support. The support may include initiating customer accounts, providing sales
literature, or participating in sales, educational and training seminars
(including those held at recreational facilities). Such assistance will be
predicated upon the amount of shares of the Fund or the Corporation the
institution sells or may sell and/or upon the type and nature of sales,
operational or marketing support furnished by the institution. Any payments made
by the distributor may be reimbursed by the Adviser or its affiliates.
From time to time M&I Trust Company may pay amounts, from its own funds, to
individual or corporate affiliates of M&I Corp., or others for their services
relating to investments made in the Funds. These amounts may include payments to
M&I Brokerage Services, which vary based upon the amount invested and the type
of Fund purchased.
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ADMINISTRATION OF THE
FUNDS
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds. Such services include certain
shareholder servicing, legal and accounting services. Federated Administrative
Services provides these services to the Funds (except SMALL-CAP GROWTH FUND) at
an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE CORPORATION
- ------------------- -------------------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
Federated Administrative Services provides these services for an annual fee
equal to 0.12% of the SMALL-CAP GROWTH FUND'S average daily net assets.
The administrative fee received during any fiscal year shall be at least $50,000
per Fund. Federated Administrative Services may choose voluntarily to reimburse
a portion of its fee at any time.
SHAREHOLDER SERVICING ARRANGEMENTS. Federated Shareholder Services Company
("FSSC"), a subsidiary of Federated Investors, has been appointed shareholder
servicing agent for all of the MARSHALL FUNDS (except for the MONEY MARKET
FUND). As such, FSSC provides shareholder services which include, but are not
limited to, distributing prospectuses and other information, providing
shareholder assistance, and communicating or facilitating purchases and
redemptions of shares. The Funds may pay FSSC a fee equal to approximately 0.25%
of the average daily net asset value of Fund shares for which FSSC provides
shareholder services. FSSC may hire third parties, including Marshall Funds
Investor Services, Milwaukee, Wisconsin, a division of M&I Trust Company
("MFIS"), to provide shareholder services to the Funds.
MFIS is the shareholder servicing agent for the MONEY MARKET FUND. As such, MFIS
provides shareholder services which include, but are not limited to,
distributing prospectuses and other information, providing shareholder
assistance, and communicating or facilitating purchases and redemption of
shares. The MONEY MARKET FUND may pay MFIS a fee equal to approximately 0.02% of
the average daily net asset value of the Fund shares for which MFIS provides
shareholder services. MFIS may voluntarily choose to waive all or a portion of
its fee at any time.
-------------------------------------------------------------
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser and TICI look for prompt execution of the order at a
favorable price. In working with dealers, the Adviser and TICI will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained elsewhere.
In selecting among firms believed to meet these criteria, the Adviser and TICI
may give consideration to those firms which have sold or are selling shares of
the Funds and other funds distributed by Federated Securities Corp. or
Franklin/Templeton Distributors, Inc. The Adviser and TICI make decisions on
portfolio transactions and select brokers and dealers subject to review by the
Directors.
-------------------------------------------------------------
EXPENSES OF THE FUNDS
Each Fund pays all of its own expenses and its allocable share of the
Corporation's expenses. These expenses include, but are not limited to, the cost
of: organizing the Corporation and continuing its existence; Directors' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Corporation, the Funds, and
shares of each Fund with federal and state securities authorities; taxes and
commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing, mailing, auditing, and certain accounting and
legal expenses; reports to shareholders; meetings of Directors and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such non-recurring and extraordinary items as may arise. However, the
Adviser may voluntarily reimburse some expenses and, in addition, has undertaken
to reimburse each Fund up to the amount of its advisory fee, the amount by which
operating expenses exceed limitations imposed by certain states.
- -------------------------------------------------------------
SHAREHOLDER
INFORMATION
-------------------------------------------------------------
------------------------------------------------------------
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions (except for
systematic program transactions). In addition, shareholders will receive
periodic statements reporting all account activity, including dividends paid.
The Funds will not issue share certificates.
The MONEY MARKET FUND sends you monthly confirmations to report all transactions
such as purchases, redemptions, and dividends paid during the month. The other
Funds send you a detailed confirmation of each purchase or redemption or
dividend payment. At a minimum, you will receive a monthly statement. You may
request photocopies of confirmations for transactions affecting your account in
prior years at a fee of $5 per year per Fund to cover the cost of obtaining this
information.
-------------------------------------------------------------
------------------------------------------------------------
DIVIDENDS AND CAPITAL GAINS
Dividends of the MONEY MARKET FUND, INCOME FUNDS and INTERMEDIATE TAX-FREE FUND
are declared daily and paid monthly. Dividends of the EQUITY FUNDS are declared
and paid quarterly, except for the INTERNATIONAL STOCK FUND, which declares and
pays dividends annually. Only shareholders invested in the particular Fund on
the record date of the dividend declaration are paid that dividend. Capital
gains, when realized by a Fund, will be distributed at least once every 12
months. Unless you request cash payments by writing to your Fund, your dividends
and capital gains are automatically reinvested in additional shares of the
respective Fund on payment dates at the ex-dividend date net asset value.
-------------------------------------------------------------
COMMON STOCK AND VOTING RIGHTS
The Directors have authorized the issuance of shares of Common Stock
representing ownership interests in each of the Funds. Shareholders are entitled
to one vote for each full share of Common Stock and proportionate fractional
votes for fractional shares. All shares of each Fund or class in the Corporation
have equal voting rights and will generally vote in the aggregate and not by
Fund or class, unless required by law. For example, only shares of a particular
Fund or class are entitled to vote on matters affecting that Fund or class.
Voting rights are not cumulative; consequently, the holders of more than 50% of
the Corporation's shares of Common Stock can elect the entire Board of
Directors.
The Corporation does not intend to hold annual meetings of shareholders, unless
required by the Investment Company Act of 1940 or applicable law. Directors may
be removed by the Directors or by the shareholders at a special meeting, which
may be called by the Directors upon written request of shareholders owning at
least 10% of the Corporation's outstanding voting shares.
As of October 6, 1997, Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, acting in various capacities for numerous accounts, was
the owner of record of more than 25% of the outstanding shares of the designated
Fund: 8,973,659 shares (42.24%) of EQUITY INCOME FUND; 5,125,882 shares (46.6%)
of MID-CAP VALUE FUND; 11,342,929 shares (58.28%) of LARGE-CAP GROWTH & INCOME
FUND; 6,611,247 shares (49.55%) of MID-CAP GROWTH FUND; 8,098,139 shares
(46.68%) of INTERNATIONAL STOCK FUND; 2,286,280 shares (47.15%) of SMALL-CAP
GROWTH FUND; 6,765,033 shares (43.78%) of SHORT-TERM INCOME FUND; 20,857,515
shares (49.98%) of INTERMEDIATE BOND FUND; 9,761,525 shares (44.91%) of
GOVERNMENT INCOME FUND; and therefore, may for certain purposes, be deemed to
control these Funds and be able to affect the outcome of certain matters
presented for a vote of shareholders. As of October 6, 1997, Maril & Co.,
Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, acting in various
capacities for numerous accounts, was the owner of record of more than 25% of
the outstanding shares of the designated Fund: 10,819,670 shares (50.94%) of
EQUITY INCOME FUND; 4,610,972 shares (41.92%) of MID-CAP VALUE FUND; 5,726,739
shares (42.92%) of MID-CAP GROWTH FUND; 7,966,140 shares (45.92%) of
INTERNATIONAL STOCK FUND; 1,621,934 shares (33.45%) of SMALL-CAP GROWTH FUND;
7,577,195 shares (49.04%) of SHORT-TERM INCOME FUND; 9,346,161 shares (43.00%)
of GOVERNMENT INCOME FUND; 7,923,959 shares (87.42%) of INTERMEDIATE TAX-FREE
FUND; and therefore, may for certain purposes, be deemed to control these Funds
and be able to affect the outcome of certain matters presented for a vote of
shareholders. As of October 6, 1997, Maril & Co., Milwaukee, Wisconsin, acting
in various capacities for numerous accounts, was the owner of record of
866,842,703 shares (67.75%) of MONEY MARKET FUND-CLASS A SHARES; and therefore,
may for certain purposes, be deemed to control this Fund and be able to affect
the outcome of certain matters presented for a vote of shareholders. As of
October 6, 1997, Vallee, Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, acting in various capacities for numerous accounts, was the owner of
record of 18,977,996 shares (45.02%) of INTERMEDIATE BOND FUND.
-------------------------------------------------------------
PERFORMANCE
INFORMATION
From time to time, all of the Funds may advertise total return and yield, the
MONEY MARKET FUND may advertise its effective yield, and the INTERMEDIATE
TAX-FREE FUND may advertise its tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield for the MONEY MARKET FUND represents the annualized rate of income
earned on an investment in its shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The CLASS A
SHARES and CLASS B SHARES of the MONEY MARKET FUND will each have their own
yields. Because CLASS A SHARES are not subject to 12b-1 fees, their yields will
be higher than yields of CLASS B SHARES.
The yields for the other Funds are calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by a Fund over a thirty-day period by the offering price per share of the Fund
on the last day of the period. This number is then annualized using semi-annual
compounding. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the INTERMEDIATE TAX-FREE FUND
would have had to earn to equal its actual yield, assuming a specific tax rate.
The yield and the tax-equivalent yield do not necessarily reflect income
actually earned by a Fund and, therefore, may not correlate to the dividends or
other distributions paid to shareholders.
From time to time, the advertisements for the Funds may refer to ratings,
rankings, and other information in certain financial publications and/or compare
their performance to certain indices.
SMALL-CAP GROWTH FUND. The SMALL-CAP GROWTH FUND is the successor to the
portfolio of a collective trust fund managed by the Adviser. At the Fund's
commencement to operations, the assets from the collective trust fund were
transferred to the Fund in exchange for Fund shares. The Adviser has represented
that the Fund's investment objective, policies and limitations are in all
material respects identical to those of the collective trust fund.
The SMALL-CAP GROWTH FUND'S total returns for the one-year period from October
1, 1996 to September 30, 1997, and for the period from November 1, 1995 (date of
commencement of operations of the collective trust fund) to September 30, 1997,
were 21.11% and 51.66%, respectively. The quoted performance data includes the
performance of the collective trust fund for periods before the SMALL-CAP GROWTH
FUND'S registration statement became effective on August 30, 1996, as adjusted
to reflect the SMALL-CAP GROWTH FUND'S anticipated expenses as set forth in the
"Expenses of the Funds" section of the prospectus. The collective trust fund was
not registered under the Investment Company Act of 1940 ("1940 Act") and
therefore was not subject to certain investment restrictions that are imposed by
the 1940 Act. If the collective trust fund had been registered under the 1940
Act, the performance may have been adversely affected.
-------------------------------------------------------------
PORTFOLIO INVESTMENTS
AND STRATEGIES
ASSET-BACKED SECURITIES. The EQUITY FUNDS and the INCOME FUNDS may invest in
Asset-Backed Securities rated, at the time of purchase, in the top four rating
categories by an NRSRO (BBB or better by S&P or Fitch, or Baa or better by
Moody's) or, if unrated, of comparable quality as determined by the Fund's
Adviser or Subadviser. The MONEY MARKET FUND may invest in short-term tranches
of Asset Backed-Securities that meet the rating and maturity requirements of
Rule 2a-7. However, only the INCOME FUNDS expect that they might exceed 5% of
their respective net assets in these securities. Asset-Backed Securities have
structural characteristics similar to Mortgage-Backed Securities but have
underlying assets that generally are not mortgage loans or interests in mortgage
loans. The Funds may invest in Asset-Backed Securities including, but not
limited to, interests in pools of receivables, such as motor vehicle installment
purchase obligations and credit card receivables, equipment leases, manufactured
housing (mobile home) leases, or home equity loans. These securities may be in
the form of pass-through instruments or asset-backed bonds. The securities are
issued by non-governmental entities and carry no direct or indirect government
guarantee.
BANK INSTRUMENTS. The Funds may invest in domestic Bank Instruments, which are
instruments (including time and savings deposits, bankers' acceptances and
certificates of deposit) of banks and savings and loans that have capital,
surplus and undivided profits of over $100 million or for which the principal
amount of the instrument is insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, which are administered by the Federal Deposit Insur-
ance Corporation. The INTERNATIONAL STOCK FUND, THE MONEY MARKET FUND, and to a
limited extent (up to 5% of total assets) the other EQUITY FUNDS may purchase
foreign Bank Instruments, which include Eurodollar Certificates of Deposit
("ECDs"), Yankee Certificates of Deposit ("Yankee CDs") and Eurodollar Time
Deposits ("ETDs"). ECDs are U.S. dollar-denominated certificates of deposit
issued by foreign branches of U.S. banks or foreign banks. Yankee CDs are U.S.
dollar denominated certificates of deposit issued in the U.S. by branches and
agencies of foreign banks. ETDs are U.S. dollar-denominated deposits in foreign
branches of U.S. banks or foreign banks. The INCOME FUNDS and the INTERMEDIATE
TAX-FREE FUND reserve the right to invest in foreign Bank Instruments, although
they do not presently intend to so invest. The Funds will treat securities
credit-enhanced with a bank's irrevocable letter of credit or unconditional
guaranty as Bank Instruments.
BORROWING. While each of the Funds is permitted as a fundamental investment
policy to borrow money from banks or through reverse repurchase agreements
(arrangements in which a Fund sells a portfolio instrument for a percentage of
its cash value with an agreement to buy it back on a set date) in amounts of up
to one-third of its total assets ("net" assets for the MONEY MARKET FUND,
SHORT-TERM INCOME FUND AND INTERMEDIATE BOND FUND), and pledge some assets as
collateral, only the INTERNATIONAL STOCK FUND expects that it might exceed 5%.
This is because the INTERNATIONAL STOCK FUND, unlike the other Funds, may borrow
money to purchase some of its portfolio securities, i.e., it may use "leverage."
Leveraging tends to exaggerate the effect on the Fund's net asset value of
changes in the value of its portfolio securities. Also, the Fund must pay
interest on borrowed money and may incur other costs, and these expenses could
exceed the income received or capital appreciation realized by the Fund from the
securities it purchases with borrowed money.
CONVERTIBLE SECURITIES. The EQUITY FUNDS may invest in convertible securities
which are rated, at the time of purchase, investment grade by an NRSRO (such as
BBB or better by S&P or Fitch, or Baa or better by Moody's), or, if unrated, are
of comparable quality as determined by the Fund's Adviser or Subadviser.
Convertible securities are fixed income securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible bonds, convertible preferred stock or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. The investment characteristics of
each convertible security vary widely, which allows convertible securities to be
employed for different investment objectives. In selecting a convertible
security, the Fund's Adviser or Subadviser evaluates the investment
characteristics of the convertible security as a fixed income instrument, and
the investment potential of the underlying security for capital appreciation.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. Convertible securities are senior to equity securities,
and therefore have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than nonconvertible securities of similar quality. A Fund will
exchange or convert the convertible securities held in its portfolio into shares
of the underlying common stocks when, in the opinion of the Fund's Adviser or
Subadviser, the investment characteristics of the underlying common shares will
assist the Fund in achieving its investment objective. Otherwise, the Fund will
hold or trade the convertible securities.
CREDIT ENHANCEMENT. Certain of a Fund's acceptable investments may have been
credit-enhanced by a guaranty, letter of credit, or insurance. The Fund's
evaluation of an acceptable investment may include the credit quality and
ratings of credit-enhanced securities based upon the financial condition and
ratings of the party providing the credit enhancement (the "credit enhancer").
However, credit-enhanced securities will not be treated as having been issued by
the credit enhancer for diversification purposes, unless the Fund has invested
more than 10% of its assets in securities issued, guaranteed or otherwise
credit-enhanced by the credit enhancer, in which case the securities will be
treated as having been issued both by the issuer and the credit enhancer. The
bankruptcy, receivership or default of the credit enhancer will adversely affect
the quality and marketability of the underlying security.
DEMAND FEATURES. Each of the Funds may acquire securities that are subject to
puts and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven
days following a demand by the Funds). The demand feature may be issued by the
issuer of the underlying securities, a dealer in the securities or by another
third party, and may not be transferred separately from the underlying security.
A Fund uses these arrangements to provide it with liquidity and not to protect
against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
DEMAND MASTER NOTES. The SHORT-TERM INCOME FUND, INTERMEDIATE BOND FUND and
MONEY MARKET FUND may invest in variable amount demand master notes. Demand
master notes are short-term borrowing arrangements between a corporation or
government agency and an institutional lender (such as the Funds) payable upon
demand by either party. The notice period for demand typically ranges from one
to seven days, and the party may demand full or partial payment. Many master
notes give the Funds the option of increasing or decreasing the principal amount
of the master note on a daily or weekly basis within certain limits. Demand
master notes usually provide for floating or variable rates of interest.
DEPOSITARY RECEIPTS. The INTERNATIONAL STOCK FUND may invest without limit in
foreign issuers by purchasing sponsored or unsponsored ADRs, GDRs and EDRs
(collective, "Depositary Receipts"). The other EQUITY FUNDS may invest up to 20%
of their respective net assets in ADRs and may not purchase GDRs or EDRs. ADRs
are depositary receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a United States
corporation. Generally, Depositary Receipts in registered form are designed for
use in the U.S. securities market and Depositary Receipts in bearer form are
designed for use in securities markets outside the United States. Depositary
Receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. Ownership of unsponsored
Depositary Receipts may not entitle a Fund to financial or other reports from
the issuer of the underlying security, to which it would be entitled as the
owner of sponsored Depositary Receipts. Depositary Receipts also involve the
risks of other investments in foreign securities.
FIXED RATE DEBT OBLIGATIONS. The Funds may invest in fixed rate securities,
including fixed rate securities with short-term characteristics. Fixed rate
securities with short-term characteristics are long-term debt obligations but
are treated in the market as having short maturities because call features of
the securities may make them callable within a short period of time. A fixed
rate security with short-term characteristics would include a fixed income
security priced close to call or redemption price or fixed income security
approaching maturity, where the expectation of call or redemption is high.
Fixed rate securities exhibit more price volatility during times of rising or
falling interest rates than securities with floating rates of interest. This is
because floating rate securities, as described below, behave like short-term
instruments in that the rate of interest they pay is subject to periodic
adjustments based on a designated interest rate index. Fixed rate securities pay
a fixed rate of interest and are more sensitive to fluctuating interest rates.
In periods of rising interest rates the value of a fixed rate security is likely
to fall. Fixed rate securities with short-term characteristics are not subject
to the same price volatility as fixed rate securities without such
characteristics. Therefore, they behave more like floating rate securities with
respect to price volatility.
FLOATING RATE DEBT OBLIGATIONS. The Funds may invest in floating rate debt
obligations, including increasing rate securities. Floating rate securities are
generally offered at an initial interest rate which is at or above prevailing
market rates. The interest rate paid on these securities is then reset
periodically (commonly every 90 days to an increment over some predetermined
interest rate index). Commonly utilized indices include the three-month Treasury
bill rate, the 180-day Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the commercial paper
rates, or the longer-term rates on U.S. Treasury securities. Increasing rate
securities' rates are reset periodically at different levels on a predetermined
scale. These levels of interest are ordinarily set at progressively higher
increments over time. Some increasing rate securities may, by agreement, revert
to a fixed rate status. These securities may also contain features which allow
the issuer the option to convert the increasing rate of interest to a fixed rate
under such terms, conditions, and limitations as are described in each issuer's
prospectus.
FOREIGN CURRENCY TRANSACTIONS. The INTERNATIONAL STOCK FUND may enter into
foreign currency transactions to obtain the necessary currencies to settle
securities transactions. Currency transactions may be conducted either on a spot
or cash basis at prevailing rates or through forward foreign currency exchange
contracts.
The INTERNATIONAL STOCK FUND may also enter into foreign currency transactions
to protect its assets against adverse changes in foreign currency exchange rates
or exchange control regulations. Such changes could unfavorably affect the value
of Fund assets which are denominated in foreign currencies, such as foreign
securities or funds deposited in foreign banks, as measured in U.S. dollars.
Although foreign currency exchanges may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund. Further,
the Fund may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations.
Cross-hedging transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability that
is the subject of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES.
The INTERNATIONAL STOCK FUND may enter into a forward foreign currency exchange
contract ("forward contract"), which is an obligation to purchase or sell an
amount of a particular currency at a specific price and on a future date agreed
upon by the parties.
Generally, no commission charges or deposits are involved. At the time the
INTERNATIONAL STOCK FUND enters into a forward contract, Fund assets with a
value equal to the Fund's obligation under the forward contract are segregated
on the Fund's records and are maintained until the contract has been settled.
The Fund generally will not enter into a forward contract with a term of more
than one year. The Fund will generally enter into a forward contract to provide
the proper currency to settle a securities transaction at the time the
transaction occurs ("trade date"). The period between trade date and settlement
date will vary between twenty-four hours and thirty days, depending upon local
custom.
The INTERNATIONAL STOCK FUND may also protect against the decline of a
particular foreign currency by entering into a forward contract to sell an
amount of that currency approximating the value of all or a portion of the
Fund's assets denominated in that currency ("hedging"). The success of this type
of short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the securities
involved. Although the Fund's Subadviser will consider the likelihood of changes
in currency values when making investment decisions, the Subadviser believes
that it is important to be able to enter into forward contracts when it believes
the interests of the Fund will be served. The Fund will not enter into forward
contracts for hedging purposes in a particular currency in an amount in excess
of the Fund's assets denominated in that currency.
The INTERNATIONAL STOCK FUND may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines in the U.S.
dollar value of foreign currency-denominated portfolio securities and against
increases in the U.S. dollar cost of such securities to be acquired. As in the
case of other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign currencies
at disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on a foreign currency may constitute an effective hedge against
fluctuations in exchange rates although, in the event of rate movements adverse
to the Fund's position, it may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by the Fund are traded on U.S. and foreign exchanges or
over-the-counter.
FORWARD COMMITMENTS, WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds
may enter into forward commitments and purchase portfolio securities on a
when-issued and delayed delivery basis. These transactions are arrangements in
which a Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause a
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, a Fund may pay more or less than the market value of the securities
on the settlement date.
The Funds may dispose of a commitment prior to settlement if the Adviser or
Subadviser deems it appropriate to do so. In addition, a Fund may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Fund may realize short-term profits or losses
upon the sale of such commitments.
ILLIQUID AND RESTRICTED SECURITIES. Each of the Funds may invest in restricted
securities. Restricted securities are any securities in which a Fund may
otherwise invest pursuant to its investment objective and policies, but which
are subject to restriction on resale under federal securities laws. Illiquid
securities are any securities a Fund owns which it may not be able to sell
quickly (within seven days) at a fair price.
To the extent restricted securities are not determined to be liquid by the
Directors, a Fund will limit its purchases, together with other securities
considered to be illiquid, to 15% (10% with respect to the MONEY MARKET FUND) of
its net assets.
LENDING PORTFOLIO SECURITIES. In order to generate additional income, each of
the Funds is permitted as a fundamental investment policy to lend portfolio
securities on a short-term or long-term basis, or both, up to one-third of the
value of its respective total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Funds will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the Adviser
or Subadviser has determined are creditworthy under guidelines established by
the Directors and will receive collateral in the form of cash or U.S. government
securities equal to at least 100% of the value of the securities loaned.
Collateral received in the form of cash may be invested in highly liquid
investments, including repurchase agreements and other money market instruments.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
MORTGAGE-BACKED SECURITIES. All of the Funds except for the MONEY MARKET FUND
may invest in Mortgage-Backed Securities rated, at the time of purchase, in the
top four rating categories by an NRSRO (BBB or better by S&P or Fitch, or Baa or
better by Moody's), or, if unrated, of comparable quality as determined by the
Fund's Adviser or Subadviser. Mortgage-Backed Securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. All of the Funds except for the
MONEY MARKET FUND may invest in Mortgage-Backed Securities that are issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities,
such as Government National Mortgage Association ("Ginnie Mae"), the Federal
National Mortgage Association ("Fannie Mae") and Federal Home Loan National
Mortgage Corporation ("Freddie Mac"). Additionally, the INCOME FUNDS may invest
in Mortgage-Backed Securities (i) issued by private issuers that represent an
interest in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities or
(ii) issued by private issuers that represent an interest in or are
collateralized by whole loans or mortgage-backed securities without a government
guarantee.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMS") are pass-through mortgage securities with adjustable rather than fixed
interest rates. The ARMS in which the Funds invest are issued by Ginnie Mae,
Fannie Mae, and Freddie Mac and are actively traded. The underlying mortgages
which collateralize ARMS issued by Ginnie Mae are fully guaranteed by the
Federal Housing Administration ("FHA") or Veterans Administration ("VA"), while
those collateralizing ARMS issued by Fannie Mae or Freddie Mac are typically
conventional residential mortgages conforming to strict underwriting size and
maturity constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac certificates, but may be collateralized by whole loans
or private pass-through securities. CMOs may have fixed or floating rates of
interest.
The SHORT-TERM INCOME FUND and INTERMEDIATE BOND FUND will only invest in CMOs
which are rated in the top four rating categories by an NRSRO (BBB or better by
S&P or Fitch, or Baa or better by Moody's), and which may be (a) collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(b) collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or (c) collateralized by pools of mortgages without
a government guarantee as to payment of principal and interest.
The GOVERNMENT INCOME FUND may invest in CMOs which may be: (i) collateralized
by pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by an agency or instrumentality of the U.S. government;
(ii) collateralized by pools and mortgages in which payment of principal and
interest are guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or (iii) privately issued securities in which the
proceeds of the issuance are invested in Mortgage-Backed Securities and payment
of the principal and interest is supported by the credit of any agency or
instrumentality of the U.S. government.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS. Real estate mortgage investment
conduits ("REMICs") are offerings of multiple class real estate Mortgage-Backed
Securities which qualify and elect treatment as such under provisions of the
Internal Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associa-
tions or a segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates, and a single
class of "residual interests." To qualify as a REMIC, substantially all of the
assets of the entity must be in assets directly or indirectly secured
principally by real property.
MUNICIPAL SECURITIES. The SHORT-TERM INCOME FUND, the INTERMEDIATE BOND FUND,
and the INTERMEDIATE TAX-FREE FUND may invest in Municipal Securities, which are
generally issued to finance public works such as airports, bridges, highways,
housing, hospitals, mass transportation projects, schools, streets, and water
and sewer works. They are also issued to repay outstanding obligations, to raise
funds for general operating expenses, and to make loans to other public
institutions and facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
MUNICIPAL LEASES. The INTERMEDIATE TAX-FREE FUND may purchase municipal leases,
which are obligations issued by state and local governments or authorities to
finance the acquisition of equipment and facilities and may be considered to be
illiquid. They may take the form of a lease, an installment purchase contract, a
conditional sales contract, or a participation interest in any of these.
PARTICIPATION INTERESTS. The Intermediate Tax-Free Fund may purchase interests
in Municipal Securities from financial institutions such as commercial and
investment banks, savings and loan associations and insurance companies. These
interests may take the form of participations, beneficial interests in a trust,
partnership interests or any other form of indirect ownership that allows the
Fund to treat the income from the investment as exempt from federal income tax.
The financial institutions from which the Fund purchases participation interests
frequently provide or obtain irrevocable letters of credit or guarantees to
attempt to assure that the participation interests are of acceptable quality.
The Fund invests in these participation interests in order to obtain credit
enhancement or demand features that would not be available through direct
ownership of the underlying Municipal Securities.
OPTIONS ON SECURITIES OR INDICES AND FUTURES CONTRACTS. In order to hedge
against market shifts, a Fund may purchase put and call options on securities or
securities indices. In addition, a Fund may seek to generate income to offset
operating expenses and/or may hedge a portion of its portfolio investments
through writing (i.e., selling) covered put and call options. An option on a
security is a contract that permits the purchaser of the option, in return for
the premium paid, the right to buy a specified security (in the case of a call
option) or to sell a specified security (in the case of a put option) from or to
the writer of the option at a designated price during the term of the option. An
option on a securities index permits the purchaser of the option, in return for
the premium paid, the right to receive from the seller cash equal to the
difference between the closing price of the index and the exercise price of the
option. A Fund may write a call or put option only if the option is "covered."
This means that so long as the Fund is obligated as the writer of a call option,
it will own the underlying securities subject to the call, or hold a call at the
same exercise price, for the same exercise period, and on the same securities as
the written call. A put is covered if the Fund maintains liquid assets with a
value equal to the exercise price in a segregated account, or holds a put on the
underlying securities at an equal or greater exercise price.
Options purchased or written by a Fund may be traded on United States and
foreign exchanges or in the over-the-counter markets. Over-the-counter options
are two-party contracts with price and terms negotiated between buyer and
seller. In contrast, exchange-traded options are third-party contracts with
standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options generally have a continuous liquid
market while over-the-counter options may not. A Fund purchases and writes
options only with investment dealers and other financial institutions (such as
commercial banks or savings and loan associations) deemed creditworthy by the
Fund's Adviser or Subadviser.
The Funds, other than the MONEY MARKET FUND, SHORT-TERM INCOME FUND, or
INTERMEDIATE BOND FUND, may invest in futures for bona fide hedging purposes.
Although the Funds have the ability to
invest up to 5% of their respective net assets in futures for other than bona
fide hedging purposes, they have no present intention to do so. The ability to
engage in futures transactions is a fundamental investment policy. For hedging
purposes only, a Fund may buy and sell covered financial futures contracts,
stock index futures contracts, foreign currency futures contracts and options on
any of the foregoing. A financial futures contract is an agreement between two
parties to buy or sell a specified debt security at a set price on a future
date. An index futures contract is an agreement to take or make delivery of an
amount of cash based on the difference between the value of the index at the
beginning and at the end of the contract period. A futures contract on a foreign
currency is an agreement to buy or sell a specified amount of a currency for a
set price on a future date. When a Fund enters into a futures contract, it must
make an initial deposit, known as "initial margin," as a partial guarantee of
its performance under the contract. As the value of the security, index, or
currency fluctuates, either party to the contract is required to make additional
margin payments, known as "variation margin," to cover any additional obligation
it may have under the contract. In addition, when a Fund enters into a futures
contract, it will segregate assets to "cover" its position in accordance with
the Act. See "Investment Objectives and Policies--Futures and Options
Transactions" in the Statement of Additional Information.
PRIME COMMERCIAL PAPER. The Funds may purchase Prime Commercial Paper, which is
a short-term debt obligation that matures in 270 days or less, is issued by
banks, corporations or other institutions, and is rated one of the two highest
rating categories for short-term obligations by an NRSRO or, if unrated, are of
comparable quality to securities having such ratings.
PORTFOLIO TURNOVER. Although none of the Funds intends to invest for the purpose
of seeking short-term profits, securities will be sold whenever the Funds'
Adviser or Subadviser believes it is appropriate to do so in light of a Fund's
investment objective, without regard to the length of time a particular security
may have been held. A higher rate of portfolio turnover involves correspondingly
greater transaction expenses which must be borne directly by a Fund and, thus,
indirectly by its shareholders. In addition, a high rate of portfolio turnover
may result in the realization of larger amounts of capital gains which, when
distributed to that Fund's shareholders, are taxable to them. Nevertheless,
transactions for a Fund's portfolio will be based upon investment considerations
and will not be limited by any other considerations when the Fund's investment
adviser or subadviser deems it appropriate to make changes in the Fund's
portfolio.
RATINGS. Securities rated in the fourth highest investment grade category (Baa
by Moody's, or BBB by S&P or Fitch) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than higher rated
securities. The Funds' Statement of Additional Information contains complete
descriptions of ratings.
A Fund's Adviser or Subadviser will evaluate downgraded securities on a
case-by-case basis and will sell any security determined not to be an acceptable
investment.
An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by S&P
or Prime-1 by Moody's are all considered rated in the highest short-term rating
category. The MONEY MARKET FUND will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated as
being in the highest short-term rating category; currently, such securities must
be rated by two NRSROs in their highest rating category. The MONEY MARKET FUND
may purchase single rated securities that are rated in the highest rating
category by an NRSRO. Unrated securities may be treated as "First Tier"
securities and are also eligible for purchase by the MONEY MARKET FUND, subject
to a determination of comparability by the Adviser. Acquisition of such unrated
securities must be ratified by the Directors quarterly.
REPURCHASE AGREEMENTS. The securities in which the Funds invest may be purchased
pursuant to repurchase agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to a Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from a Fund,
the Fund could receive less than the repurchase price on any sale of such
securities.
SECURITIES OF OTHER INVESTMENT COMPANIES. Each of the Funds may invest their
respective assets in securities of other investment companies as an efficient
means of carrying out their respective investment policies. It should be noted
that investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Funds in shares of other investment companies
may be subject to such duplicate expenses.
The INTERNATIONAL STOCK FUND may invest indirectly in foreign capital markets by
purchasing shares of closed-end investment companies, but generally only in
open-market transactions involving only customary brokerage commissions.
Sometimes the Fund may pay a premium over net asset value for such shares.
SWAP TRANSACTIONS. As one way of managing its exposure to different types of
investments, each of
the Funds (except the MONEY MARKET FUND) may invest up to 5% of their respective
net assets in swap transactions, including interest rate and index-based swaps.
See "Investment Objectives and Policies-- Swap Transactions" in the Statement of
Additional Information.
TEMPORARY INVESTMENTS. When the Adviser or Subadviser judges that market
conditions warrant a defensive investment position (this rarely applies to the
MONEY MARKET FUND), each of the Funds may temporarily invest without limit in
short-term debt obligations (money market instruments). These investments
include commercial paper, bank instruments, U.S. government obligations,
repurchase agreements, securities of other investment companies, taxable or
tax-free Municipal Securities (for the INTERMEDIATE TAX-FREE FUND) and foreign
securities (for the INTERNATIONAL STOCK FUND). The INTERMEDIATE TAX-FREE FUND
does not currently intend to make any taxable investments although they are
permitted to do so. Each Fund's temporary investments must be of comparable
quality to its primary investments.
U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S. government
securities. These instruments are either issued or guaranteed by the U.S.
government, its agencies, or instrumentalities. These securities include, but
are not limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes,
and bonds;
- notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States; and
- notes, bonds, and discount notes of other U.S. government agencies or
instrumentalities which receive or have access to federal funding.
Examples of agencies and instrumentalities which are permissible investments
which may not always receive financial support from the U.S. government are:
Federal Farm Credit Banks; Federal Home Loan Banks; Federal National Mortgage
Association; The Student Loan Marketing Association; and Federal Home Loan
Mortgage Corporation.
VARIABLE RATE DEMAND NOTES. Each of the Funds (except SMALL-CAP GROWTH FUND) may
purchase variable rate demand notes, which are long-term debt instruments that
have variable or floating interest rates and provide the Fund with the right to
tender the security for repurchase at its stated principal amount plus accrued
interest. Such securities typically bear interest at a rate that is intended to
cause the securities to trade at par. The interest rate may float or be adjusted
at regular intervals (ranging from daily to annually), and is normally based on
a published interest rate or interest rate index. Many variable rate demand
notes allow a Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit a Fund to tender the security
at the time of each interest rate adjustment or at other fixed intervals.
-------------------------------------------------------------
ADDITIONAL INVESTMENT RISKS
DEBT MARKET. In the debt market, prices move inversely to interest rates. A
decline in market interest rates results in a rise in the market prices of
outstanding debt obligations. Conversely, an increase in market interest rates
results in a decline in market prices of outstanding debt obligations. In either
case, the amount of change in market prices of debt obligations in response to
changes in market interest rates generally depends on the maturity of the debt
obligations: the debt obligations with the longest maturities will experience
the greatest market price changes.
The market value of debt obligations, and therefore each Fund's net asset value,
will fluctuate due to changes in economic conditions and other market factors
such as interest rates which are beyond the control of the Funds' Adviser or
Subadviser. The Funds' Adviser or Subadviser could be incorrect in its
expectations about the direction or extent of these market factors. Although
debt obligations with longer maturities offer potentially greater returns, they
have greater exposure to market price fluctuation. Consequently, to the extent a
Fund is significantly invested in debt obligations with longer maturities, there
is a greater possibility of fluctuation in the Fund's net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-Backed and Asset-Backed
Securities generally pay back principal and interest over the life of the
security. At the time a Fund reinvests the payments and any unscheduled
prepayments of principal received, such Fund may receive a rate of interest
which is actually lower than the rate of interest paid on these securities
("prepayment risks"). Mortgage-Backed and Asset-Backed Securities are subject to
higher prepayment risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans or the collateral
supporting Asset-Backed Securities may be prepaid without penalty or premium.
Prepayment risks on Mortgage-Backed Securities tend to increase during periods
of declining mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments on
Mortgage-Backed Securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although Asset-Backed Securities generally are less
likely to experience substantial prepayments than are Mortgage-Backed
Securities, certain factors that affect the rate of prepayments on
Mortgage-Backed Securities also affect the rate of prepayments on Asset-Backed
Securities. While Mortgage-Backed Securities generally entail less risk
of a decline during periods of rapidly rising interest rates, Mortgage-Backed
Securities may also have less potential for capital appreciation than other
similar investments (e.g., investments with comparable maturities) because as
interest rates decline, the likelihood increases that mortgages will be prepaid.
Furthermore, if Mortgage-Backed Securities are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
Mortgage-Backed Securities are purchased at a discount, both a scheduled payment
of principal and an unscheduled prepayment of principal would increase current
and total returns and would accelerate the recognition of income, which would be
taxed as ordinary income when distributed to shareholders.
Asset-Backed Securities present certain risks that are not presented by
Mortgage-Backed Securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of Asset-Backed Securities backed by
motor vehicle installment purchase obligations permit the service of such
receivables to retain possession of the underlying obligations. If the service
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
Asset-Backed Securities. Further, if a vehicle is registered in one state and is
then re-registered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of Asset-Backed Securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
MUNICIPAL SECURITIES. Yields on Municipal Securities depend on a variety of
factors, including: the general conditions of the short-term municipal note
market and of the municipal bond market; the size of the particular offering;
the maturity of the obligations; and the rating of the issue. The ability of a
Fund to achieve its investment objective also depends on the continuing ability
of the issuers of Municipal Securities and demand features, or the credit
enhancers of either, to meet their obligations for the payment of interest and
principal when due.
STOCK MARKET. As with other mutual funds that invest primarily in equity
securities, the EQUITY FUNDS are subject to market risks. That is, the
possibility exists that common stocks will decline over short or even extended
periods of time, and the United States equity market tends to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease.
SMALL AND MEDIUM CAPITALIZATION STOCKS. Stocks in the small and medium
capitalization sector of the United States equity market tend to be slightly
more volatile in price than larger capitalization stocks, such as those
included in the S&P 500. This is because, among other things, small- and
medium-sized companies have less certain growth prospects in larger companies,
have a lower degree of liquidity in the equity market, and tend to have a
greater sensitivity to changing economic conditions. Further, in addition to
exhibiting slightly higher volatility, the stocks of small- and medium-sized
companies may, to some degree, fluctuate independently of the stocks of large
companies. That is, the stocks of small- and medium-sized companies may
decline in price as the price of large company stocks rises or vice versa.
Therefore, investors should expect that the SMALL-CAP GROWTH FUND, which
invests primarily in small-capitalization stocks, and MID-CAP GROWTH FUND and
MID-CAP VALUE FUND, which invest primarily in medium capitalization stocks,
will be more volatile than, and may fluctuate independently of, broad stock
market indices such as the S&P 500.
FOREIGN SECURITIES. Investing in non-U.S. securities carries substantial risks
in addition to those associated with domestic investments. (Excluding Foreign
Money Market Instruments and Depositary Receipts, only the INTERNATIONAL STOCK
FUND intends to invest more than 5% of its net assets in Foreign Securities).
The risks associated with investing in foreign securities include: risks of
adverse political and economic developments (including possible governmental
seizure or nationalization of assets); the possible imposition of exchange
controls or other governmental restrictions; default in foreign government
securities; foreign companies are not generally subject to uniform financial
reporting, auditing and accounting standards, and auditing practices and
requirements may not be comparable to those applicable to U.S. companies; less
readily available market quotations on foreign companies; the possibility of
less publicly available information on foreign securities and their issuers;
differences in government regulation and supervision of foreign stock exchanges,
brokers, listed companies, and banks; generally lower foreign stock market
volume; the likelihood that foreign securities may be less liquid or more
volatile; foreign brokerage commissions and other transaction costs (such as
custodial services) may be higher;
unreliable mail service between countries; restrictions on foreign investments
in other jurisdictions; difficulties which may be encountered in obtaining or
enforcing a court judgment abroad and affecting repatriation of capital invested
abroad; and delays or problems in settlement of foreign transactions, which
could adversely affect shareholder equity or cause the Fund to miss attractive
investment opportunities. In addition, foreign securities may be subject to
foreign taxes, which reduce yield and total return.
In an attempt to reduce some of these risks, the INTERNATIONAL STOCK FUND
diversifies its investments broadly among foreign countries, including both
developed and developing countries. At least three different countries will
always be represented in the INTERNATIONAL STOCK FUND'S portfolio.
The INTERNATIONAL STOCK FUND occasionally takes advantage of the unusual
opportunities for higher returns available from investing in developing
countries. Investments in companies domiciled in developing countries may be
subject to potentially higher risks and volatility than investments in developed
countries with more mature economies. These risks include: (i) less social,
political and economic stability; (ii) the small current size of the markets for
such securities and the currently low or nonexistent volume of trading, which
result in a lack of liquidity and greater price volatility; (iii) certain
national policies which may restrict the INTERNATIONAL STOCK FUND'S investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) the absence of developed legal
structures governing private or foreign investment or allowing for judicial
redress for injury to private property; (v) the absence, until recently in
certain Eastern European countries, of a capital market structure or
market-oriented economy; and (vi) the possibility that recent favorable economic
developments in Eastern Europe may be slowed or reversed by unanticipated
political or social events in such countries.
EXCHANGE RATES. Foreign securities may be denominated in foreign currencies
although only the INTERNATIONAL STOCK FUND intends to invest in such foreign
currency-denominated securities to a significant extent. Therefore, the value
in U.S. dollars of the INTERNATIONAL STOCK FUND'S assets and income may be
affected by changes in exchange rates and regulations. Although the
International Stock Fund values its assets daily in U.S. dollars, it will not
convert its holding of foreign currencies to U.S. dollars daily. When the
INTERNATIONAL STOCK FUND converts its holdings to another currency, it may
incur conversion costs. Foreign exchange dealers realize a profit on the
difference between the prices at which they buy and sell currencies.
FOREIGN MONEY MARKET INSTRUMENTS. ECDs, ETDs, Yankee CDs, and Europaper are
subject to somewhat different risks than domestic obligations of domestic
issuers. Examples of these risks include international, economic, and
political developments, foreign governmental restrictions that may adversely
affect the payment of principal or interest, foreign withholding or other
taxes on interest income, difficulties in obtaining or enforcing a judgment
against the issuing bank, and the possible impact of interruptions in the flow
of international currency transactions. Different risks may also exist for
ECDs, ETDs, and Yankee CDs because the banks issuing these instruments, or
their domestic or foreign branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing, and
recordkeeping, and the public availability of information. These factors will
be carefully considered by a Fund's Adviser or Subadviser in selecting these
investments.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
INTERNATIONAL STOCK FUND. When such policies are instituted, the Fund will
abide by them.
FUTURES AND OPTIONS. When a Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate with the prices of the securities in the
Fund's portfolio. This may cause the futures contract and any related options to
react differently than the portfolio securities to market changes. In addition,
the Fund's Adviser or Subadviser could be incorrect in its expectations about
the direction or extent of market factors such as interest or currency exchange
rate movements. In these events, the Fund may lose money on the futures contract
or option. Also, it is not certain that a secondary market for positions in
futures contracts or for options will exist at all times. Although the Fund's
Adviser or Subadviser will consider liquidity before entering into such
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or option
at any particular time. The Fund's ability to establish and close out futures
and options positions depends on this secondary market.
-------------------------------------------------------------
TAX INFORMATION
-------------------------------------------------------------
FEDERAL INCOME TAX
None of the Funds will pay federal income tax because each expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other Funds of the Corporation, if any, will not be combined for tax purposes
with those realized by any of the other Funds.
Unless otherwise exempt, you are required to pay federal income tax on any
dividends and other distributions received. However, shareholders of
INTERMEDIATE TAX-FREE FUND are not required to pay the federal regular income
tax on any dividends received from the Fund that represent net interest on
tax-exempt municipal bonds; but, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private-activity" municipal bonds
may be included in calculating the federal individual alternative minimum tax or
the federal alternative minimum tax for corporations. Dividends of the
INTERMEDIATE TAX-FREE FUND representing net interest income earned on some
temporary investments and any realized net short-term gains are taxed as
ordinary income.
Investment income received by the INTERNATIONAL STOCK FUND from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries that
entitle the INTERNATIONAL STOCK FUND to reduced tax rates or exemptions on this
income. The effective rate of foreign tax cannot be predicted since the amount
of INTERNATIONAL STOCK FUND'S assets to be invested within various countries is
unknown. However, the INTERNATIONAL STOCK FUND intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
If more than 50% of the value of the INTERNATIONAL STOCK FUND'S assets at the
end of the tax year is represented by stock or securities of foreign
corporations, the INTERNATIONAL STOCK FUND intends to qualify for certain
Internal Revenue Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. Shareholders
must hold INTERNATIONAL STOCK FUND shares for a specified period to claim a
foreign tax credit. The Internal Revenue Code may limit a shareholder's ability
to claim a foreign tax credit. Furthermore, shareholders who elect to deduct
their portion of the INTERNATIONAL STOCK FUND'S foreign taxes rather than take
the foreign tax credit must itemize deductions on their income tax returns.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
-------------------------------------------------------------
------------------------------------------------------------
STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue, and you should consult your
tax adviser for specific details regarding the status of your account under
state and local tax laws, including treatment of distributions as income or
return of capital.
-------------------------------------------------------------
EFFECT OF BANKING
LAWS
M&I Corp. believes, based on the advice of its counsel, that M&I Investment
Management Corp. may perform the services contemplated by the investment
advisory agreement with the Corporation without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Changes in either federal
or state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such present or future statutes
and regulations, could prevent M&I Investment Management Corp. or M&I Corp. from
continuing to perform all or a part of the above services for its customers
and/or a Fund. In such event, the Directors would consider alternative advisers
and means of continuing available investment services.
-------------------------------------------------------------
STANDARD & POOR'S
CORPORATION
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500" and "500" are
trademarks of Standard & Poor's Corporation.
The Funds are not sponsored, endorsed, sold or promoted by or affiliated with
Standard & Poor's Corporation.
- --------------------------------------------------------------------------------
ADDRESSES
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
MARSHALL EQUITY INCOME FUND Federated Investors Tower
MARSHALL LARGE-CAP GROWTH & INCOME FUND Pittsburgh, Pennsylvania 15222-3779
MARSHALL MID-CAP VALUE FUND MARSHALL MID-CAP GROWTH FUND MARSHALL INTERNATIONAL
STOCK FUND MARSHALL SMALL-CAP GROWTH FUND MARSHALL SHORT-TERM INCOME FUND
MARSHALL INTERMEDIATE BOND FUND MARSHALL GOVERNMENT INCOME FUND MARSHALL
INTERMEDIATE TAX-FREE FUND MARSHALL MONEY MARKET FUND
- -------------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------------------------------
Adviser to all Funds
M&I Investment Management Corp. 1000 North Water Street
Milwaukee, Wisconsin 53202
- -------------------------------------------------------------------------------------------------------------------------
Subadviser to MARSHALL INTERNATIONAL STOCK FUND
Templeton Investment Counsel, Inc. 500 East Broward Blvd.
Suite 2100
Ft. Lauderdale, Florida 33394-3091
- -------------------------------------------------------------------------------------------------------------------------
Custodian
Marshall & Ilsley Trust Company 1000 North Water Street
Milwaukee, Wisconsin 53202
- -------------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------------------------------
Shareholder Servicing Agent
Marshall Funds Investor Services
(MONEY MARKET FUND only) P.O. Box 1348
Milwaukee, Wisconsin 53201-1348 OR
1000 North Water Street
Milwaukee, Wisconsin 53202-1348
Federated Shareholder Services Company
(EQUITY FUNDS, INCOME FUNDS, and
INTERMEDIATE TAX-FREE FUND) Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W.
Washington, D.C. 20037
- -------------------------------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Marshall Funds Investor Services
1000 North Water Street
PO Box 1348
Milwaukee, Wisconsin 53201-1348
414-287-8555 or 800-236-FUND (3863)
TDD: Speech and Hearing Impaired Services
1-800-236-209-3520
Internet address: http://www.marshallfunds.com
Federated Securities Corp.
Distributor
G00714-01 (10/97)
Marshall Funds, Inc.
Statement of Additional Information
October 31, 1997
Equity Funds Tax-Free Income Fund
o Marshall Equity Income Fund o Marshall Intermediate Tax-Free Fund
o Marshall Large-Cap Growth & Income
Fund
o Marshall Mid-Cap Value Fund
o Marshall Mid-Cap Growth Fund
o Marshall International Stock Fund
o Marshall Small-Cap Growth Fund
Income Funds Money Market Fund
o Marshall Short-Term Income Fund o Marshall Money Market Fund
o Marshall Intermediate Bond Fund
o Marshall Government Income Fund
This Statement of Additional Information should be read with the
prospectus, dated October 31, 1997, for the Funds listed above. This
Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge, by writing or calling
Marshall Funds Investor Services at 1-414-287-8555 or 1-800-236-FUND
(3863), or you can visit the Marshall Funds' Internet site on the World
Wide Web at (http://www.marshallfunds.com).
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
<PAGE>
Table of Contents
- -------------------------------------------------------------------------------
Policies and Acceptable Investments 1
Investment Limitations 10
Fundamental Limitations 10
Non-Fundamental Limitations 12
Marshall Funds, Inc. Management 13
Officers and Directors 14
Fund Ownership 15
Directors' Compensation 17
Investment Advisory Services 17
Adviser to the Funds 17
Advisory Fees 17
Subadviser to International Stock Fund 18
Other Services 19
Administrative Services 19
Transfer Agent and Dividend Disbursing Agent 19
Custodian 19
Independent Public Accountants 19
Shareholder Servicing Arrangements 20
Brokerage Transactions 20
Purchasing Shares with Securities 21
Distribution Plan 21
Determining Market Value 21
Use of the Amortized Cost Method 21
Market Values 22
Trading in Foreign Securities 23
Redemption in Kind 23
Banking Laws 23
Tax Status 24
The Funds' Tax Status 24
Foreign Taxes 24
Shareholders' Tax Status 24
Capital Gains 24
Total Return 24
Yield 25
Effective Yield 26
Tax-Equivalent Yield 26
Tax-Equivalency Table 26
Performance Comparisons 27
Economic and Market Information 30
Financial Statements 30
Appendix 31
Please Note: The Table of Contents will be finalized when the document releases
to print.
<PAGE>
This Statement contains additional information about the Marshall Funds, Inc.
(the "Corporation") and its eleven investment portfolios (the "Funds"). This
Statement uses the same terms as defined in the prospectus. Policies and
Acceptable Investments Asset-Backed Securities. Asset-Backed Securities are
bonds or notes backed by loans or accounts receivable originated by banks, or
other credit providers or financial institutions. Asset-Backed Securities may be
pooled and then divided into classes of securities, known as tranches, and
resold. Each tranche has a specified interest rate and maturity. The cash flows
from the underlying pool of Asset-Backed Securities are applied first to pay
interest and then to retire securities. All principal payments are directed
first to the shortest-maturity tranche. When those securities are completely
retired, all principal payments are then directed to the next-shortest-maturity
tranche. This process continues until all of the tranches have been completely
retired. The Money Market Fund will invest in only the short-term tranches,
which will generally have a maturity not exceeding 397 days. Average Maturity.
For purposes of determining the dollar-weighted average maturity of a Fund's
portfolio, the maturity of a Municipal Security will be its ultimate maturity.
If it is probable that the issuer of the security will take advantage of
maturity-shortening devices such as a call, refunding, or redemption provision,
the maturity date will be the date on which it is probable that the security
will be called, refunded, or redeemed. If the Municipal Security includes the
right to demand payment, the maturity of the security for purposes of
determining a Fund's dollar-weighted average portfolio maturity will be the
period remaining until the principal amount of the security can be recovered by
exercising the right to demand payment. Borrowing. The International Stock Fund
may borrow up to one-third of the value of its total assets from banks to
increase its holdings of portfolio securities. The International Stock Fund is
required to maintain continuous asset coverage to 300% with respect to such
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Convertible Securities. When
owned as part of a unit along with warrants, which entitle the holder to buy the
common stock, convertible securities function as convertible bonds, except that
the warrants generally will expire before the bonds' maturity. A Fund will
exchange or convert the convertible securities held in its portfolio into shares
of the underlying common stocks when, in the adviser's or subadviser's opinion,
the investment characteristics of the underlying common shares will assist the
Fund in achieving its investment objective. Otherwise, the Fund will hold or
trade the convertible securities. In evaluating these matters with respect to a
particular convertible security, the Fund's Adviser or Subadviser considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer's profits, and the issuer's management capability and practices.
Derivative Contracts and Securities. The term derivative has traditionally been
applied to certain contracts (including, futures, forward, option and swap
contracts that "derive" their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of securities that
incorporate the performance characteristics of these contracts are also referred
to as "derivatives." The term has also been applied to securities "derived" from
the cash flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stock and bonds, derivatives do not necessarily
present greater market risks than traditional investments. The Funds will only
use derivative contracts for the purposes disclosed in the applicable sections
of its prospectus or this statement of additional information. To the extent
that a Fund's invests in securities that could be characterized as derivatives,
it will only do so in a manner consistent with its investment objective,
policies, and limitations. Duration. Duration is a commonly used measure of
potential volatility in the price of a bond, or other fixed income security, or
in a portfolio of fixed income securities, prior to maturity. Volatility is the
magnitude of the change in the price of a bond relative to a given change in the
market rate of interest. A bond's price volatility depends on three primary
variables: the bond's coupon rate; maturity date; and the level of market yields
of similar fixed income securities. Generally, bonds with lower coupons or
longer maturities will be more volatile than bonds with higher coupons or
shorter maturities. Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of time-weighted values of the cash
flows of a bond or bonds, including interest and principal payments, by the sum
of the present values of the cash flows. When a Fund invests in mortgage
pass-through securities, its duration will be calculated in a manner which
requires assumptions to be made regarding future principal prepayments. A more
complete description of this calculation is available upon request from the
Funds. Foreign Currency Hedging Transactions. In order to hedge against foreign
currency exchange rate risks, the International Stock Fund may enter into
forward foreign currency exchange contracts and foreign currency futures
contracts, as well as purchase put or call options on foreign currencies, as
described below. The Fund may also conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market. The International Stock Fund may enter into
forward foreign currency exchange contracts ("forward contracts") to attempt to
minimize the risk to the Fund from adverse changes in the relationship between
the U.S. dollar and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date which
is individually negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of the security. In
addition, for example, when the Fund believes that a foreign currency may suffer
a substantial decline against the U.S. dollar, it may enter into a forward
contract to sell an amount of that foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in such foreign
currency; or when the Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
contract to buy that foreign currency for a fixed dollar amount. This second
investment practice is generally referred to as "cross-hedging." Because in
connection with the Fund's forward foreign currency transactions an amount of
the Fund's assets equal to the amount of the purchase will be held aside or
segregated to be used to pay for the commitment, the Fund will always have cash,
cash equivalents or high quality debt securities available sufficient to cover
any commitments under these contracts or to limit any potential risk. The
segregated account will be marked to market on a daily basis. While these
contracts are not presently regulated by the Commodity Futures Trading
Commission ("CFTC"), the CFTC may in the future assert authority to regulate
forward contracts. In such event, the Fund's ability to utilize forward
contracts in the manner set forth above may be restricted. Forward contracts may
limit potential gain from a positive change in the relationship between the U.S.
dollar and foreign currencies. Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had not engaged in
such contracts. The International Stock Fund may purchase and write put and call
options on foreign currencies for the purpose of protecting against declines in
the dollar value of foreign portfolio securities and against increases in the
dollar cost of foreign securities to be acquired. As is the case with other
kinds of options, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and
the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against fluctuation
in exchange rates, although, in the event of rate movements adverse to the
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs. Options on foreign currencies to be written or
purchased by the Fund will be traded on U.S. and foreign exchanges or
over-the-counter. The International Stock Fund may enter into exchange-traded
contracts for the purchase or sale for future delivery of foreign currencies
("foreign currency futures"). This investment technique will be used only to
hedge against anticipated future changes in exchange rates which otherwise might
adversely affect the value of the Fund's portfolio securities or adversely
affect the prices of securities that the Fund intends to purchase at a later
date. The successful use of foreign currency futures will usually depend on the
ability of the Fund's Subadviser to forecast currency exchange rate movements
correctly. Should exchange rates move in an unexpected manner, the Fund may not
achieve the anticipated benefits of foreign currency futures or may realize
losses. Foreign Securities. Investments in foreign securities, particularly
those of non-governmental issuers, involve considerations which are not
ordinarily associated with investments in domestic issues. These considerations
include the possibility of expropriation, the unavailability of financial
information or the difficulty of interpreting financial information prepared
under foreign accounting standards, less liquidity and more volatility in
foreign securities markets, the impact of political, social, or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be higher. The
Adviser will consider these and other factors before investing in foreign
securities and will not make such investments unless, in its opinion, such
investment will meet the applicable Fund's standards and objectives. ECDs, ETDs,
Yankee CDs, and Europaper are subject to somewhat different risks than domestic
issuers. Examples of these risks include international, economic, and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
bank and the possible impact of interruptions in the flow of international
currency transactions. Different risks may also exist for ECDs, ETDs, and Yankee
CDs because the banks issuing instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, and recordkeeping, and the public
availability of information. These factors will be carefully considered by the
Adviser in selecting these investments. Funding Agreements. The Money Market
Fund may purchase funding agreements ("Agreements"), which are investment
instruments issued by highly rated U.S. insurance companies. Pursuant to such
Agreements, the Money Market Fund may make cash contributions to a deposit fund
of the insurance company's general or separate accounts. The insurance company
then credits to the Money Market Fund guaranteed interest. The insurance company
may assess periodic charges against an Agreement for expense and service costs
allocable to it, and the charges will be deducted from the value of the deposit
fund. The purchase price paid for an Agreement becomes part of the general
assets of the issuer, and the Agreement is paid from the general assets of the
issuer. The Money Market Fund will only purchase Agreements from issuers which,
at the time of purchase, meet quality and credit standards established by the
Money Market Fund's adviser. Generally, Agreements are not assignable or
transferable without the permission of the issuing insurance companies, and an
active secondary market in Agreements does not currently exist. Also, the Money
Market Fund may not have the right to receive the principal amount of an
Agreement from the insurance company on seven days' notice or less. Therefore,
Agreements are typically considered to be illiquid investments. Futures and
Options Transactions. (This is not applicable to the Money Market Fund,
Short-Term Income Fund, or Intermediate Bond Fund.) As a means of reducing
fluctuations in the net asset value of shares of a Fund, the Fund may attempt to
hedge all or a portion of its portfolio by buying and selling futures contracts
and options on futures contracts, and buying put and call options on portfolio
securities and securities indices. A Fund may also write covered put and call
options on portfolio securities to attempt to increase its current income or to
hedge a portion of its portfolio investments. The Fund will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed, or have expired. An option
position on futures contracts may be closed out over-the-counter or on a
nationally recognized exchange which provides a secondary market for options of
the same series.
Futures Contracts. A Fund may purchase and sell financial futures
contracts to hedge against the effects of changes in the value of
portfolio securities due to anticipated changes in interest rates and
market conditions without necessarily buying or selling the securities.
Although some financial futures contracts call for making or taking
delivery of the underlying securities, in most cases these obligations
are closed out before the settlement date. The closing of a contractual
obligation is accomplished by purchasing or selling an identical
offsetting futures contract. Other financial futures contract by their
terms call for cash settlements. A Fund also may purchase and sell stock
index futures contracts with respect to any stock index traded on a
recognized stock exchange or board of trade to hedge against changes in
prices. Stock index futures contracts are based on indices that reflect
the market value of common stock of the firms included in the indices. An
index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the
differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract was
originally written. No physical delivery of the underlying securities in
the index is made. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. A futures contract is a firm commitment by
two parties: the seller who agrees to make delivery of the specific type
of security called for in the contract ("going short") and the buyer who
agrees to take delivery of the security ("going long") at a certain time
in the future. For example, in the fixed income securities market, prices
move inversely to interest rates. A rise in rates means a drop in price.
Conversely, a drop in rates means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market interest
rates, the Fund could enter into contracts to deliver securities at a
predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund would "go long"
(agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates.
<PAGE>
"Margin" In Futures Transactions. Unlike the purchase or sale of a
security, a Fund does not pay or receive money upon the purchase or sale
of a futures contract. Rather, the Fund is required to deposit an amount
of "initial margin" in cash, U.S. government securities or highly-liquid
debt securities with its custodian (or the broker, if legally permitted).
The nature of initial margin in futures transactions is different from
that of margin in securities transactions in that initial margin in
futures transactions does not involve the borrowing of funds by the Fund
to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. A futures contract held by a
Fund is valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe
the other if the futures contract expired. In computing its daily net
asset value, the Fund will mark to market its open futures positions. The
Fund is also required to deposit and maintain margin when it writes call
options on futures contracts. When the Fund purchases futures contracts,
an amount of cash and cash equivalents, equal to the underlying commodity
value of the futures contracts (less any related margin deposits), will
be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contracts is unleveraged. To the
extent required to comply with CFTC Regulation 4.5 and thereby avoid
status as a "commodity pool operator," the Fund will not enter into a
futures contract for other than bona fide hedging purposes, or purchase
an option thereon, if immediately thereafter the initial margin deposits
for futures contracts held by it, plus premiums paid by it for open
options on futures contracts, would exceed 5% of the market value of the
Fund's net assets, after taking into account the unrealized profits and
losses on those contracts it has entered into; and, provided further,
that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing such 5%.
Second, the Fund will not enter into these contracts for speculative
purposes; rather, these transactions are entered into only for bona fide
hedging purposes, or other permissible purposes pursuant to regulations
promulgated by the CFTC. Third, since the Fund does not constitute a
commodity pool, it will not market itself as such, nor serve as a vehicle
for trading in the commodities futures or commodity options markets.
Finally, because the Fund will submit to the CFTC special calls for
information, the Fund will not register as a commodities pool operator.
Put Options on Financial and Stock Index Futures Contracts. A Fund may
purchase listed put options on financial and stock index futures
contracts to protect portfolio securities against decreases in value
resulting from market factors, such as an anticipated increase in
interest rates or decrease in stock prices. Unlike entering directly into
a futures contract, which requires the purchaser to buy a financial
instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price. Generally, if the hedged portfolio
securities decrease in value during the term of an option, the related
futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the decrease in value of the hedged securities.
Alternatively, a Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost. A Fund may write listed put options on financial
or stock index futures contracts to hedge its portfolio against a
decrease in market interest rates or increase in stock prices. A Fund
will use these transactions to attempt to protect its ability to purchase
portfolio securities in the future at price levels existing at the time
it enters into the transaction. When a Fund writes (sells) a put on a
futures contract, it receives a cash premium in exchange for granting to
the purchaser of the put the right to receive from the Fund, at the
strike price, a short position in such futures contract (the Fund
undertakes the obligation to assume a long futures position), even though
the strike price upon exercise of the option is greater than the value of
the futures position received by such holder. As market interest rates
decrease or stock prices increase, the market price of the underlying
futures contract normally increases. As the market value of the
underlying futures contract increases, the buyer of the put option has
less reason to exercise the put because the buyer can sell the same
futures contract at a higher price in the market. If the value of the
underlying futures position is not such that exercise of the option would
be profitable to the option holder, the option will generally expire
without being exercised. The premium received by the Fund can then be
used to offset the higher prices of portfolio securities to be purchased
in the future. It will generally be the policy of a Fund, in order to
avoid the exercise of an option sold by it, to cancel its obligation
under the option by entering into a closing purchase transaction, if
available, unless it is determined to be in the Fund's interest to
deliver the underlying futures position. A closing purchase transaction
consists of the purchase by the Fund of an option having the same term as
the option sold by the Fund, and has the effect of canceling the Fund's
position as a seller. The premium which the Fund will pay in executing a
closing purchase transaction may be higher than the premium received when
the option was sold, depending in large part upon the relative price of
the underlying futures position at the time of each transaction. If the
hedge is successful, the cost of buying the second option will be less
than the premium received by the Fund for the initial option. Call
Options on Financial and Stock Index Futures Contracts. In addition to
purchasing put options on futures, a Fund may write (sell) listed and
over-the-counter call options on financial and stock index futures
contracts to hedge its portfolio. When the Fund writes a call option on a
futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike price
at any time during the life of the option if the option is exercised. As
stock prices fall or market interest rates rise, causing the prices of
futures to go down, the Fund's obligation under a call option on a future
(to sell a futures contract) costs less to fulfill, causing the value of
the Fund's call option position to increase. In other words, as the
underlying futures price goes down below the strike price, the buyer of
the option has no reason to exercise the call, so that the Fund keeps the
premium received for the option. This premium can substantially offset
the drop in value of the Fund's portfolio securities. Prior to the
expiration of a call written by a Fund, or exercise of it by the buyer,
the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the
premium received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the decrease in value
of the hedged securities. An additional way in which a Fund may hedge
against decreases in market interest rates or increases in stock prices
is to buy a listed call option on a financial or stock index futures
contract. A Fund will use these transactions to attempt to protect its
ability to purchase portfolio securities in the future at price levels
existing at the time it enters into the transaction. When a Fund
purchases a call on a financial futures contract, it receives in exchange
for the payment of a cash premium the right, but not the obligation, to
enter into the underlying futures contract at a strike price determined
at the time the call was purchased, regardless of the comparative market
value of such futures position at the time the option is exercised. The
holder of a call option has the right to receive a long (or buyer's)
position in the underlying futures contract. As market interest rates
fall or stock prices increase, the value of the underlying futures
contract will normally increase, resulting in an increase in value of the
Fund's option position. When the market price of the underlying futures
contract increases above the strike price plus premium paid, the Fund
could exercise its option and buy the futures contract below market
price. Prior to the exercise or expiration of the call option, the Fund
could sell an identical call option and close out its position. If the
premium received upon selling the offsetting call is greater than the
premium originally paid, the Fund has completed a successful hedge.
Limitation on Open Futures Positions. A Fund will not maintain open
positions in futures contracts it has sold or call options it has written
on futures contracts if, in the aggregate, the value of the open
positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those
open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation. Purchasing Put and Call Options on
Securities. A Fund may purchase put options on portfolio securities to
protect against price movements in the Fund's portfolio securities. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option. A Fund may purchase call options on securities
acceptable for purchase to protect against price movements by "locking
in" on a purchase price for the underlying security. A call option gives
the Fund, in return for a premium, the right to buy the underlying
security from the seller at a specified price during the term of the
option. Writing Covered Call and Put Options on Portfolio Securities. A
Fund may also write covered call and put options to generate income and
thereby protect against price movements in the Fund's portfolio
securities. As writer of a call option, the Fund has the obligation upon
exercise of the option during the option period to deliver the underlying
security upon payment of the exercise price. The Fund may only sell call
options either on securities held in its portfolio or on securities which
it has the right to obtain without payment of further consideration (or
has segregated cash or U.S. government securities in the amount of any
additional consideration). As a writer of a put option, the Fund has the
obligation to purchase a security from the purchaser of the option upon
the exercise of the option. In the case of put options, the Fund will
segregate cash or U.S. Treasury obligations with a value equal to or
greater than the exercise price of the underlying securities. Stock Index
Options. A Fund may purchase or sell put or call options on stock indices
listed on national securities exchanges or traded in the over-the-counter
market. A stock index fluctuates with changes in the market values of the
stocks included in the index. Upon the exercise of the option, the holder
of a call option has the right to receive, and the writer of a put option
has the obligation to deliver, a cash payment equal to the difference
between the closing price of the index and the exercise price of the
option. The effectiveness of purchasing stock index options will depend
upon the extent to which price movements in the Fund's portfolio
correlate with price movements of the stock index selected. Because the
value of an index option depends upon movements in the level of the index
rather than the price of a particular stock, whether the Fund will
realize a gain or loss from the purchase of options on an index depends
upon movements in the level of stock prices in the stock market generally
or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by a Fund of options on stock indices will be subject to
the ability of the Fund's adviser or subadviser to predict correctly
movements in the directions of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. Over-the-Counter
Options. A Fund may generally purchase and write over-the-counter options
on portfolio securities or in securities indices in negotiated
transactions with the buyers or writers of the options when options on
the portfolio securities held by the Fund or when the securities indices
are not traded on an exchange. The Fund purchases and writes options only
with investment dealers and other financial institutions (such as
commercial banks or savings associations) deemed creditworthy by the
Fund's Adviser or Subadviser. Over-the-counter options are two-party
contracts with price and terms negotiated between buyer and seller. In
contrast, exchange-traded options are third-party contracts with
standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not. Risks. When a Fund uses
futures and options on futures as hedging devices, there is a risk that
the prices of the securities or foreign currency subject to the futures
contracts may not correlate perfectly with the prices of the securities
or currency in the Fund's portfolio. This may cause the futures contract
and any related options to react differently to market changes than the
portfolio securities or foreign currency. In addition, a Fund's adviser
or sub-adviser could be incorrect in its expectations about the direction
or extent of market factors such as stock price movements or foreign
currency exchange rate fluctuations. In these events, the Fund may lose
money on the futures contract or option. It is not certain that a
secondary market for positions in futures contracts or for options will
exist at all times. Although a Fund's adviser or sub-adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular
time. A Fund's ability to establish and close out futures and options
positions depends on this secondary market. The inability to close these
positions could have an adverse effect on the Fund's ability to hedge its
portfolio. To minimize risks, a Fund may not purchase or sell futures
contracts or related options if immediately thereafter the sum of the
amount of margin deposits on the Fund's existing futures positions and
premiums paid for related options would exceed 5% of the market value of
the Fund's net assets after taking into account the unrealized profits
and losses on those contracts it has entered into; and, provided further,
that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing such 5%.
When a Fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that the use
of such futures contract is unleveraged. When the Fund sells futures
contracts, it will either own or have the right to receive the underlying
future or security, or will make deposits to collateralize the position
as discussed above.
Lending of Portfolio Securities. The collateral received when a Fund lends
portfolio securities must be valued daily and, should the market value of the
loaned securities increase, the borrower must furnish additional collateral to
the Fund. During the time portfolio securities are on loan, the borrower pays
the Fund any dividends or interest paid on such securities. Loans are subject to
termination at the option of the Fund or the borrower. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker. If the Fund does not have the
right to vote securities on loan, it would terminate the loan and regain the
right to vote if that were considered important with respect to the investment.
Mortgage-Backed Securities. The following is additional information about
Mortgage-Backed Securities.
Adjustable Rate Mortgage Securities ("ARMS") . Unlike conventional bonds,
ARMS pay back principal over the life of the ARMS rather than at
maturity. Thus, a holder of the ARMS, such as a Fund, would receive
monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvest the payments
and any unscheduled prepayments of principal that it receives, the holder
may receive a rate of interest which is actually lower than the rate of
interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types
of U.S. government securities. Not unlike other U.S. government
securities, the market value of ARMS will generally vary inversely with
changes in market interest rates. Thus, the market value of ARMS
generally declines when interest rates rise and generally rises when
interest rates decline. While ARMS generally entail less risk of a
decline during periods of rapidly rising rates, ARMS may also have less
potential for capital appreciation than other similar investments (e.g.,
investments with comparable maturities) because, as interest rates
decline, the likelihood increases that mortgages will be prepaid.
Furthermore, if ARMS are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal
and an unscheduled prepayment of principal would increase current and
total returns and would accelerate the recognition of income, which would
be taxed as ordinary income when distributed to shareholders.
Collateralized Mortgage Obligations ("CMOs"). The following example
illustrates how mortgage cash flows are prioritized in the case of CMOs
most of the CMOs in which the Income Funds invest use the same basic
structure: (1) Several classes of securities are issued against a pool of
mortgage collateral. A common structure may contain four classes of
securities. The first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date, and the final class (Z bond)
typically receives any excess income from the underlying investments
after payments are made to the other classes and receives no principal or
interest payments until the shorter maturity classes have been retired,
but then receives all remaining principal and interest payments; (2) The
cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities; (3) The classes of securities are
retired sequentially. All principal payments are directed first to the
shortest-maturity class (or A bond). When those securities are completely
retired, all principal payments are then directed to the next
shortest-maturity security (or B bond). This process continues until all
of the classes have been paid off. Because the cash flow is distributed
sequentially instead of pro rata, as with pass-through securities, the
cash flows and average lives of CMOs are more predictable, and there is a
period of time during which the investors in the longer-maturity classes
receive no principal paydowns. The interest portion of these payments is
distributed by the Fund as income, and the capital portion is reinvested.
Interest Only and Principal Only Investments. Some of the securities
purchased by a Fund may represent an interest solely in the principal
repayments or solely in the interest payments on Mortgage-Backed
Securities (stripped mortgage-backed securities or "SMBSs"). SMBSs are
usually structured with two classes and receive different proportions of
the interest and principal distributions on the pool of underlying
mortgage-backed securities. Due to the possibility of prepayments on the
underlying mortgages, SMBSs may be more interest-rate sensitive than
other securities purchased by the Funds. If prevailing interest rates
fall below the level at which SMBSs were issued, there may be substantial
prepayments on the underlying mortgages, leading to the relatively early
prepayments of principal-only SMBSs (the principal-only or "PO" class)
and a reduction in the amount of payments made to holders of
interest-only SMBSs (the interest-only or "IO" class). Because the yield
to maturity of an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying
mortgage-backed securities, it is possible that the Fund might not
recover its original investment on interest-only SMBSs if there are
substantial prepayments on the underlying mortgages. The Funds' inability
to fully recoup their investments in these securities as a result of a
rapid rate of principal prepayments may occur even if the securities are
rated by an NRSRO. Therefore, interest-only SMBSs generally increase in
value as interest rates rise and decrease in value as interest rates
fall, counter to changes in value experienced by most fixed income
securities.
Municipal Securities. Examples of Municipal Securities include, but are not
limited to: tax and revenue anticipation notes ("TRANs") issued to finance
working capital needs in anticipation of receiving taxes or other revenues; tax
anticipation notes ("TANs") issued to finance working capital needs in
anticipation of receiving taxes; revenue anticipation notes ("RANs") issued to
finance working capital needs in anticipation of receiving revenues; bond
anticipation notes ("BANs") that are intended to be refinanced through a later
issuances of longer-term bonds; municipal commercial paper and other short-term
notes; variable rate demand notes; municipal bonds (including bonds having
serial maturities and pre-refunded bonds) and leases; construction loan notes
insured by the Federal Housing Administration and financed by the Federal or
Government National Mortgage Associations; and participation, trust and
partnership interests in any of the foregoing obligations. Diversification of
the Intermediate Tax-Free Fund's investments is obtained geographically by
purchasing issues of Municipal Securities representative of various areas of the
U.S. and general obligations of states, cities and school districts as well as
some revenue issues which meet the Funds' acceptable quality criteria.
Municipal Leases. The Intermediate Tax-Free Fund may purchase Municipal
Securities in the form of participation interests that represent an
undivided proportional interest in lease payments by a governmental or
nonprofit entity. The lease payments and other rights under the lease
provide for and secure payments on the certificates. Lease obligations
may be limited by municipal charter or the nature of the appropriation
for the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds for
future lease payments, the entity cannot be compelled to make such
payments. Furthermore, a lease may provide that the participants cannot
accelerate lease obligations upon default. The participants would only be
able to enforce lease payments as they became due. In the event of a
default or failure of appropriation, unless the participation interests
are credit enhanced, it is unlikely that the participants would be able
to obtain an acceptable substitute source of payment. Under the criteria
currently established by the Directors, the Fund's Adviser must consider
the following factors in determining the liquidity of municipal lease
securities: (1) the frequency of trades and quotes for the security; (2)
the volatility of quotations and trade prices for the security; (3) the
number of dealers willing to purchase or sell the security and the number
of potential purchasers; (4) dealer undertakings to make a market in the
security; (5) the nature of the security and the nature of the
marketplace trades; (6) the rating of the security and the financial
condition and prospects of the issuer of the security; (7) such other
factors as may be relevant to the Funds' ability to dispose of the
security; (8) whether the lease can be terminated by the lessee; (9) the
potential recovery, if any, from a sale of the leased property upon
termination of the lease; (10) the lessee's general credit strength; (11)
the likelihood that the lessee will discontinue appropriating funding for
the leased property because the property is no longer deemed essential to
its operations; and (12) any credit enhancement or legal recourse
provided upon an event of nonappropriation or other termination of the
lease. Variable Rate Municipal Securities. Variable interest rates
generally reduce changes in the market value of Municipal Securities from
their original purchase prices. Accordingly, as interest rates decrease
or increase, the potential for capital appreciation or depreciation is
less for variable rate Municipal Securities than for fixed income
obligations. Many Municipal Securities with variable interest rates
purchased by a Fund are subject to repayment of principal (usually within
seven days) on the Fund's demand. For purposes of determining the Funds'
average maturity, the maturities of these variable rate demand Municipal
Securities (including participation interests) are the longer of the
periods remaining until the next readjustment of their interest rates or
the periods remaining until their principal amounts can be recovered by
exercising the right to demand payment. The terms of these variable rate
demand instruments require payment of principal and accrued interest from
the issuer of the municipal obligations, the issuer of the participation
interests, or a guarantor of either issuer.
Portfolio Turnover. The decrease in turnover from fiscal year ended August
31, 1996 to fiscal year ended August 31, 1997 for the Large-Cap Growth & Income
Fund was due primarily to the repositioning of the Fund portfolio in response to
a change in Fund management. The total number of Fund holdings and turnover rate
decreased to reflect the long-term investment strategy of the Fund manager. The
Short-Term Income Fund's decline in portfolio turnover from fiscal year ended
August 31, 1996 to fiscal year ended August 31, 1997 was primarily the result of
a lower utilization of mortgage "dollar roll" transactions. Repurchase
Agreements. Each Fund requires its custodian to take possession of the
securities subject to repurchase agreements and these securities are marked to
market daily. To the extent that the original seller does not repurchase the
securities from a Fund, the Fund could receive less than the repurchase price on
any sale of such securities. In the event that such a defaulting seller files
for bankruptcy or becomes insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Funds believe that, under the regular
procedures normally in effect for custody of the portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Funds and allow retention or disposition of such securities. The Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by a Fund's adviser or
subadviser to be creditworthy pursuant to guidelines established by the
Directors. Restricted and Illiquid Securities. The Funds may invest in
commercial paper issued in reliance on the exemption from restriction afforded
by Section 4(2) of the Securities Act of 1933. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally sold
to institutional investors, such as the Funds, who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) commercial paper is normally resold to other institutional
investors like the Funds through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity. The Funds believe that Section 4(2) commercial paper and
possibly certain other restricted securities which meet the criteria for
liquidity established by the Directors are quite liquid. The Funds intend,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Directors, including Section 4(2) commercial paper
(as determined by a Fund's Adviser or Subadviser), as liquid and not subject to
the investment limitation applicable to illiquid securities. In addition,
because Section 4(2) commercial paper is liquid, the Funds intend to not subject
such paper to the limitation applicable to restricted securities. Reverse
Repurchase Agreements. Each Fund may enter into reverse repurchase agreements.
This transaction is similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time. When effecting reverse repurchase agreements, liquid
assets of the Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date. These securities
are marked to market daily and maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Money Market Fund will restrict the purchase of portfolio instruments to
money market instruments maturing on or before the expiration date on the
reverse repurchase agreement. Swap Transactions. In a standard swap transaction,
two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments, which
may be adjusted for an interest factor. The gross returns to be exchanged or
"swapped" between the parties are generally calculated with respect to a
"notional amount," which is the return on or increase in value of a particular
dollar amount invested at a particular interest rate, or in a "basket" of
securities representing a particular index. For example, a $10 million LIBOR
swap would require one party to pay the equivalent of the London Interbank Offer
Rate on $10 million principal amount in exchange for the right to receive the
equivalent of a fixed rate of interest on $10 million principal amount. Neither
party to the swap would actually advance $10 million to the other. The Funds
expect to enter into swap transactions primarily to hedge against changes in the
price of other portfolio securities. For example, the Funds may hedge against
changes in the market value of a fixed rate note by entering into a concurrent
swap that requires the Funds to pay the same or a lower fixed rate of interest
on a notional principal amount equal to the principal amount of the note in
exchange for a variable rate of interest based on a market index. Interest
accrued on the hedged note would then equal or exceed the Funds' obligations
under the swap, while changes in the market value of the swap would largely
offset any changes in the market value of the note. The Funds may also enter
into swaps and caps to preserve or enhance a return or spread on a portfolio
security. The Funds do not intend to use these transactions in a speculative
manner. The Funds will usually enter into swaps on a net basis (i.e., the two
payment streams are netted out), with a Fund receiving or paying, as the case
may be, only the net amount of the two payments. The net amount of the excess,
if any, of the Funds' obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis, and the Funds will
segregate liquid assets in an aggregate net asset value at least equal to the
accrued excess, if any, on each business day. If a Fund enters into a swap on
other than a net basis, a Fund will segregate liquid assets in the full amount
accrued on a daily basis of a Fund's obligations with respect to the swap. If
there is a default by the other party to such a transaction, the Funds will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and agents utilizing
standardized swap documentation. The Adviser and Subadviser have determined
that, as a result, the swap market has become relatively liquid. Interest rate
caps and floors are more recent innovations for which standardized documentation
has not yet been developed and, accordingly, they are less liquid than other
swaps. To the extent swaps, caps or floors are determined by the Adviser or
Subadviser to be illiquid, they will be included in a Fund's limitation on
investments in illiquid securities. To the extent a Fund sells caps and floors,
it will maintain in a segregated account cash and/or U.S. government securities
having an aggregate net asset value at least equal to the full amount, accrued
on a daily basis, of a Fund's obligations with respect to caps and floors. The
use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser or Subadviser is incorrect in its
forecasts of market values, interest rates and other applicable factors, the
investment performance of a Fund would diminish compared with what it would have
been if these investment techniques were not utilized. Moreover, even if the
Adviser or Subadviser is correct in its forecasts, there is a risk that the swap
position may correlate imperfectly with the price of the portfolio security
being hedged. Swap transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, the risk of loss with respect
to a default on an interest rate swap is limited to the net asset value of the
swap together with the net amount of interest payments owed to a Fund by the
defaulting party. A default on a portfolio security hedged by an interest rate
swap would also expose a Fund to the risk of having to cover its net obligations
under the swap with income from other portfolio securities. Warrants. The Equity
Funds may purchase warrants. Warrants are basically options to purchase common
stock at a specific price (usually at a premium above the market value of the
optioned common stock at issuance) valid for a specific period of time. Warrants
may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
underlying common stock. When-Issued and Delayed Delivery Transactions. These
transactions are made to secure what is considered to be an advantageous price
or yield for the Funds. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased may
vary from the purchase prices. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a Fund sufficient to
make payment for the securities to be purchased are segregated on a Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. Investment Limitations
Fundamental Limitations
The following investment limitations are fundamental and cannot be changed
without shareholder approval.
Selling Short and Buying on Margin
The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities. A deposit or payment by a Fund
of initial or variation margin in connection with futures contracts, forward
contracts or related options transactions is not considered the purchase of a
security on margin. Issuing Senior Securities and Borrowing Money
The Funds will not issue senior securities except that each Fund may borrow
money, directly or through reverse repurchase agreements, in amounts up to
one-third of the value of its total assets ("net" assets in the case of the
Money Market Fund, Short-Term Income Fund, and Intermediate Bond Fund) including
the amounts borrowed; and except to the extent that a Fund is permitted to enter
into futures contracts, options or forward contracts. Except for the
International Stock Fund, a Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of its portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. Except for
the International Stock Fund, a Fund will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding. Pledging Assets
The Funds will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, each Fund may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of its total assets at the time of the pledge. For purposes of this
limitation, the following are not deemed to be pledges: margin deposits for the
purchase and sale of futures contracts and related options; and segregation of
collateral arrangements made in connection with options activities, forward
contracts or the purchase of securities on a when-issued basis. Lending Cash or
Securities
The Funds will not lend any of their assets except portfolio securities. Except
for the International Stock Fund, loans may not exceed one-third of the value of
a Fund's total assets. This shall not prevent a Fund from purchasing or holding
U.S. government obligations, money market instruments, variable rate demand
notes, bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by the Fund's investment objective, policies, and
limitations. Investing in Commodities
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts. However, except for the Short-Term Income Fund, the
Intermediate Bond Fund, and the Money Market Fund, a Fund may purchase and sell
futures contracts and related options, and the International Stock Fund may also
enter into forward contracts and related options. Investing in Real Estate
The Funds will not purchase or sell real estate, including limited partnership
interests, although a Fund may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities which are
secured by real estate or which represent interests in real estate.
Diversification of Investments
With respect to securities comprising 75% of the value of its total assets, a
Fund will not purchase securities issued by any one issuer (other than cash,
cash items or securities issued or guaranteed by the government of the United
States or its agencies or instrumentalities and repurchase agreements
collateralized by such securities) if as a result more than 5% of the value of
its total assets would be invested in the securities of that issuer or if it
would own more than 10% of the outstanding voting securities of such issuer.
Under this limitation, the Intermediate Tax Free Fund will consider each
governmental subdivision, including states and the District of Columbia,
territories, possessions of the United States, or their political subdivisions,
agencies, authorities, instrumentalities, or similar entities, a separate issuer
if its assets and revenues are separate from those of the governmental body
creating it and the security is backed only by its own assets and revenues.
Industrial developments bonds backed only by the assets and revenues of a
nongovernmental user are considered to be issued solely by that user. If in the
case of an industrial development bond or government-issued security, a
governmental or some other entity guarantees the security, such guarantee would
be considered a separate security issued by the guarantor, subject to a limit on
investments in the guarantor of 10% of total assets. Concentration of
Investments
(Intermediate Tax-Free Fund only)
The Intermediate Tax-Free Fund will not invest 25% or more of the value of
its total assets in any one industry, except for temporary defensive purposes,
the Fund may invest 25% or more of the value of its total assets in cash or cash
items, securities issued or guaranteed by the U.S. government, its agencies, or
instrumentalities, and repurchase agreements collateralized by such
securities. In addition, the Intermediate Tax-Free Fund may invest more than
25% of the value of its total assets in obligations issued by any state,
territory, or possession of the United States, the District of Columbia or any
of their authorities, agencies, instrumentalities or political subdivisions,
including tax-exempt project notes guaranteed by the U.S. government, regardless
of the location of the issuing municipality. This policy applies to securities
which are related in such a way that an economic, business, or political
development affecting one security would also affect the other securities (such
as securities paid from revenues from selected projects in transportation,
public works, education, or housing). (All Other Funds) A Fund will not invest
25% or more of its total assets in any one industry. However, investing in U.S.
government securities (and domestic bank instruments for the Money Market Fund)
shall not be considered investments in any one industry. Underwriting
A Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of restricted (the term "restricted" does not apply to the Intermediate
Tax-Free Fund) securities which the Fund may purchase pursuant to its investment
objective, policies and limitations.
<PAGE>
Non-Fundamental Limitations
The following investment limitations are non-fundamental and, therefore, may be
changed by the Directors without shareholder approval. Shareholders will be
notified before any material change in these limitations becomes effective.
Investing in Illiquid and Restricted Securities
The Funds will not invest more than 15% (10% for the Money Market Fund) of the
value of their net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after notice,
non-negotiable fixed time deposits with maturities over seven days,
over-the-counter options, guaranteed investment contracts, and certain
restricted securities not determined by the Directors to be liquid (including
certain municipal leases). Purchasing Securities to Exercise Control
The Funds will not purchase securities of a company for the purpose of
exercising control or management.
Investing in Securities of Other Investment Companies
Each Fund will limit its investment in other investment companies to no more
than 3% of the total outstanding voting stock of any investment company, will
invest no more than 5% of total assets in any one investment company, and will
invest no more than 10% of its total assets in investment companies in general,
unless permitted to exceed these limits by an exemptive order of the SEC. The
Funds will purchase securities of closed-end investment companies only in open
market transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Money Market Fund
will limit its investments in other investment companies to those of money
market funds having investment objectives and policies similar to its own.
Investing in Options
Except for bona fide hedging purposes, a Fund may not invest more than 5% of the
value of its net assets in the sum of (a) premiums on open option positions on
futures contracts, plus (b) initial margin deposits on futures contracts. A Fund
will not purchase put options or write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is entitled to
them in deliverable form without further payment or has segregated cash in the
amount of any further payment. A Fund will not write call options in excess of
25% of the value of its total assets. Except with respect to borrowing money, if
a percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or net
assets will not result in a violation of such restriction. For purposes of its
policies and limitations, the Fund considers instruments (such as certificates
of deposit and demand and time deposits) issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items." Regulatory
Compliance. The Money Market Fund may follow non-fundamental operational
policies that are more restrictive than its fundamental investment limitations,
as set forth in the prospectus and this statement of additional information, in
order to comply with applicable laws and regulations. In particular, the Money
Market Fund will comply with the various requirements of Rule 2a-7 under the
Act, which regulates money market mutual funds. For example, Rule 2a-7 generally
prohibits the investment of more than 5% of the Money Market Fund's total assets
in the securities of any one issuer, although the Money Market Fund's
fundamental investment limitation only requires such 5% diversification with
respect to 75% of its assets. The Money Market Fund will also determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Money Market Fund may change these operational
policies to reflect changes in the laws and regulations without shareholder
approval. Marshall Funds, Inc. Management The Corporation was established as a
Wisconsin corporation under the laws of the State of Wisconsin on July 31, 1992.
The Corporation's authorized capital consists of 50,000,000,000 shares of common
stock with a par value of $.0001 per share. Shareholders of each Fund are
entitled: (i) to one vote per full share of Common Stock; (ii) to such
distributions as may be declared by the Corporation's Directors out of funds
legally available; and (iii) upon liquidation of the Corporation, to participate
ratably in the assets of the Fund available for distribution. Each share of the
Fund gives the shareholder one vote in the election of Directors and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Corporation have equal voting rights, except that only shares of a
particular portfolio or class are entitled to vote on matters affecting that
portfolio or class. There are no conversion or sinking fund provisions
applicable to the shares, and the holders have no preemptive rights and may not
cumulate their votes in the election of Directors. Consequently, the holders of
more than 50% of the Corporation's shares of common stock voting for the
election of Directors can elect the entire Board of Directors, and, in such
event, the holders of the Corporation's remaining shares voting for the election
of Directors will not be able to elect any person or persons to the Board of
Directors.
The Wisconsin Business Corporation Law (the "WBCL") permits registered
investment companies, such as the Corporation, to operate without an annual
meeting of shareholders under specified circumstances if an annual meeting is
not required by the Act. The Corporation has adopted the appropriate provisions
in its By-laws and does not anticipate holding an annual meeting of shareholders
to elect Directors unless otherwise required by the Act. Directors may be
removed by the shareholders at a special meeting. A special meeting of the
shareholders may be called by the Directors upon written request of shareholders
owning at least 10% of the Corporation's outstanding voting shares.
The shares are redeemable and are transferable. All shares issued and sold by
the Corporation will be fully paid and nonassessable except as provided in WBCL
Section 180.0622(2)(b). Fractional shares of common stock entitle the holder to
the same rights as whole shares of common stock except the right to receive a
certificate evidencing such fractional shares.
The definitions of the terms "series" and "class" in the WBCL differ from the
meanings assigned to those terms in the prospectus and this Statement of
Additional Information. The Articles of Incorporation of the Corporation
reconcile this inconsistency in terminology, and provide that the prospectus and
Statement of Additional Information may define these terms consistently with the
use of those terms under the Act and the Internal Revenue Code.
<PAGE>
Officers and Directors
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Marshall & Ilsley Corp.,
Federated Investors, Federated Securities Corp., Federated Shareholder Services
Company, Federated Services Company, and Federated Administrative Services.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
October 22, 1930
Chairman, Director and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director, Executive Vice President,
Vice President and/or Treasurer of certain investment companies advised or
distributed by affiliates of Federated Investors.
John DeVincentis
4700 21st Street
Racine, WI 53406
March 27, 1934
Director
Independent Financial Consultant; Retired, formerly, Senior Vice President of
Finance, In-Sink-Erator Division of Emerson Electric.
Ody J. Fish
547 Progress Drive
Hartland, WI
June 16, 1925
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Private Investor; Formerly President Pal-O-Pak Insulation Company; Director,
Stokely U.S.A.; Director, Quest Technologies; President, Wisconsin Academy of
Science, Arts and Letters.
Paul E. Hassett
1630 Capital Avenue
Madison, WI
September 4, 1917
Director
Formerly, Director, Newton Income Fund, Inc. and Newton Growth Fund, Inc.;
Retired, formerly President, Wisconsin Manufacturers and Commerce.
<PAGE>
Joseph S. Machi
Federated Investors Tower
Pittsburgh, PA
May 22, 1962
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Director, Proprietary Client
Management and Services Group, Federated Investors; Vice President and Assistant
Treasurer of certain funds for which Federated Securities Corp. is the principal
distributor.
Peter J. Germain
Federated Investors Tower
Pittsburgh, PA
September 3, 1959
Secretary
Senior Corporate Counsel, Federated Investors.
* This Director is deemed to be an "interested person" of a Fund or the
Corporation as defined in the Investment Company Act of 1940.
Fund Ownership
Officers and Directors of the Corporation own less than 1% of each Fund's
outstanding shares. As of October 6, 1997, the following shareholders of
record owned 5% or more of a Fund's outstanding shares:
Equity Income Fund
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 10,819,670 shares (50.94%); and Mitra & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 8,973,659 shares
(42.24%). Large-Cap Growth & Income Fund Maril & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 4,584,080 shares (23.55%);
and Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 11,342,929 shares (58.28%). Mid-Cap Value Fund Vallee, Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately 763,777
shares (6.94%); Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 4,610,972shares (41.92%); and Mitra & Co.,
Marshall & Ilsley Trust Operations, owned approximately 5,125,882 shares
(46.6%). Mid-Cap Growth Fund Maril & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 5,726,739 shares (42.92%); and Mitra &
Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 6,611,247 shares (49.55%). International Stock Fund Maril & Co.,
Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
7,966,140shares (45.92%); and Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 8,098,139 shares (46.68%). Small-Cap
Growth Fund Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 1,621,934 shares (33.45%); and Mitra & Co.,
Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
2,286,280 shares (47.15%). Short-Term Income Fund Maril & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin , owned approximately 7,577,195 shares
(49.04%); andMitra & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 6,765,033 shares (43.78%) Intermediate Bond Fund
Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 20,857,515 shares (49.48%); and Vallee, Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 18,977,996 shares
(45.02%). Government Income Fund Maril & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 9,346,161 shares (43.00%);
and Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 9,761,525shares (44.91%). Intermediate Tax-Free Fund Maril & Co.,
Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
7,923,959 shares (87.42%); and Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 863,247 shares (9.52%). Money Market
Fund Maril & Co., Milwaukee, Wisconsin, owned approximately 866,842,703 of the
Class A Shares of the Fund (67.75%); Miaz & Co., Milwaukee, Wisconsin, owned
approximately 84,492,287 of the Class A Shares of the Fund (6.60%); Pacific
Northwest Bank, Seattle, Washington, owned approximately 4,801,183 of the Class
B Shares of the Fund (5.32%); M & I BSS Appleton, Appleton, Wisconsin, owned
approximately 14,139,296 of the Class B Shares of the Fund (15.66%); M&I BSS
Madison, Appleton, Wisconsin, owned approximately 14,719,497 of the Class B
Shares of the Fund (16.30%); and M&I BSS Janesville, Appleton, Wisconsin, owned
approximately 11,846,156 of the Class B Shares of the Fund (13.12%).
<PAGE>
Directors' Compensation
NAME, AGGREGATE
POSITION WITH COMPENSATION
CORPORATION FROM CORPORATION*#
Edward C. Gonzales,
Chairman, Director, and Treasurer $ -0-
John DeVincentis, $ 11,000
Director
Ody J. Fish, $ 11,000
Director
Paul E. Hassett, $ 11,000 Director * Information is furnished for the fiscal
year ended August 31, 1997. The Corporation is the only investment company in
the Fund Complex. # The aggregate compensation is provided for the Corporation
which is comprised of eleven portfolios. Investment Advisory Services
Adviser to the Funds
The Funds' investment adviser is M&I Investment Management Corp. ("Adviser").
The Adviser shall not be liable to the Corporation, the Funds or any shareholder
of the Funds for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Corporation. Because of the internal controls maintained by the Adviser's
affiliates to restrict the flow of non-public information, Fund investments are
typically made without any knowledge of the Adviser or its affiliates' lending
relationships with an issuer. Advisory Fees
For the fiscal years ended August 31, 1997, 1996, and 1995, the Adviser
earned fees from Equity Income Fund of $1,964,826, $1,101,454, and $584,150,
respectively, of which $0, $0, and $69,757, respectively, were voluntarily
waived. For the fiscal years ended August 31, 1997, 1996, and 1995, the Adviser
earned fees from Large-Cap Growth & Income Fund of $1,877,032, $2,003,427, and
$1,813,889, , respectively, of which $0, $0, and $17,481 were voluntarily
waived. For the fiscal years ended August 31, 1997, 1996, and 1995, the Adviser
earned fees from Mid-Cap Value Fund of $1,245,668, $1,556,051, and $1,592,905,
respectively. For the fiscal years ended August 31, 1997, 1996, and 1995, the
Adviser earned fees from Mid-Cap Growth Fund of $1,288,819, $917,068, and
$585,271, respectively, of which $0, $0, and $64,161, respectively, were
voluntarily waived. For the fiscal year ended August 31, 1997, 1996, and for the
period from September 2, 1994 (date of initial public investment), to August 31,
1995, the Adviser earned fees from International Stock Fund of $1,857,261,
$1,179,310, and $727,503, respectively, of which $0, $0, and $31,759,
respectively, were voluntarily waived. For the period from September 3, 1996
(date of initial public investment) to August 31, 1997, the Adviser earned fees
from Small-Cap Growth Fund of $368,209. For the fiscal years ended August 31,
1997, 1996, and 1995, the Adviser earned fees from Short-Term Income Fund of
$736,245, $540,501, and $537,366, respectively, of which $429,010, $357,041, and
$355,637, respectively, were voluntarily waived. For the fiscal years ended
August 31, 1997, 1996, and 1995, the Adviser earned fees from Intermediate Bond
Fund of $2,440,381, $2,253,912, and $2,046,206, respectively, of which $346,194,
$338,087, and $272,827, respectively, were voluntarily waived. For the fiscal
years ended August 31, 1997, 1996, and 1995, the Adviser earned fees from
Government Income Fund of $1,304,960, $938,027, and $635,592, respectively, of
which $272,824, $243,416, and $216,611, respectively, were voluntarily waived.
For the fiscal years ended August 31, 1997, 1996, and 1995, the Adviser earned
fees from Intermediate Tax-Free Fund of $463,700, $314,337, and $243,850,
respectively, of which $238,359, $196,013, and $176,613, respectively, were
voluntarily waived. For the fiscal years ended August 31, 1997, 1996, and 1995,
the Adviser earned fees from Money Market Fund of $6,354,005, $5,636,051, and
$5,435,257, respectively, of which $3,304,082, $2,930,747, and $2,826,334,
respectively were voluntarily waived. Subadviser to International Stock Fund
Templeton Investment Counsel, Inc. ("TICI") is the subadviser to the
International Stock Fund under the terms of a Subadvisory Contract between the
Adviser and TICI. It is the Adviser's responsibility to select, subject to
review and approval by the Corporation's Directors, a subadviser for the
International Stock Fund that has distinguished itself in its area of expertise
in asset management and to review the subadviser's continued performance.
Subject to the supervision and direction of the Corporation's Directors, the
Adviser provides investment management evaluation services principally by
performing initial due diligence on TICI and thereafter monitoring TICI's
performance through quantitative and qualitative analysis, as well as periodic
in-person, telephonic and written consultations with TICI. In evaluating TICI,
the Adviser considers, among other factors, TICI's level of expertise; relative
performance and consistency of performance over a minimum period of time; level
of adherence to investment discipline or philosophy; personnel, facilities and
financial strength; and quality of service and client communications. The
Adviser has responsibility for communicating performance expectations and
evaluations to TICI and ultimately recommending to the Corporation's Directors
whether TICI's contract should be renewed, modified or terminated. The Adviser
provides written reports to the Directors regarding the results of its
evaluation and monitoring functions. The Adviser is also responsible for
conducting all operations of the International Stock Fund, except those
operations contracted to TICI, the custodian, the transfer agent, and the
administrator. Although TICI's activities are subject to oversight by the
Directors and officers of the Corporation, neither the Directors, the officers,
nor the Adviser evaluates the investment merits of TICI's individual security
selections. TICI has complete discretion to purchase, manage and sell portfolio
securities for the International Stock Fund, subject to the International Stock
Fund's investment objective, policies and limitations. However, TICI will
furnish to the Adviser such investment advice, statistical and other factual
information as may from time to time be reasonably requested by the Adviser.
TICI is a Florida corporation and an indirect wholly-owned subsidiary of
Franklin Resources, Inc. ("Franklin"), a publicly traded company whose shares
are listed on the New York Stock Exchange. Charles B. Johnson, Rupert H.
Johnson, Jr. and R. Martin Wiskemann are principal shareholders of Franklin and
own, respectively, approximately 20%, 16% and 10% of its outstanding shares.
Messrs. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Research
services may be provided to TICI by various affiliates, including Templeton,
Galbraith & Hansberger Ltd. and Templeton Quantitative Advisors, Inc.,
corporations registered under the Investment Advisers Act of 1940, and Templeton
Management Limited, a Canadian company. The research services include
information, analytical reports, computer screening studies, statistical data,
and factual resumes pertaining to securities in the United States and in various
foreign nations. Such supplemental research, when utilized, is subject to
analysis by TICI before being incorporated into the investment advisory process.
TICI pays these affiliates compensation and reimbursement of expenses as
mutually agreed upon, without cost to the Fund. These affiliates and TICI are
independent contractors and in no sense is any of them an agent for the other.
Any of them is free to discontinue such research services at any time on 30
days' notice without cost or penalty. It is understood that TICI may have
advisory, management, service or other contracts with other individuals or
entities, and may have other interests and businesses. When a security proposed
to be purchased or sold for the International Stock Fund is also to be purchased
or sold for other accounts managed by TICI at the same time, TICI shall make
such purchases or sales on a pro-rata, rotating or other equitable basis so as
to avoid any one account being preferred over any other account. Although this
may adversely affect the price the International Stock Fund pays or receives, or
the size of the position it obtains, it may also enable TICI to negotiate lower
transaction costs. For the fiscal years ended August 31, 1997 and 1996, and
for the period from September 2, 1994 (date of initial public investment), to
August 31, 1995, TICI earned fees from the International Stock Fund of $816,182,
$544,167, and $363,752, respectively, of which $0, $0, and $15,880,
respectively, were voluntarily waived.
<PAGE>
Other Services
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended August 31, 1997, 1996, and 1995, ,
Federated Administrative Services ("FAS") received fees from Equity Income Fund
of $227,695, $131,196, and $70,707, respectively. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Large-Cap Growth &
Income Fund of $217,817, $238,801, and $219,917. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Mid-Cap Value Fund of
$144,711, $185,501, and $193,180, respectively. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Mid-Cap Growth Fund of
$149,489, $109,258, and $70,878, respectively. For the fiscal years ended August
31, 1997 and 1996, and for the period from September 2, 1994 (date of initial
public investment), to August 31, 1995, FAS received fees from International
Stock Fund of $161,481, $108,298, and $66,944, respectively. For the period from
September 3, 1996 (date of initial public investment) to August 31, 1997, FAS
received fees from Small-Cap Growth Fund of $44,185. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Short-Term Income Fund
of $106,697, $80,507, and $81,509, respectively. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Intermediate Bond Fund
of $354,123, $335,733, and $310,184, respectively. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Government Income Fund
of $151,306, $111,760, and $77,015, respectively. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Intermediate Tax-Free
Fund of $67,231, $50,437, and $50,000, respectively, of which $0, $0, and
$13,052, respectively, were voluntarily waived. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from Money Market Fund of
$1,105,666, $1,007,572, and $988,602, respectively. Transfer Agent and
Dividend Disbursing Agent
Federated Services Company, Pittsburgh, Pennsylvania, through its registered
transfer agent, Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a fee based
on the size, type and number of accounts and transactions made by shareholders.
The fee is based on the level of the Funds' average net assets for the period
plus out-of-pocket expenses. The transfer agent may employ third parties,
including Marshall & Ilsley Trust Company, to provide sub-accounting and
sub-transfer agency services. In exchange for these services, the transfer agent
may pay such third-party providers a per account fee and out-of-pocket expenses.
Custodian
Marshall & Ilsley Trust Company ("M&I Trust Company"), Milwaukee, Wisconsin, a
subsidiary of Marshall & Ilsley Corp., is custodian for the securities and cash
of the Fund. For its services as custodian, M&I Trust Company receives an annual
fee, payable monthly, based on a percentage of a Fund's average aggregate daily
net assets. M&I Trust Company has entered into agreements with foreign
subcustodians approved by the Directors pursuant to Rule 17f-5 under the Act.
The foreign subcustodians may not hold certificates for the securities in their
custody, but instead have book records with domestic and foreign securities
depositories, which in turn have book records with the transfer agents of the
issuers of the securities. Compensation for the services of the foreign
subcustodians is based on a schedule of charges agreed on from time to time.
Independent Public Accountants
The Independent Public Accountants for the Funds are Arthur Andersen LLP.
<PAGE>
Shareholder Servicing Arrangements
For the fiscal year ended August 31, 1997, Federated Shareholder Services
Company ("FSSC") earned shareholder servicing fees of $649,476 from Equity
Income Fund. For the fiscal years ended August 31, 1996 and 1995, Marshall Funds
Investors Services ("MFIS") earned shareholder servicing fees of $29,372, and
$14,413, respectively, from Equity Income Fund. For the fiscal year ended August
31, 1997, FSSC earned shareholder servicing fees of $617,730 from Large-Cap
Growth & Income Fund. For the fiscal years ended August 31, 1996, and 1995, MFIS
earned shareholder servicing fees of $53,425, and $43,568, respectively, from
Large-Cap Growth & Income Fund. For the fiscal year ended August 31, 1997, FSSC
earned shareholder servicing fees of $409,065 from Mid-Cap Value Fund. For the
fiscal years ended August 31, 1996 and 1995, MFIS earned shareholder servicing
fees of $41,495, and $38,070, respectively, from Mid-Cap Value Fund. For the
fiscal year ended August 31, 1997, FSSC earned shareholder servicing fees of
$425,100 from Mid-Cap Growth Fund. For the fiscal years ended August 31, 1996
and 1995, MFIS earned shareholder servicing fees of $24,455 and $14,323,
respectively, from Mid-Cap Growth Fund. For the fiscal year ended August 31,
1997, FSSC earned shareholder servicing fees of $459,801 from International
Stock Fund. For the fiscal year ended August 31, 1996 and for the period from
September 2, 1994 (date of initial public investment), to August 31, 1995, MFIS
earned shareholder servicing fees of $23,586 and $13,349, respectively, from
International Stock Fund. For the period from September 3, 1996 (date of initial
public investment) to August 31, 1997, FSSC earned shareholder servicing fees of
$91,950 from Small-Cap Growth Fund. For the fiscal year ended August 31, 1997,
FSSC earned shareholder servicing fees of $303,595 from Short-Term Income Fund,
of which, $279,053 was voluntarily waived. For the fiscal years ended August 31,
1996 and 1995, MFIS earned shareholder servicing fees of $18,107 and $15,860,
respectively, from Short-Term Income Fund. For the fiscal year ended August 31,
1997, FSSC earned shareholder servicing fees of $1,004,126 from Intermediate
Bond Fund. For the fiscal years ended August 31, 1996 and 1995, MFIS earned
shareholder servicing fees of $75,130, and $61,234, respectively, from
Intermediate Bond Fund, of which, $922,780 was voluntarily waived. For the
fiscal year ended August 31, 1997, FSSC earned shareholder servicing fees of
$430,633 from Government Income Fund, of which, 395,834 was voluntarily waived.
For the fiscal years ended August 31, 1996 and 1995, MFIS earned shareholder
servicing fees of $25,014 and $15,385, respectively, for Government Income Fund.
For the fiscal year ended August 31, 1997, FSSC earned shareholder servicing
fees of $191,129 from Intermediate Tax-Free Fund, of which, $175,672 was
voluntarily waived. For the fiscal years ended August 31, 1996 and 1995, MFIS
earned shareholder servicing fees of $10,478 and $7,339, respectively, from
Intermediate Tax-Free Fund. For the fiscal years ended August 31, 1997, 1996,
and 1995, MFIS earned shareholder servicing fees of $254,160, $225,442, and
$194,970, respectively, from Money Market Fund.
Brokerage Transactions
The Adviser and/or TICI may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to a Fund, the
Adviser, or TICI and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. The
Adviser, TICI, and their affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided. Research services provided by brokers and dealers
may be used by the Adviser and TICI in advising the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
Adviser, TICI, or their affiliates might otherwise have paid, it would tend to
reduce their expenses. For the fiscal years ended August 31, 1997, 1996, and
1995, the Equity Income Fund paid $468,108, $221,712, and $137,799,
respectively, in brokerage commissions on brokerage transactions. For the fiscal
years ended August 31, 1997, 1996, and 1995, the Large-Cap Growth & Income Fund
paid $309,709, $918,703, and $369,668, respectively, in brokerage commissions on
brokerage transactions. For the fiscal years ended August 31, 1997, 1996, and
1995 the Mid-Cap Value Fund paid $364,246, $524,079, and $549,637, respectively,
in brokerage commissions on brokerage transactions. For the fiscal years ended
August 31, 1997, 1996, and 1995, the Mid-Cap Growth Fund paid $580,150,
$353,770, and $248,008, respectively, in brokerage commissions on brokerage
transactions. For the fiscal years ended August 31, 1997 and 1996, and for the
period from September 2, 1994 (date of initial public investment), to August 31,
1995, the International Stock Fund paid $340,030, $115,382, and
$276,073,respectively in brokerage commissions on brokerage transactions. For
the period from September 3, 1996 (date of initial public investment) to August
31, 1997, the Small-Cap Growth Fund paid $117,618 in brokerage commissions on
brokerage transactions. Purchasing Shares with Securities A Fund may accept
securities in exchange for its shares. A Fund will allow such exchanges only
upon the prior approval of the Fund and a determination by the Fund and its
adviser(s) that the securities to be exchanged are acceptable. Any securities
exchanged must meet the investment objective and policies of the Fund, must have
a readily ascertainable market value. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least equal to the
minimum investment in the Fund. Securities accepted by a Fund will be valued in
the same manner as the Fund values its assets. The basis of the exchange will
depend on the net asset value of Fund shares on the day the securities are
valued. One share of the Fund will be issued for the equivalent amount of
securities accepted. Any interest earned on the securities prior to the exchange
will be considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities become the property of
the Fund, along with the securities. If an exchange is permitted, it will be
treated as a sale for federal income tax purposes. Depending upon the cost basis
of the securities exchanged for Fund shares, a gain or loss may be realized by
the investor. Distribution Plan The Corporation has adopted a plan for the
International Stock Fund, Small-Cap Growth Fund, and for Class B Shares of the
Money Market Fund ("Plan Shares") pursuant to Rule 12b-1 (the "Plan") which was
promulgated by the Securities and Exchange Commission pursuant to the Act. The
Plan provides that the Funds' distributor, Federated Securities Corp., shall act
as the distributor of Plan Shares, and it permits the payment of fees to
brokers, dealers and administrators for distribution and/or administrative
services. The Plan is designed to (i) stimulate brokers, dealers and
administrators to provide distribution and/or administrative support services to
the Funds and holders of Plan Shares. These services are to be provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals, and include, but are not limited to: providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer, as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investment of client account cash balances; answering
routine client inquiries regarding the Plan Shares; assisting clients in
changing dividend options, account designations, and addresses; and providing
such other services as the Funds reasonably request. Other benefits which the
Funds hope to achieve through the Plan include, but are not limited to, the
following: (1) an efficient and effective administrative system; (2) a more
efficient use of assets of holders of Plan Shares by having them rapidly
invested in the Funds with a minimum of delay and administrative detail; and (3)
an efficient and reliable records system for holders of Plan Shares and prompt
responses to shareholder requests and inquiries concerning their accounts. By
adopting the Plan, the Directors expect that the Funds will be able to achieve a
more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Funds in
seeking to achieve their investment objectives. By identifying potential
investors in Plan Shares whose needs are served by the Funds' objectives and
properly servicing these accounts, the Funds may be able to curb sharp
fluctuations in rates of redemptions and sales. Currently, no fee is being
accrued for the International Stock Fund or the Small-Cap Growth Fund. For the
fiscal year ended August 31, 1997, the Money Market Fund paid $306,798 to the
distributor on behalf of the Class B Shares. Determining Market Value Use of
the Amortized Cost Method (Money Market Fund only)
The Directors have decided that the best method for determining the value of
portfolio instruments for the Money Market Fund is amortized cost. Under this
method, portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Money Market Fund's use of the amortized cost method of
valuing portfolio instruments depends on its compliance with the provisions of
Rule 2a-7 (the "Rule") promulgated by the Securities and Exchange Commission
under the Act. Under the Rule, the Directors must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective. Under the Rule,
the Money Market Fund is permitted to purchase instruments which are subject to
demand features or standby commitments. As defined by the Rule, a demand feature
entitles the Fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding 397 days on no more than 30 days' notice. A standby
commitment entitles the Fund to achieve same-day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise. The Money Market Fund acquires
instruments subject to demand features and standby commitments to enhance the
instrument's liquidity. The Fund treats demand features and standby commitments
as part of the underlying instruments, because the Fund does not acquire them
for speculative purposes and cannot transfer them separately from the underlying
instruments. Therefore, although the Fund defines demand features and standby
commitments as "puts," the Fund does not consider them to be corporate
investments for purposes of its investment policies. Monitoring Procedures. The
Directors' procedures include monitoring the relationship between the amortized
cost value per share and the net asset value per share based upon available
indications of market value. The Directors will decide what, if any, steps
should be taken if there is a difference of more than 0.5 of 1% between the two
values. The Directors will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to minimize any
material dilution or other unfair results arising from differences between the
two methods of determining net asset value. Investment Restrictions. The Rule
requires that the Money Market Fund limit its investments to instruments that,
in the opinion of the Directors, present minimal credit risks and have received
the requisite rating from one or more NRSROs. If the instruments are not rated,
the Directors must determine that they are of comparable quality. The Rule also
requires the Fund to maintain a dollar-weighted average portfolio maturity (not
more than 90 days) appropriate to the objective of maintaining a stable net
asset value of $1.00 per share. In addition, no instrument with a remaining
maturity of more than 397 days can be purchased by the Fund. Should the
disposition of a portfolio security result in a dollar-weighted average
portfolio maturity of more than 90 days, the Money Market Fund will invest its
available cash to reduce the average maturity to 90 days or less as soon as
possible. Shares of investment companies purchased by the Fund will meet these
same criteria and will have investment policies consistent with Rule 2a-7. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio. In periods of declining interest rates, the indicated daily
yield on shares of the Money Market Fund, computed based upon amortized cost
valuation, may tend to be higher than a similar computation made by using a
method of valuation based upon market prices and estimates. In periods of rising
interest rates, the indicated daily yield on shares of the Fund computed the
same way may tend to be lower than a similar computation made by using a method
of calculation based upon market prices and estimates. Market Values (All Other
Funds)
Market values of portfolio securities of Funds other than the Money Market Fund
are determined as follows:
o for domestic equity securities and foreign securities, according to the
last reported sales price on a recognized securities exchange, if available;
o in the absence of recorded sales for domestic equity securities,
according to the mean between the last closing bid and asked prices;
o in the absence of reported sales prices for foreign securities or if
the foreign security is traded over-the-counter, according to the last
reported bid price;
o for domestic bonds and other fixed income securities, at the last
sales price on a national securities exchange if available, otherwise
as determined by an independent pricing service;
o for domestic short-term obligations, according to the mean between bid
and asked price as furnished by an independent pricing service;
o for short-term obligations with remaining maturities of less than 60
days at the time of purchase, at amortized cost, which approximates
fair value; or
o at fair value as determined in good faith by the Directors.
If a security is traded on more than one exchange, the price on the primary
market for that security, as determined by the Fund's adviser or subadviser, is
used. Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data. The Funds will value
futures contracts, and options on stocks, stock indices and futures contracts at
their market values established by the exchanges at the close of option trading
on such exchanges unless the Directors determine in good faith that another
method of valuing these positions is necessary. Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing its net asset value, the
International Stock Fund values foreign securities at the latest closing price
on the exchange on which they are traded immediately prior to the closing of the
New York Stock Exchange. Certain foreign currency exchange rates may also be
determined at the latest rate prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into
U.S. dollars at current rates. Occasionally, events that affect these values and
exchange rates may occur between the times at which they are determined and the
closing of the New York Stock Exchange. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Directors, although the actual
calculation may be done by others. Redemption in Kind Although the Corporation
intends to redeem shares in cash, it reserves the right under certain
circumstances to pay the redemption price in whole or in part by a distribution
of securities from a Fund's portfolio. To the extent available, such securities
will be readily marketable. Redemption in kind will be made in conformity with
applicable Securities and Exchange Commission rules, taking such securities at
the same value employed in determining net asset value and selecting the
securities in a manner the Directors determine to be fair and equitable. The
Corporation has elected to be governed by Rule 18f-1 under the Act, which
obligates the Corporation to redeem shares for any one shareholder in cash only
up to the lesser of $250,000 or 1% of a Fund's net asset value during any 90-day
period. Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their securities
and could incur transaction costs. Banking Laws Banking laws and regulations
presently prohibit a bank holding company registered under the federal Bank
Holding Company Act of 1956 or any bank or non-bank affiliate thereof from
sponsoring, organizing, controlling or distributing the shares of a registered,
open-end management investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from issuing, underwriting, or
distributing securities. However, such banking laws and regulations do not
prohibit such a holding company, affiliate, or banks generally from acting as
investment adviser, transfer agent or custodian to such an investment company or
from purchasing shares of such a company as agent for and upon the order of such
a customer. M&I Corp. is subject to such banking laws and regulations.
M&I Corp. believes, based on the advice of its counsel, that M&I Investment
Management Corp. may perform the services contemplated by the investment
advisory agreement with the Corporation without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. Changes in either federal
or state statutes and regulations relating to the permissible activities of
banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such present or future statutes
and regulations, could prevent M&I Investment Management Corp. or M&I Corp. from
continuing to perform all or a part of the services described in the prospectus
for its customers and/or the Fund. If M&I Investment Management Corp. and M&I
Corp. were prohibited from engaging in these activities, the Directors would
consider alternative advisers and means of continuing available investment
services. In such event, changes in the operation of the Fund may occur,
including possible termination of any automatic or other Fund share investment
and redemption services then being provided by M&I Investment Management Corp.
and M&I Brokerage Services or MFIS. It is not expected that existing
shareholders would suffer any adverse financial consequences if another adviser
with equivalent abilities to M&I Investment Management Corp. is found as a
result of any of these occurrences.
Tax Status
The Funds' Tax Status
The Funds will pay no federal income tax because each Fund expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, each Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
There are tax uncertainties with respect to whether increasing rate securities
will be treated as having an original issue discount. If it is determined that
the increasing rate securities have original issue discount, a holder will be
required to include as income in each taxable year, in addition to interest paid
on the security for that year, an amount equal to the sum of the daily portions
of original issue discount for each day during the taxable year that such holder
holds the security. There may also be tax uncertainties with respect to whether
an extension of maturity on an increasing rate note will be treated as a taxable
exchange. In the event it is determined that an extension of maturity is a
taxable exchange, a holder will recognize a taxable gain or loss, which will be
a short-term capital gain or loss if the holder holds the security as a capital
asset, to the extent that the value of the security with an extended maturity
differs from the adjusted basis of the security deemed exchanged therefor.
Foreign Taxes
Investment income on certain foreign securities may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which a Fund would be subject. However,
if a Fund may invest in the stock of certain foreign corporations that
constitute a Passive Foreign Investment Company (PFIC), then federal income
taxes may be imposed on a Fund upon disposition of PFIC investments.
Shareholders' Tax Status
The dividends received deduction for corporations will apply to ordinary income
distributions to the extent the distribution represents amounts that would
qualify for the dividends received deduction to the Equity Funds if the Equity
Funds were a regular corporation, and to the extent designated by the Equity
Funds as so qualifying. Otherwise, these dividends and any short-term capital
gains are taxable as ordinary income. No portion of any income dividends paid by
the other Funds is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income. Capital Gains
Capital gains, when experienced by the Fund, could result in an increase in
dividends. Capital losses could result in a decrease in dividends. When a Fund
realizes net long-term capital gains, it will distribute them at least once
every 12 months. Total Return The average annual total return for a Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at the
end of the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the period
by any additional shares, assuming the quarterly reinvestment of any dividends
and distributions. Cumulative total return reflects a Fund's total performance
over a specific period of time. Equity Income Fund's average annual total
returns for the one-year period ended August 31, 1997 and for the period from
October 1, 1993 (date of initial public investment), to August 31, 1997 were
30.95% and 17.54%, respectively. Large-Cap Growth & Income Fund's average annual
total returns for the one-year period ended August 31, 1997 and for the period
from November 23, 1992 (date of initial public investment), to August 31, 1997
were 34.50% and 12.95%, respectively. Mid-Cap Value Fund's average annual total
returns for the one-year period ended August 31, 1997 and for the period from
September 30, 1993 (date of initial public investment), to August 31, 1997 were
30.20% and 15.75%, respectively. Mid-Cap Growth Fund's average annual total
returns for the one-year period ended August 31, 1997 and for the period from
October 1, 1993 (date of initial public investment), to August 31, 1997 were
19.14% and 15.35%, respectively. International Stock Fund's average annual total
returns for the one-year period ended August 31, 1997 and for the period from
September 2, 1994 (date of initial public investment), to August 31, 1997 were
22.73% and 11.87%, respectively. Small-Cap Growth Fund's average annual total
returns for the one-year period ended August 31, 1997 and for the period from
November 1, 1995 (inception date of collective trust fund) to August 31, 1996
were 21.90% and 46.92%, respectively. Short-Term Income Fund's average annual
total returns for the one-year period ended August 31, 1997 and for the period
from November 2, 1993 (date of initial public investment) to August 31, 1997
were 7.20% and 4.99%, respectively. Intermediate Bond Fund's average annual
total returns for the one-year period ended August 31, 1997 and for the period
from November 23, 1992 (date of initial public investment), to August 31, 1997
were 8.42% and 5.46%, respectively. Government Income Fund's average annual
total returns for the one-year period ended August 31, 1997 and for the period
from December 14, 1992 (date of initial public investment) to August 31, 1997
were 7.68% and 5.90%, respectively. Intermediate-Tax-Free Fund's average annual
total returns for the one-year period ended August 31, 1997 and for the period
from February 2, 1994 (date of initial public investment), to August 31, 1997
were 6.67% and 4.39%, respectively.
The quoted performance data for the Small-Cap Growth Fund includes the
performance of a predecessor collective trust fund for periods before the Fund's
registration statement became effective on August 30, 1996, as adjusted to
reflect the Fund's 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 that are imposed by the 1940 Act. If the
collective trust fund had been registered under the 1940 Act, the performance
may have been adversely affected.
Yield
The Money Market Fund calculates the yield for both classes of shares daily,
based upon the seven days ending on the day of the calculation, called the "base
period." This yield is computed by:
o determining the net change in the value of a hypothetical account with
a balance of one Share at the beginning of the base period, with the
net change excluding capital changes but including the value of any
additional Shares purchased with dividends earned from the original one
Share and all dividends declared on the original and any purchased
shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by 365/7.
The Money Market Fund's yield for Class A Shares for the seven-day period
ended August 31, 1997, was 5.38%. The Fund's yield for Class B Shares was 5.08%
for the same period. The yield for the other Funds is determined by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the Fund over a thirty-day period by the offering
price per share of the Fund on the last day of the period. This value is
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a twelve-month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by the Fund because of certain
adjustments required by the Securities and Exchange Commission and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.
Equity Income Fund's yield for the 30-day period ended August 31, 1997, was
2.10%. Large-Cap Growth Fund's yield for the 30-day period ended August 31,
1997, was .51%. Mid-Cap Value Fund's yield for the 30-day period ended August
31, 1997, was 0.63%. Mid-Cap Growth Fund's yield for the 30-day period ended
August 31, 1997, was 0%. International Stock Fund's yield for the 30-day period
ended August 31, 1997 was 0.00%. Small-Cap Growth Fund's yield for the 30-day
period ended August 31, 1997 was 0.00%. Short-Term Income Fund's yield for the
30-day period ended August 31, 1997, was 6.43%. Intermediate Bond Fund's yield
for the 30-day period ended August 31, 1997, was 6.08%. Government Income Fund's
yield for the 30-day period ended August 31, 1997, was 6.20%. Intermediate
Tax-Free Fund's yield for the 30-day period ended August 31, 1997, was
3.98%. To the extent that financial institutions and broker/dealers charge
fees in connection with services provided in conjunction with an investment in a
Fund, performance will be reduced for those shareholders paying those fees.
Effective Yield (Money Market Fund only) The Money Market Fund's effective
yield for both classes of shares is computed by compounding the unannualized
base period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result. The Money Market Fund's
effective yield for Class A Shares for the seven-day period ended August 31,
1997, was 5.52%. The Money Market Fund's effective yield for Class B Shares was
5.21% for the same period. Tax-Equivalent Yield (Intermediate Tax-Free Fund
only) The tax-equivalent yield of the Intermediate Tax-Free Fund is
calculated similarly to the yield, but is adjusted to reflect the taxable yield
that these Funds would have had to earn to equal its actual yield, assuming a
39.6% tax rate (the maximum marginal federal rate for individuals) and assuming
that income is 100% tax-exempt. The Intermediate Tax-Free Fund's tax-equivalent
yield for the 30-day period ended August 31, 1997 was 6.59%. Tax-Equivalency
Table
The Intermediate Tax-Free Fund may also use a tax-equivalency table in
advertising and sales literature. The interest earned by the municipal bonds in
the Fund's portfolio generally remains free from federal income tax* and is
often free from state and local taxes as well. As the table on the next page
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable yields.
<PAGE>
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
<S> <C> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $41,201 $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 271,050
Tax-Exempt
Yield Taxable Yield Equivalent
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions. The
chart above is for illustrative purposes only. It is not an indicator of past or
future performance of Fund shares. *Some portion of the Intermediate Tax-Free
Fund's income may be subject to the federal alternative minimum tax and state
and local income taxes. Performance Comparisons A Fund's performance depends
upon such variables as: portfolio quality; average portfolio maturity; type of
instruments in which the portfolio is invested; changes in interest rates and
market value of portfolio securities; changes in Fund or class expenses; the
relative amount of Fund cash flow; and various other factors. Investors may use
financial publications and/or indices to obtain a more complete view of a Fund's
performance. When comparing performance, investors should consider all relevant
factors such as the composition of any index used, prevailing market conditions,
portfolio compositions of other funds, and methods used to value portfolio
securities and compute offering price. The financial publications and/or indices
which the Fund uses in advertising may include:
o Morgan Stanley Capital International Europe, Australia And Far East
Index (EAFE) is a market capitalization weighted foreign securities
index, which is widely used to measure the performance of European,
Australian and New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the
above regions. The index values its securities daily in both U.S.
dollars and local currency and calculates total returns monthly. EAFE
U.S. dollar total return is a net dividend figure less Luxembourg
withholding tax. The EAFE is monitored by Capital International, S.A.,
Geneva, Switzerland.
<PAGE>
o Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, a Fund will quote its
Lipper ranking in advertising and sales literature.
o Consumer Price Index is generally considered to be a measure of
inflation.
o Dow Jones Industrial Average ("DJIA") is an unmanaged index
representing share prices of major industrial corporations, public
utilities, and transportation companies. Produced by the Dow Jones &
Company, it is cited as a principal indicator of market conditions.
o Standard & Poor's Daily Stock Price Index Of 500 Common Stocks, a
composite index of common stocks in industry, transportation,
financial, and public utility companies. The Standard & Poor's index
assumes reinvestment of all dividends paid by stocks listed on the
index. Taxes due on any of these distributions are not included, nor
are brokerage or other fees calculated in the Standard & Poor's
figures.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
o Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are an average of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
o Donoghue's Money Fund Report publishes annualized yields of over 300
taxable money market funds on a weekly basis and through its Money
Market Insight publication reports monthly and 12 month-to-date
investment results for the same money funds.
o The S&P/BARRA Value Index and the S&P/BARRA Growth Index are
constructed by Standard & Poor's and BARRA, Inc., an investment
technology and consulting company, by separating the S&P 500 Index into
value stocks and growth stocks. The S&P/BARRA Growth and S&P/BARRA
Value Indices are constructed by dividing the stocks in the S&P 500
Index according to their price-to-book ratios. The S&P/BARRA Growth
Index, contains companies with higher price-to-earnings ratios, low
dividends yields, and high earnings growth (concentrated in
electronics, computers, health care, and drugs). The Value Index
contains companies with lower price-to-book ratios and has 50% of the
capitalization of the S&P 500 Index. These stocks tend to have lower
price-to-earnings ratios, high dividend yields, and low historical and
predicted earnings growth (concentrated in energy, utility and
financial sectors). The S&P/BARRA Value and S&P/BARRA Growth Indices
are capitalization-weighted and rebalanced semi-annually. Standard &
Poor's/BARRA calculates these total return indices with dividends
reinvested.
o Standard & Poor's Midcap 400 Stock Price Index, a composite index of
400 common stocks with market capitalizations between $200 million and
$7.5 billion in industry, transportation, financial, and public utility
companies. The Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees
calculated in the Standard & Poor's figures.
o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking
short-term U.S. government securities with maturities between 1 and
2.99 years. The index is produced by Merrill Lynch, Pierce, Fenner &
Smith, Inc.
o Merrill Lynch Corporate Master is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better.
These quality parameters are based on the composites of ratings
assigned by Standard & Poor's Corporation and Moody's Investors
Service, Inc. Only bonds with a minimum maturity of one year are
included.
o Merrill Lynch 1-Year Treasury Bill Index is comprised of the most
recently issued one-year U.S. Treasury bills. Index returns are
calculated as total returns for periods of one, three, six and twelve
months as well as year-to-date.
o Merrill Lynch Corporate A-Rated (1-3 Year) Bond Index is a universe of
corporate bonds and notes with maturities between 1-3 years and rated
A3 or higher.
o Lehman Brothers Government/Corporate (Total) Index is comprised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporation; and
publicly issued, fixed rate, non-convertible domestic bonds of
companies in industry, public utilities, and finance. The average
maturity of these bonds approximates nine years. Traced by Lehman
Brothers, Inc., the index calculates total return for one-month,
three-month, twelve-month, and ten-year periods and year-to-date.
o Lehman Brothers Intermediate Government/Corporate Bond Index is a
universe of government and corporate bonds rated BBB or higher with maturities
between 1-10 years.
o The Salomon Brothers Total Rate-of-Return Index for mortgage pass
through securities reflects the entire mortgage pass through market and
reflects their special characteristics. The index represents data
aggregated by mortgage pool and coupon within a given sector. A market
weighted portfolio is constructed considering all newly created pools
and coupons.
o The Merrill Lynch Taxable Bond Indices include U.S. Treasury and agency
issues and were designed to keep pace with structural changes in the
fixed income market. The performance indicators capture all rating
changes, new issues, and any structural changes of the entire market.
o Lehman Brothers Mortgage-Backed Securities Index is a universe of fixed
rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC),
and Federal National Mortgage Association (FNMA).
o Lehman Brothers Five-Year State General Obligations Bonds is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as
year-to-date. Total returns are also calculated as of the index
inception, December 31, 1979.
Investors may also consult the fund evaluation consulting universes listed
below. Consulting universes may be composed of pension, profit sharing,
commingled, endowment/foundation, and mutual funds. o Fiduciary Consulting
Grid Universe, for example, is composed of over 1,000 funds, representing
350 different investment managers, divided into subcategories based on
asset mix. The funds are ranked quarterly
based on performance and risk characteristics.
o SEI Data Base for equity funds includes approximately 900 funds,
representing 361 money managers, divided into fund types based on
investor groups and asset mix. The funds are ranked every three, six,
and twelve months.
o Mercer Meidinger, Inc. compiles a universe of approximately 600 equity
funds, representing about 500 investment managers, and updates their
rankings each calendar quarter as well as on a one, three, and five
year basis.
o Russell 1000 Growth Index consists of those Russell 2000 securities
with a greater-than-average growth orientation. Securities in this
index tend to exhibit higher price-to-book and price-earnings ratios,
lower dividend yields and higher forecasted growth rates.
o Russell 2000 Index is a broadly diversified index consisting of
approximately 2,000 small capitalization common stocks that can be
used to compare to the total returns of funds whose portfolios are
invested primarily in small capitalization common stocks.
o Standard & Poor's Ratings Group Small Stock Index is a broadly
diversified index consisting of approximately 600 small capitalization
common stocks that can be used to compare to the total returns of
funds whose portfolios are invested primarily in small capitalization
common stocks.
o Bank Rate Monitor National Index, Miami Beach, Florida, is a financial
reporting service which publishes weekly average rates of 50 leading
bank and thrift institution money market deposit accounts. The rates
published in the index are an average of the personal account rates
offered on the Wednesday prior to the date of publication by ten of the
largest banks and thrifts in each of the five largest Standard
Metropolitan Statistical Areas. Account minimums range upward from
$2,500 in each institution and compounding methods vary. If more than
one rate is offered, the lowest rate is used. Rates are subject to
change at any time specified by the institution.
Advertising and other promotional literature may include charts, graphs and
other illustrations using a Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding, dollar
cost averaging, and systematic investment. In addition, a Fund can compare its
performance, or performance for the types of securities in which it invests, to
a variety of other investments, such as bank savings accounts, certificates of
deposit, and Treasury bills. Economic and Market Information
Advertising and sales literature for a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect a Fund. In addition, advertising and sales literature may quote
statistics and give general information about mutual fund industry, including
the growth of the industry, from sources such as the Investment Company
Institute ("ICI"). For example, according to the ICI, twenty-seven percent of
American households are pursuing their financial goals through mutual funds.
These investors, as well s business and institutions, have entrusted over $3
trillion to the more than 5,500 mutual funds available. Financial Statements
The financial statements for the fiscal year ended August 31, 1997, are
incorporated herein by reference from the Funds' Annual Report dated August 31,
1997 (File Nos. 33-48907 and 811-58433). A copy of the Annual Report for a Fund
may be obtained without charge by contacting Marshall Funds Investor Services at
the address located on the back cover of the combined prospectus or by calling
Marshall Funds Investor Services at 1-414-287-8555 or 1-800-FUND (3863).
<PAGE>
Appendix
Standard and Poor's Ratings Group Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. NR--Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. PLUS (+) OR
MINUS (-):--The ratings from AA to BBB may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Moody's Investors Service, Inc. Corporate Bond Ratings AAA--Bonds which are
rated Aaa are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Aa--Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group, they comprise what
are generally known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. A--Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa--Bonds which are rated Baa are considered
as medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. NR--Not rated by Moody's. Fitch Investors Service, Inc.
Long-Term Debt Ratings AAA--Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA--Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. A--Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. BBB--Bonds
considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. NR--NR indicates that Fitch does not rate the specific issue. Standard
and Poor's Ratings Group Commercial Paper Ratings A-1--This designation
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. The issues determined to possess overwhelming
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1. Moody's Investors Services, Inc. Commercial Paper Ratings P-1--Issuers
rated PRIME-1 (for related supporting institutions) have a superior capacity for
repayment of short-term promissory obligations. PRIME-1 repayment capacity will
normally be evidenced by the following characteristics: conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges and
high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity. P-2--Issuers rated
PRIME-2 (for related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained. Fitch Investors
Service, Inc. Short-Term Ratings F-1+--(Exceptionally Strong Credit Quality).
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment. F-1--(Very Strong Credit Quality). Issues assigned
to this rating reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+. F-2--(Good Credit Quality). Issues carrying this
rating have a satisfactory degree of assurance for timely payment but the margin
of safety is not as great as the F-1+ and F-1 categories. Standard and Poor's
Ratings Group Municipal Bond Ratings AAA -- Debt rated AAA has the highest
rating assigned by Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong. AA -- Debt rated AA has a very strong capacity to
pay interest and repay principal and differs from the higher rated issues only
in small degree. A -- Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher rated
categories. BBB- Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories. NR -- NR
indicates that no public rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy. Plus (+) or minus (-): The
ratings "AA" and "A" may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories. Moody's Investors
Service, Inc. Municipal Bond Ratings Aaa -- Bonds which are rated Aaa are judged
to be of the best quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues. Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities. A
- -- Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future. Baa- Bonds
which are rated Baa are considered as medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well. NR -- Not rated by Moody's. Moody's
applies numerical modifiers, 1, 2 and 3 in the generic rating classification of
"Aa" and "A" in its corporate or municipal bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Standard and Poor's Corporation Municipal Note Ratings SP-1 -- Very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus (+)
designation. SP-2 -- Satisfactory capacity to pay principal and interest.
Moody's Investors Service, Inc. Short-Term Debt Ratings MIG1/VMIG1 -- This
designation denotes best quality. There is a present strong protection by
established cash flows, superior liquidity support or demonstrated broad based
access to the market for refinancing. MIG2/VMIG2 -- This designation denotes
high quality. Margins of protection are ample although not so large as in the
preceding group.
G00714-02 (10/97)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: (1-11) The Financial Statements for te fiscal
year ended August 31, 1997 are hereby incorporatd by reference from the
Funds' Annual Report dated August 31, 1997.
(b) Exhibits:
(1) Conformed copy of Articles of Incorporation of the Registrant (8.); (i)
Conformed copy of Amendment No. 1 to the Articles of Incorporation (8.);
(ii) Conformed copy of Amendment No. 2 to the Articles of Incorporation (8.);
(iii) Conformed copy of Amendment No. 3 to the Articles of Incorporation (8.);
(iv) Conformed copy of Amendment No. 4 to the Articles of Incorporation (6.);
(v) Conformed copy of Amendment No. 5 to the Articles of Incorporation (8.);
(vi) Conformed copy of Amendment No. 6 to the Articles of Incorporation (12.);
(vii) Conformed copy of Amendment No. 7 to the Articles of Incorporation (14.);
(2) Copy of By-Laws of the Registrant (8.);
(3) Not applicable;
(4) Copy of Specimen Certificates for Shares of Capital Stock of the
Marshall Mid-Cap Growth Fund, Marshall Large-Cap Growth & Income Fund,
Marshall Mid-Cap Value Fund, and Marshall Small-Cap
Growth Fund (16.);
(5) Conformed copy of Investment Advisory Contract of the Registrant
(4.); (i) Conformed copy of Exhibit G of the Investment Advisory
Contract (5.);
(ii) Conformed copy of Exhibit H of the Investment Advisory Contract
(5.); (iii) Conformed copy of Exhibit I of the Investment Advisory
Contract (5.);
(iv) Conformed copy of Exhibit J of the Investment Advisory
Contract (5.);
- ----------------
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos. 33-48907
and 811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-48907
and 811-7047).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed October 21, 1994. (File Nos. 33- 48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047). 14. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 17 on Form N-1A filed August 30, 1996. (File
Nos. 33-48907 and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33-48907
and 811-7047).
<PAGE>
(v) Conformed copy of Exhibit K of the
Investment Advisory Contract (7.); (vi)
Conformed copy of Exhibit L of the Investment
Advisory Contract (7.);
(vii) Conformed copy of Exhibit M of the
Investment Advisory Contract; (12.); (viii)
Conformed copy of Federated Management
Sub-Advisory Agreement with the Registrant
(7.);
(ix) Conformed copy of Templeton Investment
Counsel, Inc., Sub-Advisory Agreement with
the M & I Investment Management, Inc.(9.);
(x) Conformed copy of Exhibit N to the
Investment Advisory Contract (14);
(6) (i) Conformed copy of Distributor's Contract
of the Registrant, including conformed
copies of Exhibits A through J; (12.); (ii)
Conformed copy of Exhibit K of the
Distributor's Contract (15.);
(7) Not applicable;
(8) (i) Conformed copy of Custodian Contract of
the Registrant (7.); (ii) Copy of Amendment
No. 1 to Schedule A of the Sub-Custodian
Agreement (16.); (iii) Copy of Amendment No.
2 to Schedule A of the Sub-Custodian
Agreement (16.); (iv) Copy of Amendment No.
3 to Schedule A of the Sub-Custodian
Agreement; +
(v) Conformed copy of Sub-Transfer Agency and
Services Agreement (10.);
(9) (i) Conformed copy of Fund Accounting and
Shareholder Recordkeeping Agreement of the
Registrant (11.); (ii) Conformed copy of
Amendment No. 1 to Schedule A of Fund
Accounting and Shareholder Recordkeeping
Agreement (15.);
- ------------------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 10 on Form N-1A filed July 1, 1994. (File Nos. 33-48907 and
811-7047).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33-48907
and 811-7047).
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047).
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed August 30, 1996. (File Nos. 33-48907
and 811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33-48907
and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33-48907
and 811-7047).
<PAGE>
(iii) Conformed copy of Amendment No. 2 to Schedule A of Fund Accounting and
Shareholder Recordkeeping Agreement (16.);
(iv) Conformed copy of Amendment No. 1 to Schedule C of Fund Accounting and
Shareholder Recordkeeping Agreement (15.);
(v) Conformed copy of Annex 1 to Amendment No. 2 to Schedule C of Fund
Accounting and Shareholder Recordkeeping Agreement (16.); (vi) Conformed copy of
Administrative Services Agreement (7.); (vii) Conformed copy of Amendment No. 1
to Administrative Services Agreement (15.); (viii) Conformed copy of Amendment
No. 2 to Administrative Services Agreement (16.);
(ix) Conformed copy of Shareholder Services Agreement of the Registrant on
behalf of
.........Marshall Equity Income Fund, Marshall Government Income Fund, Marshall
Intermediate Bond Fund, Marshall ........ Intermediate Tax-Free Fund,
Marshall International Stock Fund, Marshall Mid-Cap
Stock Fund, Marshall Money Market Fund, .... Marshall Short-Term Income Fund,
Marshall Short-Term Tax-Free Fund, Marshall Stock
Fund, and Marshall Value Equity Fund (4.);
(x) Conformed copy of Amendment No. 1 to Schedule A of the Shareholder
Services Agreement (6.);
(xi) Conformed copy of Amendment No. 2 to Schedule A of the Shareholder
Services Agreement (7.);
(xii) Conformed copy of Amendment No. 3 to Schedule A of the Shareholder
Services Agreement (12.); (xiii) Copy of Amendment No. 1 to Schedule B of the
Shareholder Services Agreement (11.);
(xiv) Conformed copy of Marshall Funds, Inc. Multiple Class Plan (Marshall
Money Market Fund Class A Shares and Class B Shares) (11.);
- ------------------------
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos. 33-48907
and 811-7047).
7. Response is incorporated by reference to Registrant's Post- Effective
Amendment No. 10 on Form N-1A filed July 1, 1994. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-48907
and 811-7047).
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed June 17, 1996. (File Nos. 33- 48907 and
811-7047).
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed December 18, 1996. (File Nos. 33-48907
and 811-7047).
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed August 26, 1997. (File Nos. 33-48907
and 811-7047).
<PAGE>
(xiv) Conformed copy of new Shareholder Services Agreement between the
Registrant and Marshall & Ilsley Trust Company on behalf of
Marshall .................Equity Income Fund, Marshall Government Income
Fund, Marshall Intermediate Bond Fund, Marshall
Intermediate Tax-Free Fund, Marshall ...International Stock Fund,
Marshall Mid-Cap Stock Fund, Marshall Short-Term Income Fund,
Marshall Small-Cap Stock Fund, Marshall Stock Fund, and Marshall
Value Equity Fund (15.); (10) Conformed copy of Opinion and
Consent of Counsel as to legality of shares being
registered (4.); (11) Conformed Copy of Consent of
Independent Public Accountants; + (12) Not applicable; (13)
Conformed copy of Initial Capital
Understanding (11.);
(14) Not applicable;
(15) (i) Conformed copy of Distribution Plan (4.);
(ii) Conformed copy of Exhibit B of Distribution
Plan (9.); (iii) Conformed copy of Exhibit A of
Distribution Plan (11.); (iv) Form of 12b-1
Agreement through and including Exhibit B (11.);
(v) Copy of Exhibit C to Rule 12b-1 Agreement of
the Registrant (13.); (vi) Conformed copy of
Exhibit C to the Distribution Plan of the
Registrant (15.);
(16) (i) Conformed copy of Schedule for Computation
of Fund Performance Data (6.);
(ii) Copy of Schedule for Computation of Fund
Performance Data for Marshall
International Stock Fund (10.);
(iii) Copy of Schedule for Computation of Fund
Performance Data for Marshall Small-Cap
Stock Fund (15.);
(17) Copy of Financial Data Schedules; +
(18) Not Applicable;
- -------------
+ All Exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 23, 1993. (File Nos. 33-48907 and
811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos.33- 48907
and 811-7047).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 21, 1994. (File Nos. 33-48907
and 811-7047.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed April 3, 1995. (File Nos. 33-48907 and
811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1995. (File Nos. 33-48907
and 811-7047).
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed July 9, 1996. (File Nos. 33- 48907 and
811-7047). 15. Response is incorporated by reference to Registrant's
Post-Effective Amendment No. 19 on Form N-1A filed December 18, 1996. (File
Nos. 33- 48907 and 811-7047).
<PAGE>
(19) (i) Conformed copy of Power of Attorney (11.);
(ii) Conformed copy of Power of Attorney dated
December 27, 1993 with respect to James F.Duca, II, President
of the Corporation
(6.);
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of October 6, 1997_____
Shares of capital stock
Marshall Intermediate Bond Fund 350
Marshall Government Income Fund 1,599
Marshall Money Market Fund
Class A Shares 3,261
Marshall Money Market Fund
Class B Shares 1,708
Marshall Short-Term Income Fund 213
Marshall Large-Cap Growth & Income Fund 2,880
Marshall Equity Income Fund 1,106
Marshall Mid-Cap Growth Fund 977
Marshall Mid-Cap Value Fund 518
Marshall Intermediate Tax-Free Fund 48
Marshall International Stock Fund 549
Marshall Small-Cap Growth Fund 657
Item 27. Indemnification: (5.)
Item 28. Business and Other Connections of Investment Adviser:
M&I INVESTMENT MANAGEMENT CORP.
(a) M&I Investment Management Corp. is a registered
investment adviser and wholly-owned subsidiary of
Marshall & Ilsley Corporation, a registered bank
holding company headquartered in Milwaukee, Wisconsin.
As of October 1, 1997 M&I Investment Management Corp.
had approximately $8.4 billion in assets under
management and has managed investments for individuals
and institutions since its inception in 1973. M&I
Investment Management Corp. served as investment
adviser to Newton Money Fund, Newton Income Fund and
Newton Growth Fund.
- -----------------------
+ All Exhibits have been filed electronically.
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed October 29, 1993. (File Nos.
33-48907 and 811-7047).
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed December 28, 1993. (File Nos.
33-48907 and 811-7047).
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed December 26, 1997. (File Nos.
33-48907 and 811-7047).
<PAGE>
For further information about M & I Investment
Mangagement Corp., its officers and directors, response
is incorporated by reference to M & I Investment
Management Corp.'s Form ADV, File No. 801-9118, dated
March 4, 1996 as amended.
TEMPLETON INVESTMENT COUNSEL, INC.
(b) Templeton Investment Counsel, Inc. ("TICI"), 500 East
Broward Blvd., Suite 2100, Ft. Lauderdale, FL
33394-3091, is a professional investment counseling
firm which has been providing investment services since
1979. As of October 1, 1997 TICI had discretionary
investment management of $24.1 billion of assets.
For a list of the officers and directors of TICI and
for further information about TICI, any other business,
vocation or employment of a substantial nature in which
a director or officer of TICI is, or at any time in the
past two fiscal years has been, engaged for his or her
own account or in the capacity of director, officer,
employee, partner or trustee, response is incorporated
by reference to TICI's Form ADV, File No. 801-15125,
dated February 1, 1996 as amended.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of
the Registrant, also acts as principal underwriter for the following open-end
investment companies:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree
Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the following
closed-end investment company: Liberty Term Trust, Inc.- 1999.
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief --
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Chairman, Director
Federated Investors Tower President, Federated, and Treasurer
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp. --
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joeseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President --
Federated Investors Tower
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
<TABLE>
<CAPTION>
<S> <C> <C>
Item 30. Location of Accounts and Records:
Marshall Funds, Inc. Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder Services Federated Investors Tower
Company Pittsburgh, PA 15222-3779
("Transfer Agent, Dividend
Disbursing Agent, and Portfolio
Accounting Services")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
M & I Investment Management Corp. 1000 North Water Street
---------------------------------
("Adviser") Milwaukee, WI 53202
Marshall & Ilsley Trust Company 1000 North Water Street
-------------------------------
("Custodian") Milwaukee, WI 53202
Templeton Investment Counsel, Inc. 500 East Broward Blvd.
("Sub-Adviser") Suite 2100
Ft. Lauderdale, FL 33394-3091
</TABLE>
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of Trustees and the
calling of special shareholders meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered, a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MARSHALL FUNDS, INC., certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 24th day of October, 1997.
MARSHALL FUNDS, INC.
BY: /s/ C. Todd Gibson
C. Todd Gibson, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
October 24, 1997
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/C. Todd Gibson
C. Todd Gibson Attorney In Fact October 24, 1997
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales Chairman, Director, October 24, 1997
and Treasurer (Chief
Executive Officer, Principal
Financial and Accounting
Officer)
John DeVincentis Director
Ody J. Fish Director
Paul E. Hassett Director
* By Power of Attorney
</TABLE>
Exhibit 8(iv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Amendment No. 3
to Schedule A
Argentina
Australia
Austria
Belgium
Brazil
Canada
Chile
China
Colombia
Czech Republic
Denmark
Finland
France
Germany
Greece
Hong Kong
Hungary
India
Indonesia
Ireland
Israel
Italy
Japan
Korea
Malaysia
Mexico
Morocco
Netherlands
New Zealand
Norway
Pakistan
Peru
Philippines
Poland
Portugal
Russia
Singapore
Slovak Republic
South Africa
Spain
Sri Lanka
Sweden
Switzerland
Taiwan
Thailand
Turkey
United Kingdom
Venezuela
dated:October 27, 1997; Marshall Funds, Inc. Regular Board Meeting
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg S-K
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in Post-Effective Amendment No. 21 to Form N-1A Registration
Statement of Marshall Funds, Inc. of our report dated October 17, 1997, on the
financial statements of Marshall Equity Income Fund, Marshall Large-Cap Growth &
Income Fund, Marshall Mid-Cap Value Fund, Marshall Mid-Cap Growth Fund, Marshall
International Stock Fund, Marshall Small-Cap Growth Fund, Marshall Short-Term
Income Fund, Marshall Intermediate Bond Fund, Marshall Government Income Fund,
Marshall Intermediate Tax-Free Fund, and Marshall Money Market Fund (11 of the
portfolios comprising the Marshall Funds, Inc.), included in or made a part of
this registration statement.
By: ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
October 23, 1997
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> Marshall Funds
Marshall Equity Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 271,855,946
<INVESTMENTS-AT-VALUE> 330,812,546
<RECEIVABLES> 1,730,866
<ASSETS-OTHER> 6,225
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 332,549,637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 820,135
<TOTAL-LIABILITIES> 820,135
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 252,222,946
<SHARES-COMMON-STOCK> 21,208,899
<SHARES-COMMON-PRIOR> 13,338,229
<ACCUMULATED-NII-CURRENT> 708,147
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,841,809
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 58,956,600
<NET-ASSETS> 331,729,502
<DIVIDEND-INCOME> 7,324,268
<INTEREST-INCOME> 1,936,551
<OTHER-INCOME> 0
<EXPENSES-NET> 3,200,550
<NET-INVESTMENT-INCOME> 6,060,269
<REALIZED-GAINS-CURRENT> 21,575,654
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 67,118,024
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,919,458
<DISTRIBUTIONS-OF-GAINS> 13,127,663
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,346,734
<NUMBER-OF-SHARES-REDEEMED> 3,074,398
<SHARES-REINVESTED> 598,334
<NET-CHANGE-IN-ASSETS> 158,327,004
<ACCUMULATED-NII-PRIOR> 567,336
<ACCUMULATED-GAINS-PRIOR> 11,393,818
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,964,826
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,200,550
<AVERAGE-NET-ASSETS> 259,560,821
<PER-SHARE-NAV-BEGIN> 13.000
<PER-SHARE-NII> 0.330
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.340
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.640
<EXPENSE-RATIO> 1.22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> Marshall Funds
Marshall Government Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 275,931,775
<INVESTMENTS-AT-VALUE> 277,131,463
<RECEIVABLES> 52,254,776
<ASSETS-OTHER> 1,695
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 329,387,934
<PAYABLE-FOR-SECURITIES> 89,928,109
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,817,378
<TOTAL-LIABILITIES> 125,745,487
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205,911,882
<SHARES-COMMON-STOCK> 21,448,639
<SHARES-COMMON-PRIOR> 14,933,942
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,469,123)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,199,688
<NET-ASSETS> 203,642,447
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,006,605
<OTHER-INCOME> 0
<EXPENSES-NET> 1,487,820
<NET-INVESTMENT-INCOME> 11,518,785
<REALIZED-GAINS-CURRENT> (523,651)
<APPREC-INCREASE-CURRENT> 4,021,921
<NET-CHANGE-FROM-OPS> 15,017,055
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,518,785
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,834,407
<NUMBER-OF-SHARES-REDEEMED> 2,966,414
<SHARES-REINVESTED> 646,704
<NET-CHANGE-IN-ASSETS> 65,184,592
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,945,472)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,304,960
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,156,478
<AVERAGE-NET-ASSETS> 173,919,855
<PER-SHARE-NAV-BEGIN> 9.270
<PER-SHARE-NII> 0.620
<PER-SHARE-GAIN-APPREC> 0.220
<PER-SHARE-DIVIDEND> 0.620
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.490
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> Marshall Funds
Marshall Intermediate Bond Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 420,627,108
<INVESTMENTS-AT-VALUE> 422,360,632
<RECEIVABLES> 4,794,832
<ASSETS-OTHER> 2,377
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 427,157,841
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,923,554
<TOTAL-LIABILITIES> 28,923,554
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 419,982,656
<SHARES-COMMON-STOCK> 42,202,436
<SHARES-COMMON-PRIOR> 43,581,545
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23,481,893)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,733,524
<NET-ASSETS> 398,234,287
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28,028,199
<OTHER-INCOME> 0
<EXPENSES-NET> 2,913,628
<NET-INVESTMENT-INCOME> 25,114,571
<REALIZED-GAINS-CURRENT> (851,277)
<APPREC-INCREASE-CURRENT> 8,464,908
<NET-CHANGE-FROM-OPS> 32,728,202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,114,571
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,675,888
<NUMBER-OF-SHARES-REDEEMED> 13,568,319
<SHARES-REINVESTED> 1,513,322
<NET-CHANGE-IN-ASSETS> (5,422,439)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (22,630,616)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,440,381
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,182,602
<AVERAGE-NET-ASSETS> 405,545,999
<PER-SHARE-NAV-BEGIN> 9.260
<PER-SHARE-NII> 0.580
<PER-SHARE-GAIN-APPREC> 0.180
<PER-SHARE-DIVIDEND> 0.580
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.440
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> Marshall Funds
Marshall International Stock Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 224,150,848
<INVESTMENTS-AT-VALUE> 262,431,428
<RECEIVABLES> 2,619,341
<ASSETS-OTHER> 495,996
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 265,546,765
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 1,033,006
<OTHER-ITEMS-LIABILITIES> 37,664,267
<TOTAL-LIABILITIES> 38,697,273
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 180,856,289
<SHARES-COMMON-STOCK> 17,181,836
<SHARES-COMMON-PRIOR> 12,979,131
<ACCUMULATED-NII-CURRENT> 3,464,817
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,284,674
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 38,243,712
<NET-ASSETS> 226,849,492
<DIVIDEND-INCOME> 4,613,569
<INTEREST-INCOME> 1,684,713
<OTHER-INCOME> 0
<EXPENSES-NET> 2,950,634
<NET-INVESTMENT-INCOME> 3,347,648
<REALIZED-GAINS-CURRENT> 5,124,692
<APPREC-INCREASE-CURRENT> 27,902,734
<NET-CHANGE-FROM-OPS> 36,375,074
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,691,414
<DISTRIBUTIONS-OF-GAINS> 1,303,354
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,818,946
<NUMBER-OF-SHARES-REDEEMED> 3,814,168
<SHARES-REINVESTED> 197,927
<NET-CHANGE-IN-ASSETS> 83,066,461
<ACCUMULATED-NII-PRIOR> 2,995,403
<ACCUMULATED-GAINS-PRIOR> 1,276,516
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,857,261
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,950,634
<AVERAGE-NET-ASSETS> 185,192,272
<PER-SHARE-NAV-BEGIN> 11.080
<PER-SHARE-NII> 0.180
<PER-SHARE-GAIN-APPREC> 2.290
<PER-SHARE-DIVIDEND> 0.260
<PER-SHARE-DISTRIBUTIONS> 0.090
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.200
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> Marshall Funds
Marshall Intermediate Tax-Free Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 85,571,691
<INVESTMENTS-AT-VALUE> 87,187,728
<RECEIVABLES> 1,253,984
<ASSETS-OTHER> 7,058
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,448,770
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 340,812
<TOTAL-LIABILITIES> 340,812
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 86,826,601
<SHARES-COMMON-STOCK> 8,774,802
<SHARES-COMMON-PRIOR> 6,704,131
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (334,680)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,616,037
<NET-ASSETS> 88,107,958
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,831,927
<OTHER-INCOME> 0
<EXPENSES-NET> 471,000
<NET-INVESTMENT-INCOME> 3,360,927
<REALIZED-GAINS-CURRENT> 167,317
<APPREC-INCREASE-CURRENT> 1,370,043
<NET-CHANGE-FROM-OPS> 4,898,287
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,360,927
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,962,645
<NUMBER-OF-SHARES-REDEEMED> 923,630
<SHARES-REINVESTED> 31,656
<NET-CHANGE-IN-ASSETS> 22,180,707
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (501,997)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 463,700
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 885,031
<AVERAGE-NET-ASSETS> 77,275,596
<PER-SHARE-NAV-BEGIN> 9.830
<PER-SHARE-NII> 0.430
<PER-SHARE-GAIN-APPREC> 0.210
<PER-SHARE-DIVIDEND> 0.430
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.040
<EXPENSE-RATIO> 0.61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> Marshall Funds
Marshall Large-Cap Growth & Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 215,001,918
<INVESTMENTS-AT-VALUE> 286,752,481
<RECEIVABLES> 771,422
<ASSETS-OTHER> 2,095
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 287,525,998
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,918,701
<TOTAL-LIABILITIES> 17,918,701
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 178,102,257
<SHARES-COMMON-STOCK> 19,312,289
<SHARES-COMMON-PRIOR> 20,696,816
<ACCUMULATED-NII-CURRENT> 145,154
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,598,049
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 71,761,837
<NET-ASSETS> 269,607,297
<DIVIDEND-INCOME> 4,721,449
<INTEREST-INCOME> 306,326
<OTHER-INCOME> 0
<EXPENSES-NET> 3,071,831
<NET-INVESTMENT-INCOME> 1,955,944
<REALIZED-GAINS-CURRENT> 19,651,838
<APPREC-INCREASE-CURRENT> 52,299,522
<NET-CHANGE-FROM-OPS> 73,907,304
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,297,758
<DISTRIBUTIONS-OF-GAINS> 35,001,329
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,346,734
<NUMBER-OF-SHARES-REDEEMED> 3,074,398
<SHARES-REINVESTED> 598,334
<NET-CHANGE-IN-ASSETS> 18,024,223
<ACCUMULATED-NII-PRIOR> 486,968
<ACCUMULATED-GAINS-PRIOR> 34,947,540
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,877,032
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,071,831
<AVERAGE-NET-ASSETS> 250,212,140
<PER-SHARE-NAV-BEGIN> 12.160
<PER-SHARE-NII> 0.100
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.120
<PER-SHARE-DISTRIBUTIONS> 1.940
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.960
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 09
<NAME> Marshall Funds
Marshall Mid-Cap Growth Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 197,501,055
<INVESTMENTS-AT-VALUE> 227,077,550
<RECEIVABLES> 3,218,523
<ASSETS-OTHER> 170,836
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230,466,909
<PAYABLE-FOR-SECURITIES> 3,742,420
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,741,035
<TOTAL-LIABILITIES> 33,483,455
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 146,530,183
<SHARES-COMMON-STOCK> 13,289,267
<SHARES-COMMON-PRIOR> 10,564,924
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,919,714
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,533,557
<NET-ASSETS> 196,983,454
<DIVIDEND-INCOME> 646,202
<INTEREST-INCOME> 589,065
<OTHER-INCOME> 0
<EXPENSES-NET> 2,126,860
<NET-INVESTMENT-INCOME> (891,593)
<REALIZED-GAINS-CURRENT> 23,110,175
<APPREC-INCREASE-CURRENT> 8,132,461
<NET-CHANGE-FROM-OPS> 30,351,043
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 13,454,023
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,045,656
<NUMBER-OF-SHARES-REDEEMED> 3,856,291
<SHARES-REINVESTED> 534,978
<NET-CHANGE-IN-ASSETS> 53,747,567
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,155,155
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,288,819
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,126,860
<AVERAGE-NET-ASSETS> 170,474,371
<PER-SHARE-NAV-BEGIN> 13.560
<PER-SHARE-NII> (0.080)
<PER-SHARE-GAIN-APPREC> 2.560
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 1.220
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.820
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> Marshall Funds
Marshall Mid-Cap Value Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 144,657,558
<INVESTMENTS-AT-VALUE> 165,668,208
<RECEIVABLES> 2,782,751
<ASSETS-OTHER> 19,443
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 168,470,402
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,326,966
<TOTAL-LIABILITIES> 23,326,966
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 102,911,705
<SHARES-COMMON-STOCK> 11,043,194
<SHARES-COMMON-PRIOR> 16,286,159
<ACCUMULATED-NII-CURRENT> 489,724
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,731,357
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,010,650
<NET-ASSETS> 145,143,436
<DIVIDEND-INCOME> 3,214,291
<INTEREST-INCOME> 827,952
<OTHER-INCOME> 0
<EXPENSES-NET> 2,047,208
<NET-INVESTMENT-INCOME> 1,995,035
<REALIZED-GAINS-CURRENT> 23,476,206
<APPREC-INCREASE-CURRENT> 18,167,215
<NET-CHANGE-FROM-OPS> 43,638,456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,184,196
<DISTRIBUTIONS-OF-GAINS> 28,282,066
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,321,462
<NUMBER-OF-SHARES-REDEEMED> 9,178,441
<SHARES-REINVESTED> 1,614,014
<NET-CHANGE-IN-ASSETS> 49,922,204
<ACCUMULATED-NII-PRIOR> 678,885
<ACCUMULATED-GAINS-PRIOR> 25,537,217
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,245,668
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,047,208
<AVERAGE-NET-ASSETS> 165,915,383
<PER-SHARE-NAV-BEGIN> 11.980
<PER-SHARE-NII> 0.150
<PER-SHARE-GAIN-APPREC> 3.050
<PER-SHARE-DIVIDEND> 0.150
<PER-SHARE-DISTRIBUTIONS> 1.890
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.140
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> Marshall Funds
Marshall Money Market Fund
Class A
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 1,425,502,307
<INVESTMENTS-AT-VALUE> 1,425,502,307
<RECEIVABLES> 556,636
<ASSETS-OTHER> 9,196,226
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,435,255,169
<PAYABLE-FOR-SECURITIES> 49,973,375
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,138,206
<TOTAL-LIABILITIES> 55,111,581
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,380,143,588
<SHARES-COMMON-STOCK> 1,290,658,706
<SHARES-COMMON-PRIOR> 1,039,659,411
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,290,658,706
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 71,720,527
<OTHER-INCOME> 0
<EXPENSES-NET> 5,482,791
<NET-INVESTMENT-INCOME> 66,237,736
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 66,237,736
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 61,191,127
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,774,164,146
<NUMBER-OF-SHARES-REDEEMED> 3,535,320,070
<SHARES-REINVESTED> 12,155,219
<NET-CHANGE-IN-ASSETS> 255,773,073
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,354,005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,786,873
<AVERAGE-NET-ASSETS> 1,274,121,416
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> Marshall Funds
Marshall Money Market Fund
Class B
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 1,425,502,307
<INVESTMENTS-AT-VALUE> 1,425,502,307
<RECEIVABLES> 556,636
<ASSETS-OTHER> 9,196,226
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,435,255,169
<PAYABLE-FOR-SECURITIES> 49,973,375
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,138,206
<TOTAL-LIABILITIES> 55,111,581
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,380,143,588
<SHARES-COMMON-STOCK> 89,484,882
<SHARES-COMMON-PRIOR> 84,711,104
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 89,484,882
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 71,720,527
<OTHER-INCOME> 0
<EXPENSES-NET> 5,482,791
<NET-INVESTMENT-INCOME> 66,237,736
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 66,237,736
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 613,879,666
<NUMBER-OF-SHARES-REDEEMED> 614,103,576
<SHARES-REINVESTED> 4,997,688
<NET-CHANGE-IN-ASSETS> 255,773,073
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,354,005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,786,873
<AVERAGE-NET-ASSETS> 1,274,121,416
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> Marshall Funds
Marshall Small-Cap Growth Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Aug-31-1997
<PERIOD-END> Aug-31-1997
<INVESTMENTS-AT-COST> 48,301,373
<INVESTMENTS-AT-VALUE> 56,025,654
<RECEIVABLES> 506,072
<ASSETS-OTHER> 649
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,532,375
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107,782
<TOTAL-LIABILITIES> 107,782
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,365,623
<SHARES-COMMON-STOCK> 4,628,566
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 234,390
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,824,580
<NET-ASSETS> 56,424,593
<DIVIDEND-INCOME> 86,947
<INTEREST-INCOME> 229,080
<OTHER-INCOME> 0
<EXPENSES-NET> 663,828
<NET-INVESTMENT-INCOME> (347,801)
<REALIZED-GAINS-CURRENT> 582,191
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</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> Marshall Funds
Marshall Short-Term Income Fund
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</TABLE>
