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. 20 ................................X
------- ----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
----
Amendment No. 20 ............................................X
-------- ----
MARSHALL FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
__ immediately upon filing pursuant to paragraph (b)
_ on ____________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i)
_ 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on October 15, 1996; or _
intends to file the Notice required by that Rule on or about
_____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and, pursuant to Rule 24f-2(b)(2), need not file the Notice.
<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:
<TABLE>
<CAPTION>
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
<S> <C> <C>
Prospectus Heading
(RULE 404(C) CROSS REFERENCE)
Item 1. COVER PAGE..................................(1-11)Cover Page.
----------
Item 2. SYNOPSIS....................................(1-11)Summary of Fund Expenses.
--------
Item 3. CONDENSED FINANCIAL
INFORMATION................................(1-10) Financial Highlights; (1-11) Performance
Information.
Item 4. GENERAL DESCRIPTION OF
REGISTRANT.................................(1-11) Summary of Investment Information; (1-11)
Investment Objectives of each Fund; (1-11)
Portfolio Investments and Strategies.
Item 5. MANAGEMENT OF THE FUND......................(1-11) Marshall Funds, Inc. Information; (1-11)
----------------------
Management (of Marshall Funds, Inc.); (1-11)
Distribution of Fund Shares; (1-11) Administrative
Arrangements; (1-11) Administrative Services;
(1-11) Shareholder Servicing Arrangements; (1-11)
Brokerage Transactions; (6,10,11) Distribution
Plan; (1-11) Administration of the Fund(s); (1-11)
Expenses of the Fund(s).
Item 6. CAPITAL STOCK AND OTHER
SECURITIES.................................(1-11) Dividends and Capital Gains; Certificates
and Confirmations; (1-11) Shareholder Information;
(1-11) Common Stock and Voting Rights; (1-11)
Effect of Banking Laws; (1-11) Tax Information;
(1-11) Federal Income Tax; (1-11) State and Local
Taxes.
Item 7. PURCHASE OF SECURITIES BEING
OFFERED....................................(1-11) Net Asset Value; (1-11) How to Buy Fund
Shares; (1-11) How to Buy Fund Shares; (1-11)
Minimum Investments; 1-11) Exchange Privilege;
Telephone Transactions.
Item 8. REDEMPTION OR REPURCHASE....................(1-11) How to Redeem Shares; (1-11) Accounts with
------------------------
Low Balances.
Item 9. PENDING LEGAL PROCEEDINGS None.
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. COVER PAGE..................................(1-11) Cover Page.
----------
Item 11. TABLE OF CONTENTS...........................(1-11) Table of Contents.
-----------------
Item 12. GENERAL INFORMATION AND
HISTORY (1-11) Banking Laws.
Item 13. INVESTMENT OBJECTIVES AND
POLICIES...................................(1-11) Policies and Acceptable Investments; (1-11)
Investment Limitations.
Item 14. MANAGEMENT OF THE FUND......................(1-11) Marshall Funds, Inc. Management; Directors'
----------------------
Compensation.
Item 15. CONTROL PERSONS AND
PRINCIPAL HOLDERS OF
SECURITIES Not applicable.
Item 16. INVESTMENT ADVISORY AND
OTHER SERVICES.............................(1-11) Investment Advisory Services; (1-11)
Administrative Services; (1-11) Other Services.
Item 17. BROKERAGE ALLOCATION........................(1-11) Brokerage Transactions.
--------------------
Item 18. CAPITAL STOCK AND OTHER
SECURITIES Not applicable.
Item 19. PURCHASE, REDEMPTION AND PRICING
OF SECURITIES BEING OFFERED................(1-11) Purchasing Shares with Securities; (6, 10,
11) Distribution Plan; (1-11) Determining Market
Value; Redemption in Kind.
Item 20. TAX STATUS..................................(1-11) Tax Status.
----------
Item 21. UNDERWRITERS Not applicable.
Item 22. CALCULATION OF PERFORMANCE
DATA.......................................(1-11) Yield; Performance Comparisons; (1-5, 7-12)
Total Return; (6) Effective Yield; (4)
Tax-Equivalent Yield.
Item 23. FINANCIAL STATEMENTS........................(1-11) (To be filed by Amendment)
--------------------
</TABLE>
MARSHALL FUNDS(R)
MARSHALL YOUR RESOURCES.
Marshall Funds, Inc. (the "Corporation") is an open-end,
management investment company (a mutual fund). The Corporation has the
following eleven separate investment portfolios. Each portfolio
("Fund") offers its own shares and has a distinct investment goal to
meet specific investor needs.
EQUITY FUNDS TAX-FREE INCOME 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 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.
<PAGE>
Prospectus
October 31, 1997
<PAGE>
TABLE OF CONTENTS
PLEASE NOTE: The TABLE OF CONTENTS will be created when the prospectus is
submitted to typeset.
<PAGE>
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:
o MARSHALL EQUITY INCOME FUND ("EQUITY INCOME
FUND")--seeks capital growth and current income through
investments in common stocks and securities convertible
into common stock primarily of companies with large
capitalizations;
o 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;
o 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;
o 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;
o 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;
o 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;
o MARSHALL SHORT-TERM INCOME FUND ("SHORT-TERM INCOME
FUND")--seeks to maximize total return consistent with
current income by investing primarily in short- to
intermediate-term high-grade bonds and notes;
o MARSHALL INTERMEDIATE BOND FUND ("INTERMEDIATE BOND
FUND")--seeks to maximize total return consistent with
current income by investing primarily in intermediate-term
high-grade bonds and notes;
o MARSHALL GOVERNMENT INCOME FUND ("GOVERNMENT INCOME
FUND")--seeks to provide current income by investing
primarily in securities which are issued or guaranteed as
to payment of principal and interest by the U.S.
government or U.S. government agencies or instrumentalities;
o MARSHALL INTERMEDIATE TAX-FREE FUND ("INTERMEDIATE
TAX-FREE FUND")--seeks to provide as high a level of
income which is exempt from federal income tax as is
consistent with preservation of capital by investing in
high-grade municipal securities that generate such income;
and
o MARSHALL MONEY MARKET FUND ("MONEY MARKET FUND")--seeks to
provide current income consistent with stability of
principal by investing in money market instruments
maturing in 397 days or less. Shares of the MONEY MARKET
FUND are offered in two separate classes: CLASS A SHARES
AND CLASS B SHARES.
WHO MANAGES THE FUNDS?
M&I Investment Management Corp. serves as investment adviser (the
"Adviser") to the Funds. The Adviser is owned by Marshall & Ilsley
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.
<PAGE>
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
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."
<PAGE>
SUMMARY OF FUND EXPENSES TABLE
(TO BE FILED BY AMENDMENT)
<PAGE>
FINANCIAL HIGHLIGHTS TABLE
(TO BE FILED BY AMENDMENT)
<PAGE>
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 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:
o 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;
o preferred stocks;
o 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);
o U.S. government securities, including certain Mortgage-Backed
Securities (as defined under "Portfolio Investments and
Strategies");
o debt obligations (including bonds, notes and
debentures); except for INTERNATIONAL STOCK FUND, these
must be issued by U.S. corporations and rated in the top
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;
o American Depositary Receipts ("ADRs"); except for INTERNATIONAL
STOCK FUND, each Fund is limited to 20% of its net assets;
o Global Depositary Receipts ("GDRs") and European Depositary
Receipts ("EDRs") (only the INTERNATIONAL STOCK FUND);
o Asset-Backed Securities (as defined under "Portfolio Investments
and Strategies");
o put and call options on securities and indices and futures
contracts;
o swap transactions, including interest rate and index-based swaps;
o 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;
o foreign and domestic Bank Instruments (as defined under "Portfolio
Investments and Strategies");
o warrants;
o repurchase agreements; and
o shares of other investment companies.
Notwithstanding the limits set forth above, each EQUITY FUND (except
the INTERNATIONAL STOCK FUND, which has no limit) may invest up to 5%
of its net assets in foreign securities other than ADRs.
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 high-grade bonds
and notes. The Fund will maintain an average dollar-weighted maturity
of six months to three years.
MARSHALL INTERMEDIATE BOND FUND. The investment objective of the
INTERMEDIATE BOND FUND is to maximize total return consistent with
current income. The Fund pursues this objective by investing in a
diversified portfolio of intermediate-term high-grade bonds and notes.
The Fund will maintain an average dollar-weighted maturity of three to
ten years. The Fund will invest, under normal circumstances, at least
65% of the value of its total assets in bonds. For purposes of this
investment policy, "bonds" shall include all permitted types of debt
instruments, including debt held as collateral for repurchase
agreements.
MARSHALL GOVERNMENT INCOME FUND. The investment objective of the
GOVERNMENT INCOME FUND is to provide current income. The Fund pursues
this objective by investing primarily in U.S. government securities,
including those issued by U.S. government agencies and
instrumentalities. While seeking to achieve the Fund's objective of
current income, as a matter of operating policy the Adviser will
attempt to maximize 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:
o 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;
o U.S. government securities (as defined under "Portfolio
Investments and Strategies");
o Prime Commercial Paper (as defined under "Portfolio Investments
and Strategies");
o domestic Bank Instruments (as defined under "Portfolio
Investments and Strategies");
o repurchase agreements;
o master demand notes;
o Mortgage-Backed Securities (as defined under "Portfolio
Investments and Strategies");
o Asset-Backed Securities (as defined under "Portfolio Investments
and Strategies");
o Municipal Securities (except the GOVERNMENT INCOME FUND) (as
defined under "Portfolio Investments and Strategies");
o swap transactions, including interest rate and index-based swaps;
and
o securities of other investment companies.
The GOVERNMENT INCOME FUND may also engage in options, futures and
options on futures for bona fide hedging purposes. Additional
information about investments, investment limitations and strategies,
and certain investment policies appears in the "Portfolio Investments
and Strategies" section of this prospectus.
THE INTERMEDIATE TAX-FREE FUND
MARSHALL INTERMEDIATE TAX-FREE FUND. The investment objective of the
INTERMEDIATE TAX-FREE FUND is to provide as high a level of income
that is exempt from federal income tax as is consistent with
preservation of capital. Under normal circumstances, the INTERMEDIATE
TAX-FREE FUND will maintain an average dollar-weighted portfolio
maturity of three to ten years.
THE INTERMEDIATE TAX-FREE FUND'S ACCEPTABLE INVESTMENTS. The
INTERMEDIATE TAX-FREE FUND pursues its objective by investing in a
diversified portfolio of high-grade Municipal Securities (as defined
under "Portfolio Investments and Strategies"). As a matter of
investment policy that cannot be changed without shareholder approval,
under normal market conditions, at least 80% of THE INTERMEDIATE
TAX-FREE FUND'S net assets will be invested in Municipal Securities,
the income from which is exempt from federal income tax (including the
federal alternative minimum tax). Interest income of the INTERMEDIATE
TAX-FREE FUND that is exempt from federal income tax retains its
tax-free status when distributed to shareholders.
Municipal Securities are debt obligations issued by or on behalf of
states, territories and possessions of the United States, including
the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of
qualified legal counsel or the INTERMEDIATE TAX-FREE FUND'S Adviser,
exempt from federal income tax. These securities will be:
o 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);
o guaranteed at the time of purchase by the U.S. government as to
the payment of principal and interest;
o fully collateralized by an escrow of U.S. government securities
or other securities acceptable to the INTERMEDIATE TAX-FREE
FUND'S Adviser, including certain Mortgage-Backed Securities (as
defined under "Portfolio Investments and Strategies");
o rated at the time of purchase within Moody's highest
short-term municipal obligation rating (MIG1/VMIG1) or
Moody's highest municipal commercial paper rating (P-1) or
S&P's highest municipal commercial paper rating (SP-1) or
Fitch's highest short-term municipal obligations rating
(F-1+ OR F-1) or the highest rating by another NRSRO;
o unrated if, at the time of purchase, other Municipal
Securities of that issuer are rated the same quality as
described above by an NRSRO; or
o unrated if determined to be of comparable quality to one
of the foregoing rating categories by the 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:
o issues of domestic and foreign corporate debt obligations,
including bonds, notes, and debentures;
o commercial paper, including Eurodollar commercial paper
("Europaper");
o domestic and foreign Bank Instruments (as defined under
"Portfolio Investments and Strategies");
o demand master notes;
o U.S. government securities, except for Mortgage-Backed Securities
(as defined under "Portfolio Investments and Strategies");
o repurchase agreements;
o guaranteed investment contracts;
o funding agreements; and
o short-term tranches of Asset-Backed Securities (as defined under
"Portfolio Investments and Strategies").
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.
MINIMUM INVESTMENTS
$1,000 To open an Account
$50 To add to an Account (including through a
Systematic Investment
Program)
The Funds may waive or lower these minimums from time to time, such as for M&I
Corp. employees.
PHONE Contact MFIS. Complete an
1-800-236-FUND application for a new account.
(3863) If you authorized telephone
LOGO exchange privileges in your
account application or by sub-
sequent authorization form, you may exchange shares
from another Fund having an identical shareholder
registration. See "Telephone Transactions" on page
17 for more information.
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 representa-
tive of M&I Brokerage Services,
or to any authorized broker or
dealer.
WIRE oFirst 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.
oThen 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]
oIf a new Account, fax to
Marshall Funds Investor Services
at 1-414-287-8511 and mail a com-
pleted account application to
the Fund at the address above
under "Mail."
SYSTEMATIC You can have money automati-
INVESTMENT cally withdrawn from your
PROGRAM checking account on predeter-
mined dates and invest it in a
Fund at the next Fund share
price determined after MFIS
receives the order. Investors purchasing shares through the Systematic
Investment Program are not subject to the $1,000 minimum investment
requirement. Call MFIS at 1-800-236-FUND (3863) to apply for this
program.
ADDITIONAL INFORMATION ABOUT ORDERS BY:
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.
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.
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 telephone. If you are a customer 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 redemption LOGO request with the information
described in "Mail" above to
any M&I Bank employing a representative of M&I
Brokerage Services, Marshall Funds Investor Ser-
vices, 1000 N. Water 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. 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.
ADDITIONAL CONDITIONS
SIGNATURE GUARANTEES. In the following instances, you must have a signature
guarantee on written redemption requests:
o when you are requesting a redemption of $50,000 or more;
o when you want a redemption to be sent to an address other than the
one you have on record with the Fund; or
o 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:
o a trust company or commercial bank whose deposits are
insured by the Bank Insurance Fund, which is administered
by the Federal Deposit Insurance Corporation ("FDIC");
o a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
o a savings bank or savings association whose deposits are
insured by the Savings Association Insurance Fund, which
is administered by the FDIC; or
o any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Corporation and its transfer agent have adopted standards for
accepting signature guarantees from the above institutions. The
Corporation may elect in the future to limit eligible signature
guarantors to institutions that are members of a signature guarantee
program. The Corporation and its transfer agent reserve the right to
amend these standards at any time without notice.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR. When you purchase Fund
shares by check or through the Automated Clearing House system, the
proceeds from the redemption of those shares (whether redeemed by
mail, by telephone or by checkwriting) are not available, and the
shares may not be exchanged, until MFIS is reasonably certain that the
purchase check has cleared, which could take up to seven calendar
days.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining
accounts with low balances, a Fund may redeem shares in your account
and pay you the proceeds if your account balance falls below the
required minimum value of $1,000.
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.
<PAGE>
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
ONLINESM
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
their 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:
Minimum Maximum
Purchases $50 $100,000
Redemptions By ACH: $50 By ACH: $50,000
By wire: $1,000 By wire: $50,000
Exchanges $50 $100,000
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 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 __, 1997, M&I
Investment Management Corp. had approximately $___ 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 __, 1997, TICI had
discretionary investment of approximately $17.2 billion in assets.
TICI is indirectly owned by Franklin Resources, Inc., which engages in
various aspects of the financial services industry through its
subsidiaries.
TICI and its affiliates serve as advisers for a wide variety of
mutual funds and private clients in many nations. TICI, its affiliates
and their predecessors have been investing globally over the past 53
years and provide investment management and advisory services to a
worldwide client base, including over __ million mutual fund
shareholders, foundations and endowments, employee benefit plans and
individuals. TICI and its affiliates have approximately 4,100
employees in 18 different countries and a global network of over 50
investment research sources. TICI is supported by the Templeton
organization's large staff of research analysts, traders and other
investment specialists and support staff based in Fort Lauderdale,
Nassau, New York, Edinburgh, Toronto, Hong Kong, Melbourne, Milan,
Paris, Frankfurt, and Luxembourg. Templeton's research analysts use a
disciplined, long-term approach to value-oriented global and
international investing. Securities are selected for the INTERNATIONAL
STOCK FUND'S portfolio from a list of eligible securities maintained
and constantly updated by Templeton's analysts on the basis of
fundamental analysis, which utilizes a global database of information
on issuers. TICI believes that the Templeton organization's team
approach benefits INTERNATIONAL STOCK FUND investors by bringing
together many disciplines and leveraging the organization's extensive
resources.
PORTFOLIO MANAGEMENT TEAM. The EQUITY INCOME FUND is managed by
Bruce P. Hutson, who has been a Vice President of M&I Investment
Management Corp. since 1973 and has been a member of the Equity Policy
Group since January 1990. Mr. Hutson
holds a B.B.A. degree from the University of Wisconsin-Whitewater.
The 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
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.
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, 1997. The
distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
The distributor may select certain entities to provide sales and/or
administrative services as agents for holders of Plan Shares.
Administrative services may include, but are not limited to, the
following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Plan Shares;
assisting clients in changing dividend options, account designations,
and addresses; and providing such other services as these Funds
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.
<PAGE>
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:
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE CORPORATION
.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
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
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, FSSC maintains a share account for
each shareholder of record. Upon written request, you can receive
share certificates without charge, but only for whole shares of a
Fund. You may contact MFIS to direct the transfer agent to issue you
certificates or deliver certificates for redemption or credit to your
account.
The MONEY MARKET FUND sends you monthly confirmations to report all
transactions such as purchases, redemptions, and dividends paid during
the month. The other Funds send you a detailed confirmation of each
purchase or redemption or dividend payment. At a minimum, you will
receive a monthly statement. You may request photocopies of
confirmations for transactions affecting your account in prior years
at a fee of $5 per year per Fund to cover the cost of obtaining this
information.
DIVIDENDS AND CAPITAL GAINS
Dividends of the MONEY MARKET FUND, INCOME FUNDS and INTERMEDIATE
TAX-FREE FUND are declared daily and paid monthly. Dividends of the
EQUITY FUNDS are declared and paid quarterly, except for the
INTERNATIONAL STOCK FUND, which declares and pays dividends annually.
Only shareholders invested in the particular Fund on the record date
of the dividend declaration are paid that dividend. Capital gains,
when realized by a Fund, will be distributed at least once every 12
months. Unless you request cash payments by writing to your Fund, your
dividends and capital gains are automatically reinvested in additional
shares of the respective Fund on payment dates at the ex-dividend date
net asset value.
COMMON STOCK AND VOTING RIGHTS
The Directors have authorized the issuance of shares of Common Stock
representing ownership interests in each of the Funds. Shareholders
are entitled to one vote for each full share of Common Stock and
proportionate fractional votes for fractional shares. All shares of
each Fund or class in the Corporation have equal voting rights and
will generally vote in the aggregate and not by Fund or class, unless
required by law. For example, only shares of a particular Fund or
class are entitled to vote on matters affecting that Fund or class.
Voting rights are not cumulative; consequently, the holders of more
than 50% of the Corporation's shares of Common Stock can elect the
entire Board of Directors.
The Corporation does not intend to hold annual meetings of
shareholders, unless required by the Investment Company Act of 1940 or
applicable law. Directors may be removed by the Directors or by the
shareholders at a special meeting, which may be called by the
Directors upon written request of shareholders owning at least 10% of
the Corporation's outstanding voting shares.
As of August 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: 8,371,611 shares (39.84%)
of EQUITY INCOME FUND; 5,029,795 shares (44.81%) of MID-CAP VALUE
FUND; 11,040,240 shares (57.69%) of LARGE-CAP GROWTH & INCOME FUND;
6,046,009 shares (45.7%) of MID-CAP GROWTH FUND; 7,077,436 shares
(41.74%) of INTERNATIONAL STOCK FUND; 1,931,789 shares (42.68%) of
SMALL-CAP GROWTH FUND; 6,345,420 shares (41.87%) of SHORT-TERM INCOME
FUND; 20,776,000 shares (49.44%) of INTERMEDIATE BOND FUND; 9,171,077
shares (43.23%) 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 August 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: 10,972,050 shares (52.22%)
of EQUITY INCOME FUND; 4,927,809 shares (43.90%) of MID-CAP VALUE
FUND; 6,033,629 shares (45.60%) of MID-CAP GROWTH FUND; 8,445,358
shares (49.80%) of INTERNATIONAL STOCK FUND; 1,641,152 shares (36.25%)
of SMALL-CAP GROWTH FUND; 7,424,719 shares (49.00%) of SHORT-TERM
INCOME FUND; 17,934,678 shares (42.68%) of INTERMEDIATE BOND FUND;
9,298,310 shares (43.83%) of GOVERNMENT INCOME FUND; 7,837,078 shares
(88.82%) 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
August 6, 1997, Maril & Co., Milwaukee, Wisconsin, acting in various
capacities for numerous accounts, was the owner of record of
808,715,492 shares (66.43%) 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 August 6, 1997, M & I BSS Appleton,
Appleton, Wisconsin, acting in various capacities for numerous
accounts, was the owner of record of 28,963,566 shares (30.85%) of
MONEY MARKET FUND-CLASS B SHARES; and therefore, may for certain
purposes, be deemed to control this Fund and be able to affect the
outcome of certain matters presented for a vote of shareholders.
PERFORMANCE INFORMATION
From time to time, all of the Funds may advertise total return and
yield, the MONEY MARKET FUND may advertise its effective yield, and
the INTERMEDIATE TAX-FREE FUND may advertise its tax-equivalent yield.
Total return represents the change, over a specified period of time,
in the value of an investment in a Fund after reinvesting all income
and capital gains distributions. It is calculated by dividing that
change by the initial investment and is expressed as a percentage.
The yield for the MONEY MARKET FUND represents the annualized rate of
income earned on an investment in its shares over a seven-day period.
It is the annualized dividends earned during the period on the
investment, shown as a percentage of the investment. The effective
yield is calculated similarly to the yield, but, when annualized, the
income earned by an investment is assumed to be reinvested daily. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. The CLASS A SHARES
AND CLASS B SHARES of the MONEY MARKET FUND will each have their own
yields. Because CLASS A SHARES are not subject to 12b-1 fees, their
yields will be higher than yields of CLASS B SHARES.
The yield for the other Funds is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by a Fund over a thirty-day period by the offering
price per share of the Fund on the last day of the period. This number
is then annualized using semi-annual compounding. The tax-equivalent
yield is calculated similarly to the yield, but is adjusted to reflect
the taxable yield that the INTERMEDIATE TAX-FREE FUND would have had
to earn to equal its actual yield, assuming a specific tax rate. The
yield and the tax-equivalent yield do not necessarily reflect income
actually earned by a Fund and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
From time to time, the advertisements for the Funds may refer to
ratings, rankings, and other information in certain financial
publications and/or compare their performance to certain indices.
SMALL-CAP 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____% and ___%, 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 Insurance Corporation.
The INTERNATIONAL STOCK FUND, THE MONEY MARKET FUND, and to a limited
extent (up to 5% of total assets) the other EQUITY FUNDS may purchase
foreign Bank Instruments, which include Eurodollar Certificates of
Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs") and
Eurodollar Time Deposits ("ETDs"). ECDs are U.S. dollar-denominated
certificates of deposit issued by foreign branches of U.S. banks or
foreign banks. Yankee CDs are U.S. dollar denominated certificates of
deposit issued in the U.S. by branches and agencies of foreign banks.
ETDs are U.S. dollar-denominated deposits in foreign branches of U.S.
banks or foreign banks. The INCOME FUNDS and the INTERMEDIATE TAX-FREE
FUND reserve the right to invest in foreign Bank Instruments, although
they do not presently intend to so invest. The Funds will treat
securities credit-enhanced with a bank's irrevocable letter of credit
or unconditional guaranty as Bank Instruments.
BORROWING. While each of the Funds is permitted as a fundamental
investment policy to borrow money from banks or through reverse
repurchase agreements (arrangements in which a Fund sells a portfolio
instrument for a percentage of its cash value with an agreement to buy
it back on a set date) in amounts of up to one-third of its total
assets ("net" assets for the MONEY MARKET FUND, SHORT-TERM INCOME FUND
AND INTERMEDIATE BOND FUND), and pledge some assets as collateral,
only the INTERNATIONAL STOCK FUND expects that it might exceed 5%.
This is because the INTERNATIONAL STOCK FUND, unlike the other Funds,
may borrow money to purchase some of its portfolio securities, I.E.,
it may use "leverage." Leveraging tends to exaggerate the effect on
the Fund's net asset value of changes in the value of its portfolio
securities. Also, the Fund must pay interest on borrowed money and may
incur other costs, and these expenses could exceed the income received
or capital appreciation realized by the Fund from the securities it
purchases with borrowed money.
CONVERTIBLE SECURITIES. The EQUITY FUNDS may invest in convertible
securities which are rated, at the time of purchase, investment grade
by an NRSRO (SUCH AS BBB OR BETTER BY S&P OR FITCH, OR BAA OR BETTER
BY MOODY'S), or, if unrated, are of comparable quality as determined
by the Fund's Adviser or Subadviser. Convertible securities are fixed
income securities which may be exchanged or converted into a
predetermined number of the issuer's underlying common stock at the
option of the holder during a specified time period. Convertible
securities may take the form of convertible bonds, convertible
preferred stock or debentures, units consisting of "usable" bonds and
warrants or a combination of the features of several of these
securities. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be
employed for different investment objectives. In selecting a
convertible security, the Fund's Adviser or Subadviser evaluates the
investment characteristics of the convertible security as a fixed
income instrument, and the investment potential of the underlying
security for capital appreciation.
Convertible bonds and convertible preferred stocks generally retain
the investment characteristics of fixed income securities until they
have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed income
of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used in whole or in part, customarily at
full face value, in lieu of cash to purchase the issuer's common
stock. Convertible securities are senior to equity securities, and
therefore have a claim to assets of the corporation prior to the
holders of common stock in the case of liquidation. However,
convertible securities are generally subordinated to similar
nonconvertible securities of the same company. The interest income and
dividends from convertible bonds and preferred stocks provide a stable
stream of income with generally higher yields than common stocks, but
lower than nonconvertible securities of similar quality. A Fund will
exchange or convert the convertible securities held in its portfolio
into shares of the underlying common stocks when, in the opinion of
the Fund's Adviser or Subadviser, the investment characteristics of
the underlying common shares will assist the Fund in achieving its
investment objective. Otherwise, the Fund will hold or trade the
convertible securities.
CREDIT ENHANCEMENT. Certain of a Fund's acceptable investments may
have been credit-enhanced by a guaranty, letter of credit, or
insurance. The Fund's evaluation of an acceptable investment may
include the credit quality and ratings of credit-enhanced securities
based upon the financial condition and ratings of the party providing
the credit enhancement (the "credit enhancer"). However,
credit-enhanced securities will not be treated as having been issued
by the credit enhancer for diversification purposes, unless the Fund
has invested more than 10% of its assets in securities issued,
guaranteed or otherwise credit-enhanced by the credit enhancer, in
which case the securities will be treated as having been issued both
by the issuer and the credit enhancer. The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
DEMAND FEATURES. Each of the Funds may acquire securities that are
subject to puts and standby commitments ("demand features") to
purchase the securities at their principal amount (usually with
accrued interest) within a fixed period (usually seven days following
a demand by the Funds). The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities or by another
third party, and may not be transferred separately from the underlying
security. A Fund uses these arrangements to provide it with liquidity
and not to protect against changes in the market value of the
underlying securities. The bankruptcy, receivership or default by the
issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise,
will adversely affect the liquidity of the underlying security. Demand
features that are exercisable even after a payment default on the
underlying security may be treated as a form of credit enhancement.
DEMAND MASTER NOTES. The SHORT-TERM INCOME FUND, INTERMEDIATE BOND
FUND and MONEY MARKET FUND may invest in variable amount demand master
notes. Demand master notes are short-term borrowing arrangements
between a corporation or government agency and an institutional lender
(such as the Funds) payable upon demand by either party. The notice
period for demand typically ranges from one to seven days, and the
party may demand full or partial payment. Many master notes give the
Funds the option of increasing or decreasing the principal amount of
the master note on a daily or weekly basis within certain limits.
Demand master notes usually provide for floating or variable rates of
interest.
DEPOSITARY RECEIPTS. The INTERNATIONAL STOCK FUND may invest in
foreign issuers by purchasing sponsored or unsponsored ADRs, GDRs and
EDRs (collective, "Depositary Receipts"). The other EQUITY FUNDS may
invest only in ADRs. ADRs are depositary receipts typically issued by
a U.S. bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs and GDRs are
typically issued by foreign banks or trust companies, although they
also may be issued by U.S. banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a
United States corporation. Generally, Depositary Receipts in
registered form are designed for use in the U.S. securities market and
Depositary Receipts in bearer form are designed for use in securities
markets outside the United States. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying
securities into which they may be converted. Ownership of unsponsored
Depositary Receipts may not entitle a Fund to financial or other
reports from the issuer of the underlying security, to which it would
be entitled as the owner of sponsored Depositary Receipts. Depositary
Receipts also involve the risks of other investments in foreign
securities.
FIXED RATE DEBT OBLIGATIONS. The Funds may invest in fixed rate
securities, including fixed rate securities with short-term
characteristics. Fixed rate securities with short-term characteristics
are long-term debt obligations but are treated in the market as having
short maturities because call features of the securities may make them
callable within a short period of time. A fixed rate security with
short-term characteristics would include a fixed income security
priced close to call or redemption price or fixed income security
approaching maturity, where the expectation of call or redemption is
high.
Fixed rate securities exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates
of interest. This is because floating rate securities, as described
below, behave like short-term instruments in that the rate of interest
they pay is subject to periodic adjustments based on a designated
interest rate index. Fixed rate securities pay a fixed rate of
interest and are more sensitive to fluctuating interest rates. In
periods of rising interest rates the value of a fixed rate security is
likely to fall. Fixed rate securities with short-term characteristics
are not subject to the same price volatility as fixed rate securities
without such characteristics. Therefore, they behave more like
floating rate securities with respect to price volatility.
FLOATING RATE DEBT OBLIGATIONS. The Funds may invest in floating rate
debt obligations, including increasing rate securities. Floating rate
securities are generally offered at an initial interest rate which is
at or above prevailing market rates. The interest rate paid on these
securities is then reset periodically (commonly every 90 days to an
increment over some predetermined interest rate index). Commonly
utilized indices include the three-month Treasury bill rate, the
180-day Treasury bill rate, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a bank, the
commercial paper rates, or the longer-term rates on U.S. Treasury
securities. Increasing rate securities' rates are reset periodically
at different levels on a predetermined scale. These levels of interest
are ordinarily set at progressively higher increments over time. Some
increasing rate securities may, by agreement, revert to a fixed rate
status. These securities may also contain features which allow the
issuer the option to convert the increasing rate of interest to a
fixed rate under such terms, conditions, and limitations as are
described in each issuer's prospectus.
FOREIGN CURRENCY TRANSACTIONS. The INTERNATIONAL STOCK FUND may enter
into foreign currency transactions to obtain the necessary currencies
to settle securities transactions. Currency transactions may be
conducted either on a spot or cash basis at prevailing rates or
through forward foreign currency exchange contracts.
The INTERNATIONAL STOCK FUND may also enter into foreign currency
transactions to protect its assets against adverse changes in foreign
currency exchange rates or exchange control regulations. Such changes
could unfavorably affect the value of Fund assets which are
denominated in foreign currencies, such as foreign securities or funds
deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used by the Fund to protect against
a decline in the value of one or more currencies, such efforts may
also limit any potential gain that might result from a relative
increase in the value of such currencies and might, in certain cases,
result in losses to the Fund. Further, the Fund may be affected either
unfavorably or favorably by fluctuations in the relative rates of
exchange between the currencies of different nations. Cross-hedging
transactions by the Fund involve the risk of imperfect correlation
between changes in the values of the currencies to which such
transactions relate and changes in the value of the currency or other
asset or liability that is the subject of the hedge.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. The INTERNATIONAL STOCK FUND may enter into a forward
foreign currency exchange contract ("forward contract"), which is an
obligation to purchase or sell an amount of a particular currency at a
specific price and on a future date agreed upon by the parties.
Generally, no commission charges or deposits are involved. At the time
the INTERNATIONAL STOCK FUND enters into a forward contract, Fund
assets with a value equal to the Fund's obligation under the forward
contract are segregated on the Fund's records and are maintained until
the contract has been settled. The Fund generally will not enter into
a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency
to settle a securities transaction at the time the transaction occurs
("trade date"). The period between trade date and settlement date will
vary between twenty-four hours and thirty days, depending upon local
custom.
The INTERNATIONAL STOCK FUND may also protect against the decline of a
particular foreign currency by entering into a forward contract to
sell an amount of that currency approximating the value of all or a
portion of the Fund's assets denominated in that currency ("hedging").
The success of this type of short-term hedging strategy is highly
uncertain due to the difficulties of predicting short-term currency
market movements and of precisely matching forward contract amounts
and the constantly changing value of the securities involved. Although
the Fund's Subadviser will consider the likelihood of changes in
currency values when making investment decisions, the Subadviser
believes that it is important to be able to enter into forward
contracts when it believes the interests of the Fund will be served.
The Fund will not enter into forward contracts for hedging purposes in
a particular currency in an amount in excess of the Fund's assets
denominated in that currency.
The INTERNATIONAL STOCK FUND may purchase and write put and call
options on foreign currencies for the purpose of protecting against
declines in the U.S. dollar value of foreign currency-denominated
portfolio securities and against increases in the U.S. dollar cost of
such securities to be acquired. As in the case of other kinds of
options, however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may constitute
an effective hedge against fluctuations in exchange rates 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. 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.
Illiquid securities are any securities a Fund owns which it may not be
able to sell quickly (within seven days) at a fair price.
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,
associations or a segregated pool of mortgages. Once REMIC status is
elected and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is taxed to
the person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular interests,"
some of which may offer adjustable rates, and a single class of
"residual interests." To qualify as a REMIC, substantially all of the
assets of the entity must be in assets directly or indirectly secured
principally by real property.
MUNICIPAL SECURITIES. The SHORT-TERM INCOME FUND, the INTERMEDIATE
BOND FUND, and the INTERMEDIATE TAX-FREE FUND may invest in Municipal
Securities, which are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also
issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal Securities include industrial development bonds issued by or
on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly
owned corporations. The availability of this financing encourages
these corporations to locate within the sponsoring communities and
thereby increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. Interest on and principal
of revenue bonds, however, are payable only from the revenue generated
by the facility financed by the bond or other specified sources of
revenue. Revenue bonds do not represent a pledge of credit or create
any debt of or charge against the general revenues of a municipality
or public authority.
Industrial development bonds are typically classified as revenue
bonds.
MUNICIPAL LEASES. The INTERMEDIATE TAX-FREE FUND may purchase
municipal leases, which are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the
form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of these.
PARTICIPATION INTERESTS. The INTERMEDIATE TAX-FREE FUND may purchase
interests in Municipal Securities from financial institutions such as
commercial and investment banks, savings and loan associations and
insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests
or any other form of indirect ownership that allows the Fund to treat
the income from the investment as exempt from federal income tax. The
financial institutions from which the Fund purchases participation
interests frequently provide or obtain irrevocable letters of credit
or guarantees to attempt to assure that the participation interests
are of acceptable quality. The Fund invests in these participation
interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying
Municipal Securities.
OPTIONS ON SECURITIES OR INDICES AND FUTURES CONTRACTS. In order to
hedge against market shifts, a Fund may purchase put and call options
on securities or securities indices. In addition, a Fund may seek to
generate income to offset operating expenses and/or may hedge a
portion of its portfolio investments through writing (i.e., selling)
covered put and call options. An option on a security is a contract
that permits the purchaser of the option, in return for the premium
paid, the right to buy a specified security (in the case of a call
option) or to sell a specified security (in the case of a put option)
from or to the writer of the option at a designated price during the
term of the option. An option on a securities index permits the
purchaser of the option, in return for the premium paid, the right to
receive from the seller cash equal to the difference between the
closing price of the index and the exercise price of the option. A
Fund may write a call or put option only if the option is "covered."
This means that so long as the Fund is obligated as the writer of a
call option, it will own the underlying securities subject to the
call, or hold a call at the same exercise price, for the same exercise
period, and on the same securities as the written call. A put is
covered if the Fund maintains liquid assets with a value equal to the
exercise price in a segregated account, or holds a put on the
underlying securities at an equal or greater exercise price.
Options purchased or written by a Fund may be traded on United States
and foreign exchanges or in the over-the-counter markets.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded
options are third-party contracts with standardized strike prices and
expiration dates and are purchased from a clearing corporation.
Exchange-traded options generally have a continuous liquid market
while over-the-counter options may not. A Fund purchases and writes
options only with investment dealers and other financial institutions
(such as commercial banks or savings and loan associations) deemed
creditworthy by the Fund's Adviser or Subadviser.
The Funds, other than the MONEY MARKET FUND, SHORT-TERM INCOME FUND,
or INTERMEDIATE BOND FUND, may invest in futures for bona fide hedging
purposes. Although the Funds have the ability to invest up to 5% of
their respective net assets in futures for other than bona fide
hedging purposes, they have no present intention to do so. The ability
to engage in futures transactions is a fundamental investment policy.
For hedging purposes only, a Fund may buy and sell covered financial
futures contracts, stock index futures contracts, foreign currency
futures contracts and options on any of the foregoing. A financial
futures contract is an agreement between two parties to buy or sell a
specified debt security at a set price on a future date. An index
futures contract is an agreement to take or make delivery of an amount
of cash based on the difference between the value of the index at the
beginning and at the end of the contract period. A futures contract on
a foreign currency is an agreement to buy or sell a specified amount
of a currency for a set price on a future date. When a Fund enters
into a futures contract, it must make an initial deposit, known as
"initial margin," as a partial guarantee of its performance under the
contract. As the value of the security, index, or currency fluctuates,
either party to the contract is required to make additional margin
payments, known as "variation margin," to cover any additional
obligation it may have under the contract. In addition, when a Fund
enters into a futures contract, it will segregate assets to "cover"
its position in accordance with the Act. See "Investment Objectives
and Policies - Futures and Options Transactions" in the Statement of
Additional Information.
PRIME COMMERCIAL PAPER. The Funds may purchase Prime Commercial Paper,
which is a short-term debt obligation that matures in 270 days or
less, is issued by banks, corporations or other institutions, and is
rated one of the two highest rating categories for short-term
obligations by an NRSRO or, if unrated, are of comparable quality to
securities having such ratings.
PORTFOLIO TURNOVER. Although none of the Funds intends to invest
for the purpose of seeking short-term profits, securities will be sold
whenever the Fund's Adviser or Subadviser believes it is appropriate
to do so in light of the Fund's investment objective, without regard
to the length of time a particular security may have been held. The
annual rate of portfolio turnover for the SHORT-TERM INCOME FUND,
GOVERNMENT INCOME FUND and INTERMEDIATE BOND FUND may exceed that of
certain other mutual funds with the same investment objective. A
higher rate of portfolio turnover involves correspondingly greater
transaction expenses which must be borne directly by the Fund and,
thus, indirectly by its shareholders. In addition, a high rate of
portfolio turnover may result in the realization of larger amounts of
capital gains which, when distributed to the Fund's shareholders, are
taxable to them. Nevertheless, transactions for a Fund's portfolio
will be based upon investment considerations and will not be limited
by any other considerations when the Fund's investment adviser or
subadviser deems it appropriate to make changes in the Fund's
portfolio.
RATINGS. Securities rated in the fourth highest investment grade
category (BAA BY MOODY'S, OR BBB BY S&P OR FITCH) have speculative
characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than higher rated securities. The
Funds' Statement of Additional Information contains complete
descriptions of ratings.
A Fund's Adviser or Subadviser will evaluate downgraded securities on
a case-by-case basis and will sell any security determined not to be
an acceptable investment.
An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 OR
A-1+ BY S&P OR PRIME-1 BY MOODY'S are all considered rated in the
highest short-term rating category. The MONEY MARKET FUND will follow
applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the highest short-term
rating category; currently, such securities must be rated by two
NRSROs in their highest rating category. The MONEY MARKET FUND may
purchase single rated securities that are rated in the highest rating
category by an NRSRO. Unrated securities may be treated as "First
Tier" securities and are also eligible for purchase by the MONEY
MARKET FUND, subject to a determination of comparability by the
Adviser.
Acquisition of such unrated securities must be ratified by the
Directors quarterly.
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.
The Funds will only purchase shares of other open-end investment
companies whose sales loads, if any, are less than 1.00% of their
offering prices.
SWAP TRANSACTIONS. As one way of managing its exposure to different
types of investments, each of the Funds (except the MONEY MARKET FUND)
may invest up to 5% of their respective net assets in swap
transactions, including interest rate and index-based swaps. See
"Investment Objectives and Policies - Swap Transactions" in the
Statement of Additional Information.
TEMPORARY INVESTMENTS. When the Adviser or Subadviser judges that
market conditions warrant a defensive investment position (this rarely
applies to the MONEY MARKET FUND), each of the Funds may temporarily
invest without limit in short-term debt obligations (money market
instruments). These investments include commercial paper, bank
instruments, U.S. government obligations, repurchase agreements,
securities of other investment companies, taxable or tax-free
Municipal Securities (for the INTERMEDIATE TAX-FREE FUND) and foreign
securities (for the INTERNATIONAL STOCK FUND). The INTERMEDIATE
TAX-FREE FUND does not currently intend to make any taxable
investments although they are permitted to do so. Each Fund's
temporary investments must be of comparable quality to its primary
investments.
U.S. GOVERNMENT SECURITIES. All of the Funds may invest in U.S.
government securities. These instruments are either issued or
guaranteed by the U.S. government, its agencies, or instrumentalities.
These securities include, but are not
limited to:
o direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
o 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
o 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. 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.
<PAGE>
ADDRESSES
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
<TABLE>
<CAPTION>
<S> <C> <C>
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>
<PAGE>
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
October 31, 1997
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
MARSHALL LARGE-CAP GROWTH & INCOME FUND
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 11
Fundamental Limitations 11
Non-Fundamental Limitations 13
MARSHALL FUNDS, INC. MANAGEMENT 14
Officers and Directors 15
Fund Ownership 16
Directors' Compensation 18
INVESTMENT ADVISORY SERVICES 18
Adviser to the Funds 18
Advisory Fees 18
Subadviser to International Stock Fund 19
OTHER SERVICES 20
Administrative Services 20
Transfer Agent and Dividend Disbursing Agent 20
Custodian 20
Independent Public Accountants 20
SHAREHOLDER SERVICING ARRANGEMENTS 21
BROKERAGE TRANSACTIONS 21
PURCHASING SHARES WITH SECURITIES 22
DISTRIBUTION PLAN 22
DETERMINING MARKET VALUE 23
Use of the Amortized Cost Method 23
Market Values 23
Trading in Foreign Securities 24
REDEMPTION IN KIND 24
BANKING LAWS 24
TAX STATUS 25
The Funds' Tax Status 25
Foreign Taxes 25
Shareholders' Tax Status 25
Capital Gains 25
Total Return 26
YIELD 26
EFFECTIVE YIELD 27
TAX-EQUIVALENT YIELD 27
Tax-Equivalency Table 27
PERFORMANCE COMPARISONS 28
Economic and Market Information 31
FINANCIAL STATEMENTS 31
PLEASE NOTE: The TABLE OF CONTENTS will be finalized when the Prospectus
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.
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, each Fund may invest 25% or more of the value of
its total assets in cash or cash items, securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities,
and repurchase agreements collateralized by such securities. In
addition, the INTERMEDIATE TAX-FREE FUND may invest more than 25% of
the value of its total assets in obligations issued by any state,
territory, or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions, including tax-exempt project notes guaranteed
by the U.S. government, regardless of the location of the issuing
municipality. This policy applies to securities which are related in
such a way that an economic, business, or political development
affecting one security would also affect the other securities (such as
securities paid from revenues from selected projects in
transportation, public works, education, or housing). (ALL OTHER
FUNDS) A Fund will not invest 25% or more of its total assets in any
one industry. However, investing in U.S. government securities (and
domestic bank instruments for the MONEY MARKET FUND) shall not be
considered investments in any one industry. UNDERWRITING
A Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted (the term "restricted" does not
apply to the INTERMEDIATE TAX-FREE FUND) securities which the Fund may
purchase pursuant to its investment objective, policies and
limitations.
<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
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 August 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 10,972,050
shares (52.22%); and Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 8,371,611 shares (39.84%).
LARGE-CAP GROWTH & INCOME FUND Maril & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 4,605,813 shares
(24.07%); and Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 11,040,240 shares (57.69%).
MID-CAP VALUE FUND Vallee, Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 809,391 shares (7.21%);
Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin,
owned approximately 4,927,809 shares (43.90%); and Mitra & Co.,
Marshall & Ilsley Trust Operations, owned approximately 5,029,795
shares (44.81%). MID-CAP GROWTH FUND Maril & Co., Marshall & Ilsley
Trust Operations, Milwaukee, Wisconsin, owned approximately 6,033,629
shares (45.60%); and Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 6,046,009 shares (45.7%).
INTERNATIONAL STOCK FUND Maril & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 8,445,358 shares
(49.80%); and Mitra & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 7,077,436 shares (41.74%).
SMALL-CAP GROWTH FUND Maril & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin, owned approximately 1,641,152 shares (36.25%);
and Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 1,931,789 shares (42.68%). SHORT-TERM
INCOME FUND Maril & Co., Marshall & Ilsley Trust Operations,
Milwaukee, Wisconsin , owned approximately 7,424,719 shares (49.00%);
and Mitra & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 6,345,420 shares (41.87%). INTERMEDIATE
BOND FUND Maril & Co., Marshall & Ilsley Trust Operations, Milwaukee,
Wisconsin, owned approximately 934,678 shares (42.68%); and Mitra &
Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 20,776,000 shares (49.44%). GOVERNMENT INCOME FUND Maril
& Co., Marshall & Ilsley Trust Operations, Milwaukee, Wisconsin, owned
approximately 9,298,310 shares (43.83%); and Mitra & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
9,171,077 (43.23%). INTERMEDIATE TAX-FREE FUND Maril & Co., Marshall &
Ilsley Trust Operations, Milwaukee, Wisconsin, owned approximately
7,837,078 shares (88.82%); and Mitra & Co., Marshall & Ilsley Trust
Operations, Milwaukee, Wisconsin, owned approximately 705,249 shares
(7.99%). MONEY MARKET FUND Maril & Co., Milwaukee, Wisconsin, owned
approximately 808,715,492 of the Class A Shares of the Fund (66.43%);
Miaz & Co., Milwaukee, Wisconsin, owned approximately 78,527,178 of
the Class A Shares of the Fund (6.45%); M & I BSS Appleton, Appleton,
Wisconsin, owned approximately 28,963,566 of the Class B Shares of the
Fund (30.85%); M&I BSS Madison, Appleton, Wisconsin, owned
approximately 17,472,773 of the Class B Shares of the Fund (18.61%);
and M&I BSS Janesville, Appleton, Wisconsin, owned approximately
8,849,534 of the Class B Shares of the Fund (9.43%).
<PAGE>
DIRECTORS' COMPENSATION (TO BE UPDATED)
NAME, AGGREGATE
POSITION WITH COMPENSATION
CORPORATION FROM CORPORATION*#
Edward C. Gonzales,
Chairman, Director, and Treasurer $ -0-
John DeVincentis, $ ______
Director
Ody J. Fish, $ ______
Director
Paul E. Hassett, $ ______ 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 $______, $1,101,454,
and $584,150, respectively, of which $_____, $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 $_____, $2,003,427, and $1,813,889,
, respectively, of which $____, $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 $_____, $1,556,051,
and $1,592,905, respectively, of which $_____, $0, and $0,
respectively, were voluntarily waived. For the fiscal years ended
August 31, 1997, 1996, and 1995, the Adviser earned fees from MID-CAP
GROWTH FUND of $____, $917,068, and $585,271, respectively, of which
$____, $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 $____,
$1,179,310, and $727,503, respectively, of which $____, $0, and
$31,759, respectively, were voluntarily waived. For the fiscal years
ended August 31, 1997, 1996, and 1995, the Adviser earned fees from
SHORT-TERM INCOME FUND of $____, $540,501, and $537,366, respectively,
of which $____, $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 $____,
$2,253,912, and $2,046,206, respectively, of which $____, $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 $____, $938,027, and $635,592,
respectively, of which $____, $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 $____, $314,337, and $243,850, respectively, of which $____,
$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 $____, $5,636,051, and $5,435,257,
respectively, of which $____, $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 $____, $544,167, and $363,752,
respectively, of which $____, $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 $____,
$131,196, and $70,707, respectively, of which $____, $0, and $0,
respectively, were voluntarily waived. For the fiscal years ended
August 31, 1997, 1996, and 1995, FAS received fees from LARGE-CAP
GROWTH & INCOME FUND of $____, $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 $____, $185,501, and $193,180, respectively, of
which $____, $0, and $0, respectively, were voluntarily waived. For
the fiscal years ended August 31, 1997, 1996, and 1995, FAS received
fees from MID-CAP GROWTH FUND of $____, $109,258, and $70,878,
respectively, of which $____, $0, and $0, respectively, were
voluntarily waived. 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 $____, $108,298, and $66,944,
respectively. For the fiscal years ended August 31, 1997, 1996, and
1995, FAS received fees from SHORT-TERM INCOME FUND of $____, $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
$____, $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 $____, $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 $____, $50,437, and
$50,000, respectively, of which $____, $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 $____,
$1,007,572, 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 $____ 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 $____ 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 $____ from MID-CAP VALUE EQUITY 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 $____ 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 $____ 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 fiscal year ended August 31, 1997,
FSSC earned shareholder servicing fees of $____ from SHORT-TERM INCOME
FUND. 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 $____ 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. For the fiscal year ended August 31, 1997,
FSSC earned shareholder servicing fees of $____ from GOVERNMENT INCOME
FUND. 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 $____ from INTERMEDIATE
TAX-FREE FUND. 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 year
ended August 31, 1997, FSSC earned shareholder servicing fees of $____
from MONEY MARKET FUND. For the fiscal years ended August 31, 1996 and
1995, MFIS earned shareholder servicing fees of $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 $____, $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 $____, $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 $____, $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 $____,
$353,770, $248,008, and $109,864, 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 $____, $115,382, and
$276,073,respectively in brokerage commissions on brokerage
transactions.
PURCHASING SHARES WITH SECURITIES
A Fund may accept securities in exchange for its shares. A Fund will
allow such exchanges only upon the prior approval of the Fund and a
determination by the Fund and its adviser(s) that the securities to be
exchanged are acceptable. Any securities exchanged must meet the
investment objective and policies of the Fund, must have a readily
ascertainable market value. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least
equal to the minimum investment in the Fund. Securities accepted by a
Fund will be valued in the same manner as the Fund values its assets.
The basis of the exchange will depend on the net asset value of Fund
shares on the day the securities are valued. One share of the Fund
will be issued for the equivalent amount of securities accepted. Any
interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends,
subscription or other rights attached to the securities become the
property of the Fund, along with the securities. If an exchange is
permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged
for Fund shares, a gain or loss may be realized by the investor.
DISTRIBUTION PLAN
The Corporation has adopted a plan for the INTERNATIONAL STOCK
FUND, SMALL-CAP 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 $_____ 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)
Marketvalues of portfolio securities of Funds other than the MONEY
MARKET FUND are determined as follows: o for domestic equity
securities and foreign securities, according to the last
reported sales price on a recognized
securities exchange, if available;
o in the absence of recorded sales for domestic equity
securities, according to the mean between the last closing
bid and asked prices;
o in the absence of reported sales prices for foreign
securities or if the foreign security is traded
over-the-counter, according to the last reported bid price;
o for domestic bonds and other fixed income securities, at the
last sales price on a national securities exchange if
available, otherwise as determined by an independent pricing
service;
o for domestic short-term obligations, according to the mean between
bid and asked price as furnished by an independent pricing service;
o for short-term obligations with remaining maturities of less
than 60 days at the time of purchase, at amortized cost,
which approximates fair value; or
o at fair value as determined in good faith by the Directors.
If a security is traded on more than one exchange, the price on the
primary market for that security, as determined by the Fund's adviser
or subadviser, is used. Prices provided by independent pricing
services may be determined without relying exclusively on quoted
prices and may reflect institutional trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data. The Funds will value
futures contracts, and options on stocks, stock indices and futures
contracts at their market values established by the exchanges at the
close of option trading on such exchanges unless the Directors
determine in good faith that another method of valuing these positions
is necessary. TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary
from the closing of the New York Stock Exchange. In computing its net
asset value, the INTERNATIONAL STOCK FUND values foreign securities at
the latest closing price on the exchange on which they are traded
immediately prior to the closing of the New York Stock Exchange.
Certain foreign currency exchange rates may also be determined at the
latest rate prior to the closing of the New York Stock Exchange.
Foreign securities quoted in foreign currencies are translated into
U.S. dollars at current rates. Occasionally, events that affect these
values and exchange rates may occur between the times at which they
are determined and the closing of the New York Stock Exchange. If such
events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good
faith by the Directors, although the actual calculation may be done by
others.
REDEMPTION IN KIND
Although the Corporation intends to redeem shares in cash, it reserves
the right under certain circumstances to pay the redemption price in
whole or in part by a distribution of securities from a Fund's
portfolio. To the extent available, such securities will be readily
marketable. Redemption in kind will be made in conformity with
applicable Securities and Exchange Commission rules, taking such
securities at the same value employed in determining net asset value
and selecting the securities in a manner the Directors determine to be
fair and equitable. The Corporation has elected to be governed by Rule
18f-1 under the Act, which obligates the Corporation to redeem shares
for any one shareholder in cash only up to the lesser of $250,000 or
1% of a Fund's net asset value during any 90-day period. Redemption in
kind is not as liquid as a cash redemption. If redemption is made in
kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur transaction costs.
BANKING LAWS
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956 or any
bank or non-bank affiliate thereof from sponsoring, organizing,
controlling or distributing the shares of a registered, open-end
management investment company continuously engaged in the issuance of
its shares, and prohibit banks generally from issuing, underwriting,
or distributing securities. However, such banking laws and regulations
do not prohibit such a holding company, affiliate, or banks generally
from acting as investment adviser, transfer agent or custodian to such
an investment company or from purchasing shares of such a company as
agent for and upon the order of such a customer. M&I Corp. is subject
to such banking laws and regulations.
M&I Corp. believes, based on the advice of its counsel, that M&I
Investment Management Corp. may perform the services contemplated by
the investment advisory agreement with the Corporation without
violation of the Glass-Steagall Act or other applicable banking laws
or regulations. Changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of such present or future
statutes and regulations, could prevent M&I Investment Management
Corp. or M&I Corp. from continuing to perform all or a part of the
services described in the prospectus for its customers and/or the
Fund. If M&I Investment Management Corp. and M&I Corp. were prohibited
from engaging in these activities, the Directors would consider
alternative advisers and means of continuing available investment
services. In such event, changes in the operation of the Fund may
occur, including possible termination of any automatic or other Fund
share investment and redemption services then being provided by M&I
Investment Management Corp. and M&I Brokerage Services or MFIS. It is
not expected that existing shareholders would suffer any adverse
financial consequences if another adviser with equivalent abilities to
M&I Investment Management Corp. is found as a result of any of these
occurrences.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because each Fund expects to
meet the requirements of Subchapter M of the Internal Revenue Code
applicable to regulated investment companies and to receive the
special tax treatment afforded to such companies.
To qualify for this treatment, each Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
There are tax uncertainties with respect to whether increasing rate
securities will be treated as having an original issue discount. If it
is determined that the increasing rate securities have original issue
discount, a holder will be required to include as income in each
taxable year, in addition to interest paid on the security for that
year, an amount equal to the sum of the daily portions of original
issue discount for each day during the taxable year that such holder
holds the security. There may also be tax uncertainties with respect
to whether an extension of maturity on an increasing rate note will be
treated as a taxable exchange. In the event it is determined that an
extension of maturity is a taxable exchange, a holder will recognize a
taxable gain or loss, which will be a short-term capital gain or loss
if the holder holds the security as a capital asset, to the extent
that the value of the security with an extended maturity differs from
the adjusted basis of the security deemed exchanged therefor. FOREIGN
TAXES
Investment income on certain foreign securities may be subject to
foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign
countries, however, may reduce or eliminate the amount of foreign
taxes to which a Fund would be subject. However, if a Fund may invest
in the stock of certain foreign corporations that constitute a Passive
Foreign Investment Company (PFIC), then federal income taxes may be
imposed on a Fund upon disposition of PFIC investments. SHAREHOLDERS'
TAX STATUS
The dividends received deduction for corporations will apply to
ordinary income distributions to the extent the distribution
represents amounts that would qualify for the dividends received
deduction to the EQUITY FUNDS if the EQUITY FUNDS were a regular
corporation, and to the extent designated by the EQUITY FUNDS as so
qualifying. Otherwise, these dividends and any short-term capital
gains are taxable as ordinary income. No portion of any income
dividends paid by the other Funds is eligible for the dividends
received deduction available to corporations. These dividends, and any
short-term capital gains, are taxable as ordinary income. CAPITAL
GAINS
Capital gains, when experienced by the Fund, could result in an
increase in dividends. Capital losses could result in a decrease in
dividends. When a Fund realizes net long-term capital gains, it will
distribute them at least once every 12 months.
<PAGE>
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 __% and __%, 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
__% and __%, 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 __% and __%, 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 __% and __%, 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 __% and __%, 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 __% and __%, 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 __% and
__%, 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 __% and __%, 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 __% and __%,
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 __% and __%, 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 __%. The Fund's yield for Class B
Shares was __% 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 __%. LARGE-CAP
GROWTH FUND's yield for the 30-day period ended August 31, 1997, was
__%. MID-CAP VALUE FUND's yield for the 30-day period ended August 31,
1997, was __%. MID-CAP STOCK FUND's yield for the 30-day period ended
August 31, 1997, was ___. SHORT-TERM INCOME FUND's yield for the
30-day period ended August 31, 1997, was __%. INTERMEDIATE BOND FUND's
yield for the 30-day period ended August 31, 1997, was __%. GOVERNMENT
INCOME FUND's yield for the 30-day period ended August 31, 1997, was
__%. INTERMEDIATE TAX-FREE Fund's yield for the 30-day period ended
August 31, 1997, was __%. 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 __%. The MONEY MARKET FUND's effective yield for
Class B Shares was __% 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 __%. 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) (Financial
Statements to be filed by Amendment)..
<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. NR -- NR
indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy. Plus (+) or minus (-): The ratings "AA" and "A" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories. MOODY'S INVESTORS
SERVICE, INC. MUNICIPAL BOND RATINGS AAA -- Bonds which are rated Aaa
are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such
issues. AA -- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities. A
- -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future. NR -- Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in the generic rating
classification of "Aa" and "A" in its corporate or municipal bond
rating system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks
in the lower end of its generic rating category. STANDARD AND POOR'S
CORPORATION MUNICIPAL NOTE RATINGS SP-1 -- Very strong or strong
capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus (+)
designation. SP-2 -- Satisfactory capacity to pay principal and
interest. MOODY'S INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
MIG1/VMIG1 -- This designation denotes best quality. There is a
present strong protection by established cash flows, superior
liquidity support or demonstrated broad based access to the market for
refinancing. MIG2/VMIG2 -- This designation denotes high quality.
Margins of protection are ample although not so large as in the
preceding group.
G00714-02 (10/97)
PART C. OTHER INFORMATION.
Item 24. FINANCIAL STATEMENTS AND EXHIBITS:
<TABLE>
<CAPTION>
(a) Financial Statements: (1-11) (To be filed by Amendment)
(b) Exhibits:
<S> <C> <C> <C>
(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; +
(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).
</TABLE>
<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; +
(iii) Copy of Amendment No. 2 to Schedule A of the Sub-Custodian
Agreement; +
(iv) 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).
<PAGE>
(iii) Conformed copy of Amendment No. 2 to Schedule A of Fund Accounting and
Shareholder Recordkeeping Agreement; +
(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; +
(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;+
(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).
<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) Not applicable;
(12) Not applicable;
(13) Conformed copy of Initial Capital
Understanding (11.);
(14) Not applicable;
(15) (i) Conformed copy of
Distribution Plan (4.); (ii)
Conformed copy of Exhibit B of
Distribution Plan (9.); (iii)
Conformed copy of Exhibit A of
Distribution Plan (11.); (iv)
Form of 12b-1 Agreement through
and including Exhibit B (11.);
(v) Copy of Exhibit C to Rule
12b-1 Agreement of the Registrant
(13.); (vi) Conformed copy of
Exhibit C to the Distribution
Plan of the Registrant (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
(15.);
(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 AUGUST 6, 1997_____
Shares of capital stock
Marshall Intermediate Bond Fund 392
Marshall Government Income Fund 1,855
Marshall Money Market Fund
Class A Shares 3,504
Marshall Money Market Fund
Class B Shares 2,156
Marshall Short-Term Income Fund 242
Marshall Large-Cap Growth & Income Fund 3,170
Marshall Equity Income Fund 1,064
Marshall Mid-Cap Growth Fund 993
Marshall Mid-Cap Value Fund 533
Marshall Intermediate Tax-Free Fund 52
Marshall International Stock Fund 539
Marshall Small-Cap Growth Fund 622
Item 27. INDEMNIFICATION: (5.)
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
M&I INVESTMENT MANAGEMENT CORP.
(a) M&I Investment Management Corp. is a registered investment
adviser and wholly-owned subsidiary of Marshall & Ilsley
Corporation, a registered bank holding company headquartered in
Milwaukee, Wisconsin. As of December 1, 1996 M&I Investment
Management Corp. had approximately $7.65 billion in assets under
management and has managed investments for individuals and
institutions since its inception in 1973. M&I Investment
Management Corp. served as investment adviser to Newton Money
Fund, Newton Income Fund and Newton Growth Fund.
- -----------------------
+ 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 December 1, 1996 TICI had
discretionary investment management of $17.2 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;
BayFunds; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
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 Biltmore Funds; The Biltmore Municipal Funds;
The Monitor Funds; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; Tower Mutual Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Group of Funds, Inc.; WesMark Funds; 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.
<TABLE>
<CAPTION>
(b)
Name and Principal Positions and Offices Positions and Offices
<S> <C> <C>
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
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
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
Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<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
Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
Matthew S. Propelka Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 30. LOCATION OF ACCOUNTS AND RECORDS:
MARSHALL FUNDS, INC. Federated Investors Tower
Pittsburgh, PA 15222-3779
FEDERATED SHAREHOLDER SERVICES Federated Investors Tower
COMPANY Pittsburgh, PA 15222-3779
("Transfer Agent, Dividend
Disbursing Agent, and Portfolio
Accounting Services")
FEDERATED ADMINISTRATIVE SERVICES Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
M & I INVESTMENT MANAGEMENT CORP. 1000 North Water Street
---------------------------------
("Adviser") Milwaukee, WI 53202
MARSHALL & ILSLEY TRUST COMPANY 1000 North Water Street
-------------------------------
("Custodian") Milwaukee, WI 53202
TEMPLETON INVESTMENT COUNSEL, INC. 500 East Broward Blvd.
("Sub-Adviser") Suite 2100
Ft. Lauderdale, FL 33394-3091
Item 31. MANAGEMENT SERVICES: Not applicable.
Item 32. UNDERTAKINGS:
Registrant hereby undertakes to comply with the
provisions of Section 16(c) of the 1940 Act with
respect to the removal of Trustees and the calling
of special shareholders meetings by shareholders.
Registrant hereby undertakes to furnish each person
to whom a prospectus is delivered, a copy of the
Registrant's latest annual report to shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant, MARSHALL FUNDS,
INC., has duly caused this Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereto duly authorized,
in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
26th day of August, 1997.
MARSHALL FUNDS, INC.
BY: /s/ C. Todd Gibson
C. Todd Gibson, Assistant Secretary
Attorney in Fact for Edward C. Gonzales
August 26, 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:
NAME TITLE DATE
By: /s/C. Todd Gibson
C. Todd Gibson Attorney In Fact August 26, 1997
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales Chairman, Director, August 26, 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
Exhibit 4 under Form N-1A
Exhibit 4 under Item 601/Reg. S-K
MARSHALL FUNDS, INC.
MARSHALL MID-CAP GROWTH FUND
Portfolio
Number Shares
- ----- -----
Account No. Alpha Code See Reverse Side For
Certain Definitions
Incorporated under the Laws of the State of Wisconsin
THIS IS TO CERTIFY THAT is the owner of
CUSIP 572353878
Fully Paid and Non-Assessable Shares of Beneficial Interest of the
MARSHALL MID-CAP GROWTH FUND Portfolio of MARSHALL FUNDS, INC.
hereafter called the "Company", transferable on the books of the
Company by the owner in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Articles of Incorporation and By-Laws
of the Company and all amendments thereto, all of which the holder by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name by its proper officers and to be sealed with
its seal.
Dated: MARSHALL FUNDS, INC.
Corporate Seal
1992
Wisconsin
/s/ Edward C. Gonzales /s/ Peter J. Germain
Chairman & Treasurer Secretary
Countersigned: FEDERATED SHAREHOLDER SERVICES
COMPANY (Pittsburgh)
Transfer Agent
By:
Authorized Signature
G02097-03 (5/97)
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written
out in full according to applicable laws or regulations; TEN COM - as
tenants in common UNIF GIFT MIN ACT-...Custodian... TEN ENT - as
tenants by the entireties (Cust) (Minors) JT TEN - as joint tenants
with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common (State)
Additional abbreviations may also be used though not in the
above list.
The Company will furnish to any stockholder, on request and without
charge, a full statement of designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of
redemption of the stock of each class which the corporation is
authorized to issue.
FOR VALUE RECEIVED ___________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Please insert social security or other
identifying number of assignee
- --------------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
______________________________________________________________________ shares
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------
- -----------------------------------------------------------------------------
to transfer the said shares on the books of the within named Company
with full power of substitution in the premises.
Dated______________________
NOTICE:_____________
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.
<PAGE>
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
PAGE ONE
A. The Certificate is outlined by an (COLOR) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the page.
PAGE TWO
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
<PAGE>
MARSHALL FUNDS, INC.
MARSHALL LARGE-CAP GROWTH & INCOME FUND
Number Shares
- ----- -----
Account No. Alpha Code See Reverse Side For
Certain Definitions
Incorporated under the Laws of the State of Wisconsin
THIS IS TO CERTIFY THAT is the owner of
CUSIP 572353704
Fully Paid and Non-Assessable Shares of Beneficial Interest of the
MARSHALL LARGE-CAP GROWTH & INCOME FUND Portfolio of MARSHALL FUNDS,
INC. hereafter called the "Company", transferable on the books of the
Company by the owner in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Articles of Incorporation and By-Laws
of the Company and all amendments thereto, all of which the holder by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name by its proper officers and to be sealed with
its seal.
Dated: MARSHALL FUNDS, INC.
Corporate Seal
1992
Wisconsin
/s/ Edward C. Gonzales /s/ John F. Donahue
Chairman & Treasurer Secretary
Countersigned: FEDERATED SHAREHOLDER SERVICES
COMPANY (Pittsburgh)
Transfer Agent
By:
Authorized Signature
G02097-01 (5/97)
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written
out in full according to applicable laws or regulations; TEN COM - as
tenants in common UNIF GIFT MIN ACT-...Custodian... TEN ENT - as
tenants by the entireties (Cust) (Minors) JT TEN - as joint tenants
with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common (State)
Additional abbreviations may also be used though not in the
above list.
The Company will furnish to any stockholder, on request and without
charge, a full statement of designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of
redemption of the stock of each class which the corporation is
authorized to issue.
FOR VALUE RECEIVED ______________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Please insert social security or other
identifying number of assignee
- --------------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
______________________________________________________________________ shares
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------
- -----------------------------------------------------------------------------
to transfer the said shares on the books of the within named Trust
with full power of substitution in the premises.
Dated______________________
NOTICE:_______________
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.
<PAGE>
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
PAGE ONE
A. The Certificate is outlined by an (COLOR) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the page.
PAGE TWO
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
<PAGE>
MARSHALL FUNDS, INC.
MARSHALL MID-CAP VALUE FUND
Portfolio
Number Shares
- ----- -----
Account No. Alpha Code See Reverse Side For
Certain Definitions
Incorporated under the Laws of the State of Wisconsin
THIS IS TO CERTIFY THAT is the owner of
CUSIP 572353860
Fully Paid and Non-Assessable Shares of Beneficial Interest of THE
MARSHALL MID-CAP VALUE FUND PORTFOLIO OF MARSHALL FUNDS, INC.
hereafter called the "Company", transferable on the books of the
Company by the owner in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Articles of Incorporation and By-Laws
of the Company and all amendments thereto, all of which the holder by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name by its proper officers and to be sealed with
its seal.
Dated: MARSHALL FUNDS, INC.
Corporate Seal
1992
Wisconsin
/s/ Edward C. Gonzales /s/ Peter J. Germain
Chairman & Treasurer Secretary
Countersigned: FEDERATED SHAREHOLDER SERVICES
COMPANY (Pittsburgh)
Transfer Agent
By:
Authorized Signature
G02097-02 (5/97)
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written
out in full according to applicable laws or regulations; TEN COM - as
tenants in common UNIF GIFT MIN ACT-...Custodian... TEN ENT - as
tenants by the entireties (Cust) (Minors) JT TEN - as joint tenants
with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common (State)
Additional abbreviations may also be used though not in the
above list.
The Company will furnish to any stockholder, on request and without
charge, a full statement of designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of
redemption of the stock of each class which the corporation is
authorized to issue.
FOR VALUE RECEIVED ____________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Please insert social security or other
identifying number of assignee
- --------------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
______________________________________________________________________ shares
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------
- -----------------------------------------------------------------------------
to transfer the said shares on the books of the within named Company
with full power of substitution in the premises.
Dated______________________
NOTICE:____
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.
<PAGE>
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
PAGE ONE
A. The Certificate is outlined by an (COLOR) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the page.
PAGE TWO
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
<PAGE>
MARSHALL FUNDS, INC.
MARSHALL SMALL-CAP GROWTH FUND
Number Shares
- ----- -----
Account No. Alpha Code See Reverse Side For
Certain Definitions
Incorporated under the Laws of the State of Wisconsin
THIS IS TO CERTIFY THAT is the owner of
CUSIP 572353829
Fully Paid and Non-Assessable Shares of Beneficial Interest of the
MARSHALL SMALL-CAP GROWTH FUND Portfolio of MARSHALL FUNDS, INC.
hereafter called the "Company", transferable on the books of the
Company by the owner in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held
subject to the provisions of the Articles of Incorporation and By-Laws
of the Company and all amendments thereto, all of which the holder by
acceptance hereof assents.
This Certificate is not valid unless countersigned by the
Transfer Agent.
IN WITNESS WHEREOF, the Company has caused this Certificate
to be signed in its name by its proper officers and to be sealed with
its seal.
Dated: MARSHALL FUNDS, INC.
Corporate Seal
1992
Wisconsin
/s/ Edward C. Gonzales /s/ John F. Donahue
Chairman & Treasurer Secretary
Countersigned: FEDERATED SHAREHOLDER SERVICES
COMPANY (Pittsburgh)
Transfer Agent
By:
Authorized Signature
G02097-04 (5/97)
<PAGE>
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written
out in full according to applicable laws or regulations; TEN COM - as
tenants in common UNIF GIFT MIN ACT-...Custodian... TEN ENT - as
tenants by the entireties (Cust) (Minors) JT TEN - as joint tenants
with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common (State)
Additional abbreviations may also be used though not in the
above list.
The Company will furnish to any stockholder, on request and without
charge, a full statement of designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions or
redemption of the stock of each class which the corporation is
authorized to issue.
FOR VALUE RECEIVED __________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
Please insert social security or other
identifying number of assignee
- --------------------------------------
- -----------------------------------------------------------------------------
(Please print or typewrite name and address, including zip code, of assignee)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
______________________________________________________________________ shares
of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------
- -----------------------------------------------------------------------------
to transfer the said shares on the books of the within named Company
with full power of substitution in the premises.
Dated______________________
NOTICE:__________
The signature to
this assignment
must correspond
with the name as
written upon the
face of the
certificate in
every particular,
without
alteration or
enlargement or
any change
whatever.
<PAGE>
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
PAGE ONE
A. The Certificate is outlined by an (COLOR) one-half inch border.
B. The number in the upper left-hand corner and the number of shares in the
upper right-hand corner are
outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is boxed.
D. The Massachusetts corporate seal appears in the bottom middle of the page.
PAGE TWO
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Amendment No. 1
to Schedule A
Argentina Australia
Austria Belgium
Brazil Canada
Chile China
Czech Republic Denmark
England Finland
France Germany
Greece Hong Kong
Hungary India
Indonesia Ireland
Israel Italy
Japan Korea
Malaysia Mexico
Morocco Netherlands
New Zealand Norway
Philippines Poland
Portugal Singapore
Slovak Republic South Africa
Spain Sweden
Switzerland Taiwan
Thailand Turkey
Venezuela
dated: July 24, 1995; Marshall Funds, Inc. Regular Board Meeting
Exhibit 8(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Amendment No. 2
to Schedule A
Argentina Australia
Austria Belgium
Brazil Canada
Chile China
Columbia 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 Singapore
Slovak Republic South Africa
Spain Sri Lanka
Sweden Switzerland
Taiwan Thailand
Turkey United Kingdom
Venezuela
dated: July 22, 1996; Marshall Funds, Inc. Regular Board Meeting
Exhibit 9(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDMENT NO. 2 TO SCHEDULE A
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT
This Amendment No. 2 to Schedule A of the Fund Accounting and
Shareholder Recordkeeping Agreement is made and entered into as of
August 1, 1994 by and between the Marshall Funds, Inc. (the
"Company"), a Wisconsin corporation, and Federated Administrative
Services, assignee of Federated Services Company ("Services"), a
Delaware business trust.
WHEREAS, the Company and Services entered into a Fund
Accounting and Shareholder Recordkeeping Agreement dated September 14,
1992 (the "Agreement"); and
WHEREAS, the Company and Services have agreed to amend the Agreement
in certain respects;
NOW THEREFORE, the parties intending to be legally bound
agree as follows:
1. Schedule A to the Agreement (as amended) is hereby amended by
adding the following:
STANDARD GLOBAL/INTERNATIONAL FUNDS
FUND ACCOUNTING
FEE SCHEDULE
ANNUAL FEES FOR PORTFOLIO RECORD KEEPING/FUND ACCOUNTING SERVICES
First $100 Million 3.5 Basis Points
$100 Million - $300 Million 2.5 Basis Points
$300 Million - $500 Million 1.5 Basis Points
Over $500 Million 1.0 Basis Points
Fund Minimum $48,000
Additional Class of Shares $12,000
(Plus pricing charges and other out-of-pocket expenses)
<PAGE>
WITNESS of the due execution hereof this November 1, 1996.
Attest: MARSHALL FUNDS, INC.
/S/ PETER J. GERMAIN By:/S/ JOSEPH S. MACHI
Secretary Vice President
Attest: FEDERATED ADMINISTRATIVE SERVICES
(assignee of Federated Services Company)
/S/ THOMAS J. WARD By:/S/ DOUGLAS L. HEIN
Secretary Senior Vice President
Exhibit 9(v) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
ANNEX 1
TO AMENDMENT NO. 2 TO
SCHEDULE C
FUND ACCOUNTING AND SHAREHOLDER RECORDKEEPING AGREEMENT
MARSHALL FUNDS, INC.
INTERNET SHAREHOLDER TRADING
PRICING SCHEDULE
1. ONE TIME CHARGES:
O Set Up Charge: $5,000
o Basic Package Charge: $10,000
2. TRANSACTION CHARGES:
o Inquiry: $0.10/per
o All other Transactions: $1.00/per
3. MINIMUM CHARGE:
o $2,000 per month
WITNESS the due execution hereof this 28th day of April, 1997.
Attest: MARSHALL FUNDS, INC.
/S/ PETER J. GERMAIN By: /S/ JOSEPH A. MACHI
Secretary Vice President
<PAGE>
Attest: FEDERATED SHAREHOLDER SERVICES COMPANY
(formerly Federated Services Company)
/S/ THOMAS J. WARD By:/S/ THOMAS P. SCHMITT
Secretary Vice President
Exhibit 9(viii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AMENDMENT NO. 2
ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
MARSHALL FUNDS, INC.
AND
FEDERATED ADMINISTRATIVE SERVICES
This Amendment No. 2 to Administrative Services Agreement is
made and entered into as of January 27, 1997 by and between Marshall
Funds, Inc., a Wisconsin corporation (the "Corporation") and Federated
Administrative Services, a Delaware business trust ("FAS").
WHEREAS, the Corporation and FAS entered into an
Administrative Services Agreement dated October 1, 1992, and was
amended by Amendment No. 1 on September 1, 1996 (as amended, referred
to herein as the "Agreement");
WHEREAS, the Corporation and FAS desire to amend the Agreement in
certain respects;
NOW THEREFORE, the parties intending to be legally bound
agree as follows:
1. Paragraph 4 of the Agreement is amended by deleting the paragraph
immediately following the administrative fee table, and replacing it with the
following:
Notwithstanding the foregoing table, with respect to
the Administrative Services provided to any portfolio
declared effective by the Securities and Exchange Commission
after August 1, 1996 ("New Portfolio"), the Corporation
hereby agrees to pay, and FAS hereby agrees to accept as full
compensation for its services rendered to any New Portfolio,
an administrative fee equal to .12 of 1% of each such New
Portfolio's average daily net assets, payable daily.
2. Paragraph 6(a) of the Agreement are amended by deleting the
paragraphs in their entirety and inserting in lieu thereof the following:
6. DURATION AND TERMINATION.
(a) This Agreement shall be effective on the date
hereof and shall continue through December 31, 1999.
3. The Corporation and FAS hereby ratify and confirm all the terms,
conditions and provisions of the Administrative Services Agreement, as
herein amended, as remaining in full force and effect.
<PAGE>
WITNESS the above due execution hereof as of the day and year
first written above.
MARSHALL FUNDS, INC. FEDERATED ADMINSTRATIVE SERVICES
By: /S/ JOSEPH S. MACHI By: /S/ PETER J. GERMAIN
Vice President Vice President
